Doing the Numbers
I know this is motley foolish, that no matter what business journalists imply, the "market" is not some big mind, responding to events with the wisdom of crowds. But the election debates have habituated me to watching lines on graphs as leaders talk; and MSNBC carried a real time, side-screen report on the Dow as Obama responded to questions.
In the earlier, and vaguer, parts of his news conference, the Dow dropped from about plus 130 for the day to under 100. As soon as he spoke forcefully about creating new jobs, in ways Paul Krugman laid out this morning, and for all the obvious reasons, the numbers began to climb steadily, and finished above 200. Let's just say some investors--not just value investors with deep pockets like Warren Buffet, but quick traders, too--understand this economy has only one hope. And Obama was shrewd to keep it alive with, of all people, fiscal hawks like Paul Volcker standing behind him.
I know this is motley foolish . . . .
You got that right, bubbeleh!
November 7, 2008 7:58 PM | Reply | Permalink
The market moves are up and down right now. I've argued in prior posts that one of the largest causes of the overall drop in October was large pension funds, institutional investors, and 401(k)s moving into "safer" investments.
Obama may be able to help restore overall investor confidence, which will ease or reverse this movement into safer investments - but I think it will be gradual. One tipoff is a rise in the market indexes over the next few months. But what will really show a turnaround is the trading volumes. If you see sustained increases, the money is flowing back in.
November 7, 2008 9:18 PM | Reply | Permalink
Money is moving out of the market because hedge funds and other over leveraged entities are forced sellers. They are getting margin calls and need to raise cash. They are not just looking to moving into "safer" investments. There's nothing Obama can do about the margin calls.
Plus, depending what Obama says about capital gains rates, that will also cause year-end selling if people think that cap gains rates are going up next year.
November 7, 2008 9:40 PM | Reply | Permalink
Thanks for adding that one too, Bill. You're right on.
November 7, 2008 10:15 PM | Reply | Permalink
nailed it MCB. Obama can't do much to stop the forced selling of assets to meet redemptions.
Can't wait for the wave of charge-offs to hit the lenders either...
People keep talking about the 700 billion dollar bailout. They don't have a clue that the gov has already passed out 1.5 trillion and that doesn't even take into account.....oh well. The market sure the heck is not one big mind, right now it more resembles a subduction zone.
November 8, 2008 9:32 AM | Reply | Permalink
The forced-selling-margin-call is one of those "death spiral" things, because forced selling lowers the prices of the assets being sold, which causes more margin calls, which leads to more forced selling, etc. The spiral terminates when there is no one left to sell.
Some probably are doing so, but only the "dumb money" will do so, because any changes Obama proposes, and Congress subsequently makes, cannot go into effect until 2009 at the earliest, and thus are unlikely to affect even 2009 tax returns filed in 2010. (Rather, they will affect tax returns filed in 2011 for calendar year 2010.)Of course, some tax filers (e.g., most businesses) have alternative Fiscal Year filings, but even so, there's about a year left to go before any changes.
November 8, 2008 4:16 PM | Reply | Permalink