October 6, 2008

I’ve Always Been Suspicious of Those Who ‘Know’ …..

Filed under: Economy,Taxes & Government — Tom @ 4:00 pm

….. exactly why the stock market goes up and down.

The popular assumption, that the markets believe that “the bailout isn’t enough,” isn’t flying with me.

Try this out:

  • Last week: Dow drops 700+ points after the bailout bill fails by a narrow but clearly reversible margin (i.e., it appears that passage in Round 2 is certain). All Nancy Pelosi has to do is shut her partisan piehole the second time around. Markets, contrary to the pronouncements of the punditry, are not pleased at the prospect of passage.
  • Next day: Dow comes back about 500 points because it looks like there will be more resistance to passage than originally thought, as talkers and pundits across the political spectrum let loose.
  • Forward progress generally continues until the House vote on Friday, in the belief/hope that the bailout might not make it.
  • After the House vote, markets tank because a major and basically unlimited intervention by the government (maybe necessary, maybe not) will likely drag down future profits, hold back growth, and stifle innovation. Thus, stock values, based as they are on discounted cash flows (remember?), plummet.
  • Markets continued downward today. Counting Friday afternoon, the Dow lost over 1,000 points after the bailout bill passed, before recovering about 400 points in about the final hour today. Why wouldn’t that big drop have occurred because it appears that government interventions (again, maybe necessary, maybe not) will be more widespread and more internationally based than expected? Further government intervention means further dives in discounted cash-flow valuations. That, of course, would drive stocks down further.

Someone tell me why my readings are any better or worse than the so-called “experts” who pretend to know exactly why the markets are moving as they are.

Isn’t it funny how the media is pretending that the “experts” are “somehow” all saying the same thing (more government intervention is coming, and the markets are plunging despite that, not BECAUSE of it)? I doubt very much that the “experts” all agree on this unanimously.

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7 Comments

  1. The overriding reason is the fear that B. Hussein is going to win and steer our economy off a cliff – i.e. “The Democrat Effect.” This “credit crisis” is the blip.

    Comment by Joe C. — October 6, 2008 @ 4:19 pm

  2. I thought this “bail-out” was the end-all/be-all. Why the down face…I mean market?

    (Eyeroll).

    Comment by Rose — October 6, 2008 @ 4:36 pm

  3. How about this as an explanation at the blog Political Calculations… “corporate dividends were slashed well below anticipated levels. That change is reflected in Standard & Poor’s Estimates and Earnings spreadsheet, which was updated late last Friday with the third quarter dividend per share data for the companies of the S&P 500.” Also, Mr. Blumer seems to like the NON-manufacturing ISM. Let’s look at the MANUFACTURING ISM. Down 6.4 index points in one month to stand currently at 43.5. Drops below 45 have historically been associated with recessions. Seems like there are a lot of explanations for the last few days stock performance with little or no need to depend on the “bailout” as the overriding explanation.

    Comment by boqueronman — October 6, 2008 @ 6:38 pm

  4. I believe the wild swings are more related to pre-set computer sell orders. This mindless means of predetermined sell prices become a vicious cycle dumping more stocks to be sold, depressing the prices even further which begets more pre-set computer sell orders. This is what happened during the dot com crash. Of course people seeing bargains snap up the stocks.

    Comment by dscott — October 6, 2008 @ 8:18 pm

  5. #3, Far be it from me to dispute PoliCalc (seriously). The dividends thing ties right into discounted cash flows. The passage of the bailout feeds an explanation that it will get worse, and will drive down valuations further.

    NMI is 85% of the economy, and is basically not growing or contracting. Mfg, which I did note last week, is 15% and not unimportant, and apparently not healthy (though you do have to recall that it is partially a sentiment index that usually isn’t affected by gloom/doom talk, but in this crazy situation may be). Mfg, esp consumer durables, is more immediately affected by the gamesmanship going on.

    Note that I am offering an alternative explanation to what MSM types are trumpeting. They’re not mentioning the ISM indices either. It’s all bailout all the time.

    You’re as welcome to your take as I am to mine, or a combo thereof. Point is, absent proof, ours isn’t any better or worse than theirs. Yet theirs is the one we’re supposed to swallow without question.

    Comment by TBlumer — October 6, 2008 @ 8:23 pm

  6. [...] Last week: Dow drops 700+ points after the bailout bill fails by a narrow but clearly reversible margin (ie, it appears that passage in Round 2 is certain). All Nancy Pelosi has to do is shut her partisan piehole the second time around. …[Continue Reading] [...]

    Pingback by The Buzz » Blog Archive » I’Ve Always Been Suspicious of Those Who ‘Know’ ….. — October 7, 2008 @ 2:39 am

  7. The stock market is not the beginning or the end of anything, if you decide to invest than that is what it is for, it is not supposed to be for the queer egomaniacs that are looking for a quick fix.

    The matter of mortgages is not really related to the stock market, though they seemed to have made it connected. The market was and has been delusional and inflated for some time, it is not about your 401K it is about investing in what you believe is timely and being done well. It is about being a part owner in a business that you want to own and believe in.

    It amazes me that so many think that the lower value presents opportunity in banking? Bank stocks being bought at low prices before they fall, that so tell tail of the lack of comprehension.

    The bail out is not even in motion, it is and was nothing more than a message thus far, it requires something that has not even happened yet. That being the final resolution of each part of the risk, the stability that has not even occurred yet.

    If you are looking for investments then look for what is real, and see if you can find the fakes and phonies the ass wipes cooking up the books and conjuring theoretical value. That would be Wall Street wouldn’t it?

    They need to regulate the credit bureaus and make them a litmus test for the insurance. If it is high risk it should not be insured, not by the fed not in the future. This all should be set to make money by the fed and soften the blow to financial institutions. We need an expanded central bank to cycle money back into that huge debt for now and then let it go back to private with more monitoring of the credit bureaus and the methods used. Limits based on ratios that’s all it not rocket science people.

    Comment by Oengus — October 8, 2008 @ 9:03 am

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