America, Get a Grip
Last night on the NBC Nightly News, one of the lead stories was of a homeless encampment in Sacramento, California--complete with archival images of depression era shantytowns. This morning the stock market is up 300 points and GE, which some pundits claimed was roadkill last week, is up 16% in one day. A year ago, I could have guided an enterprising reporter to numerous homeless encampments around LA, but they were too busy chasing Paris Hilton going commando.
I teach at USC's Anneberg School for Communication, so I am well acquainted with the "if it bleeds it leads" impulses of the media, but why don't we all just take a breath here. America, you are getting played. So much of the information coursing through our fire hose of a media system is coming from people with an agenda. Nouriel Roubini is making a fortune telling people we are going into the Second Great Depression. The hedge funds that encouraged every institution to lever up are now profiting by shorting the very banks that were their enablers. Rush Limbaugh and the Wall Street Journal editorial board are creating a "self-fulfilling prophecy" by saying that investors are voting against President Obama's recovery plans by selling their stocks. And don't get me started on the idiots like Jim Cramer and Larry Kudlow on CNBC.
The world is in the process of a massive restructuring in which the two claims on corporate assets--debt and equity--are going to be swapped on a level not seen since the 1930's. The Vikram Pandit memo that sparked the rally this morning cites just such a swap of preferred (debt) for common (equity) as the source of their new capital strength. This is the same process that will have to take place at GM and Chrysler. At the present moment, it does not appear that the debt holders in these two companies are willing to do this except under the gun of a bankruptcy. If that's what it takes, so be it. This is not rocket science.
The process of creative destruction is brutal. In three years there will be fewer malls and car dealerships, but there will be more solar energy installation companies and some of the malls might become community retraining centers for the jobs of the 21st Century. The collective massive impatience of both the media and the twittering public for instant solutions is both childish and self destructive.
America, get a grip.
Um, Jon??
Might today be - just possibly - a 'buying opportunity' triggered by 2 weeks of nearly constant downward stock price movement?
Just asking.......
March 10, 2009 1:11 PM | Reply | Permalink
Or short-fused, hair-trigger shorts panicking?
March 10, 2009 1:53 PM | Reply | Permalink
Seventy per cent of yesterday's volume was short covering. Art Cashin (3/11/2009; 8:49 EDT)
March 11, 2009 8:57 AM | Reply | Permalink
I love your optimism. If the Dow goes down to 4,000 we should just chill and realize the tens of millions who watched their entire savings disappear will all be able to get full-time jobs installing solar panels.
Maybe 1 installer for every 10 people. That should keep the destitute busy for a couple months, which should provide a great sense of security and contentment.
All this energy wasted wondering who destroyed our country,
http://www.dailykos.com/storyonly/2009/3/5/16720/74815/703/705113
when we could be thinking about the tens of millions of solar jobs just around the corner, all of which can be funded with the few billion designated for this effort in the stimulus.
Do you teach mathematics on the side?
March 10, 2009 1:22 PM | Reply | Permalink
I definitely second your motion and find it distressing that so many dems are getting sucked into the rep rhetoric, apparently clueless that its sole purpose is to destroy Obama.
March 10, 2009 1:22 PM | Reply | Permalink
Where is your evidence that Roubini is making a fortune? Got a link buddy?
March 10, 2009 1:57 PM | Reply | Permalink
Thanks for picking up on this "market hates Obama" meme that we absolutely must combat.
Still can't blame the hedge funds for shorting badly run banks, though. And what's with the anti Roubini stuff? I think he's he's trying to help.
March 10, 2009 1:59 PM | Reply | Permalink
Naked short selling is illegitimate and illegal:
http://antisocialmedia.net/lecture1/player.html
March 10, 2009 2:11 PM | Reply | Permalink
There's a rumor that shorting will only be allowed on upticks. Let's hope.
March 10, 2009 2:42 PM | Reply | Permalink
And who will enforce this rumor?
March 10, 2009 4:09 PM | Reply | Permalink
The problem is that with decimalization upticks don't matter. A short seller can always find an uptick while a stock is in decline. It mattered when shares were price fractionally but that era is long gone.
March 10, 2009 5:13 PM | Reply | Permalink
Right. But naked shorting ain't shorting.
March 10, 2009 3:00 PM | Reply | Permalink
Hey destor you are often defending short selling so I would be curious to know your thoughts on my recent post Why is Jim Cramer not in Jail
Obviously I have my views, but I concede the idea that shorting can be theoretically positive. I just don't see how to separate that theory from the actions Cramer did, and hedge funds do (which are criminal and because of their ability to use cash to create false impressions completely unbound by any underlying economic realities).
I mean you don't get 24% returns for decades playing by the rules. Its statistically impossible.
March 11, 2009 1:50 AM | Reply | Permalink
Oh Lord, the end is nigh. If you believe Pandit, you deserve the financial beating that is likely to follow. Meanwhile the preferred for equity swap is just another Government handout.
As for who is zoomin' who, thank goodness for free speech. Even for financially illiterate.
March 10, 2009 6:17 PM | Reply | Permalink
I kinda do believe him.
You're a bank and get billions of dollars from the gubmint at no cost, you should be able to make a profit.
March 10, 2009 9:53 PM | Reply | Permalink
Oh, he can make a profit. So long as you don't count their writedowns.
March 10, 2009 11:14 PM | Reply | Permalink
We do need to keep our eyes closed when we go by a homeless encampment, pretend they aren't there when we see a group of the homeless camped out under a highway overpass, and ignore the long lines at today's version of soup kitchens. If we don't block all of that from our view we might someday think that the economy is in trouble. And, that is just propaganda aimed at bringing down Obama.
So, let's all submit stock buy orders tomorrow, buy a few credit default swaps, invest in some mortgage backed securities, and buy our neighbor's house for enough to pay off his mortgage. What? Me worry?
March 10, 2009 9:28 PM | Reply | Permalink
If, some day, Nouriel Roubini gets it WRONG 18 months before anyone else knows the biggest threat to the global economic health is approaching, then we should all pay attention to the economic and policy advice of journalism professors.
.
If you disagree, then this is a rare buying opportunity, the markets have over-shot, P/Es are beautiful and the sky’s the limit.
Personally, I don’t double down when the cards say fold.
= = = = =
1. Naked short selling is just as illegal as naked long buying.
2. There is nothing inherently good about stock prices going up, and nothing inherently bad about recognizing that they are over-priced.
3. Every single trade, buying and selling or going short or long, has a counterparty. It makes no sense at all to eliminate one class of players simply because they sell with others want to buy.
March 10, 2009 10:07 PM | Reply | Permalink
Roubini made a good call two years ago. But that doesn't mean his every pronouncement since then has any more predictive value than anyone else's. The idea that he possesses some superior insight or that he is some kind of disinterested commentator is silly. He's just talking his book. That's what they all do.
March 11, 2009 10:42 PM | Reply | Permalink
Choose your investment is very complicated thus it is wise to check beforehand, as there are some stocks that don't make for as good an investment as you might think. The Forbes list of those exact investments has come out, and the list isn't exactly a shocker. AIG, Citigroup, Fannie Mae, Freddie Mac, and GM are the stocks losing money at a frantic pace, and among them, GM is flirting with bankruptcy. This isn't a shocker, as every one of these mega firms is currently great troubled, and went crying to the government about how they lost all their money. Every firm on the list had to get a personal loan from the taxpayers. It's a subject of great speculation if we'll get a return on our investment.
April 30, 2009 8:56 PM | Reply | Permalink