Shorting the Stimulus:
George Bittlingmayer and Tom Hazlett look at the market response and conclude that investors don't think it'll work.
Shorting the Stimulus:
George Bittlingmayer and Tom Hazlett look at the market response and conclude that investors don't think it'll work. |
In the meantime the market continues to tank and billions are being lost. It appears to me that the market is trying to tell us something. Now, I have never heard of anyone who says the market is infallible. It's ability to predict things is limited to economic outcomes and is only a consensus of the 100,000s who buy and sell every day. Those people are saying in the aggregate, "I don't believe". Right or wrong what the market is saying is VERY important to our future. The market is not only reactive, but is also determinative. So, listen up! Even if you're not in the market, it may screw you in the end. Good luck.
It appears to me that the market is trying to tell us something.
The market tries to tell you things in the same way that Aliens from Planet Zirkon try to tell you things- it doesn't. And if it does, you might want to make an appointment with a doctor that can write a prescription for an antipsychotic.
Repeat after me: all news stories (yes, there are a *very* few exceptions, so limited in number they are not wort discussing) that begin with "Today, the market reacted to X news by doing y" are complete and total BS.
Whether or not you believe in an efficient market hypothesis (strong or weak) you should remember that correlation does not imply causation. It's the simple trait that humans have- we attempt to ascribe behavior to a single data point. It is also an anthopormorphizing of the market. The "market" isn't reacting. Instead, an aggregate of individual stocks (the Dow? Nasdaq? S&P? Nikkei?) moved in some fashion- some up, some down. In other news, an event happened. Looking to fill space, Ric Romero, Ace Reporter, tells you that the event cause the overall aggregate to be down (although some individual units were up).
Great analysis, there.
That sounds more like what the national debt would be under GAAP rather than the deficit.
Nothing new under sun...
Yes I stand corrected. The deficit is a flow while the national debt is a stock.
we are just starting on it - the original TARP funds are not fully spent, there is a second round of TARP / Financial bailout, possibly Stimulus II, auto company bailout, possibly credit card debt ...
how can people be so hasty to pass judgment? have a bit of hope; things will change!
It's just an amazing coincidence that so many companies lost value simultaneously while the dems were toy with the idea of nationalizing everything and putting us another zillion dollars in debt every day.
Nailed it. (I assume you mean to mock the notion of "the market" as oracle.)
Like Chris Cooke said, the fears of nationalization and the opaque Geithner "announcement" are putting tremendous downward pressure on financial stocks, and these effects are spreading throughout the DOW and the S&P, where they're meeting with generally uninspiring news in terms of consumer numbers, earnings reports, and jobs. Much of the reaction is frankly hysterics. Today numbers plummeted for oil pipeline companies upon apparent fears that a federal receivership of the big banks would nullify the oil companies' hedging agreements with airlines. Then the numbers recovered when the White House contracted Dodd. The kicker: I didn't see any specific knowledge as to why the hedging contracts would be nullified under government receivership. Just speculation. As in, the market is telling us people are frightened.
It's undeniably true that the market didn't go up after the stimulus passed. But this is a market with very low volume and high volatility, with traders operating in an environment that warns against long term "buy and hold" investment. IOW, I don't think the volatility-driving forces care about a six or 18-month recovery plan right now. Not when immediate payouts turn on questions like bank nationalization or the suspension of mark-to-market accounting.
In brief, I really don't think the market environment gives traders the luxury of taking the comfortable long view at the moment. They don't care about fiscal policy; they care about monetary policy and directives from Commerce. I think if a trillion dollar tax cut without government spending were pursued but BoA and Citi still maybe faced federal receivership, we can't say the market would have responded differently. And the market, right now, is all about short term gains. Index trading funds will force major moves in the last 30 minutes of trading; the gains from one day and immediately sold off, reinvested, and sold off again.
The long term investor is increasingly on the sidelines. And fiscal stimulus is a long term measure.
Yes, the market does react to monetary policy, which needless to say is probably not the best right now in regards to long run economic stability (the Fed has been creating money like there is no tomorrow). But why do you think that the markets aren't going to react to what many view as flushing several trillion dollars of borrowed money down the drain, leaving future generations to pay it off?
I find it interesting though that you seem to think that there are no such things as market fundamentals. That the stock market, etc. do not reflect an estimate of future earnings.
Let me suggest an alternative, that the markets are, and have been, reacting to their estimate of how well they think corporations are going to do, the dividends they are going to pay, and how much of that stockholders are going to end up keeping in their pockets, under an Obama Administration and heavily Democratic Congress.
These markets started to drop like a rock almost exactly when Obama took the lead over McCain after the Republican Convention, and as the reality of the Democrats in power this time has sunk in, and as those same Democrats have screwed up the economy worse and worse, these markets have continued to drop. (Also note that the constant fear mongering from Obama and his Administration over the economy has not helped these markets either).
Right now, I think that you can take two different views of the huge drops in the markets over the last 5 or so months as indications that:
- a lot of very shrewd money people believe that the Obama Administration and the strong Democratic majority in Congress are going to continue to hurt companies and earnings, and the amount of money that those investing in them will end up in their pockets, or
- it is all just a bunch of unfortunately coincidences, and technical corrections, having little to do with the expectation of how well the Administration and the Democrats in Congress are going to do managing the economy, taxes, etc.
My view is that the later is wishful thinking economics, and that Santelli and all those traders agreeing with him know more about the reality of situation than do the Obama Administration and Democrats in Congress.
We shall see.
We have the stimulus package. Makes about the same sense as the candlemakers petition.
A nice example of that kind of hackery is here.
When the market recovers in time to help Obama win in 2012, the GOP will be telling us that Obama is responsible for market behavior only when it's going down, and not when it's going up.
Oh, goodness gracious. Talk about your conflating cause and effect. I suppose it's impossible that Obama took the lead because of the screaming headlines about the stock markets' huge dropoffs (for which there was a better proximate cause--the collapse of Lehman Bros. heralding broader instability in the financial system than anything had before), which voters trusted him to deal with more than they trusted McCain?
Honestly, this is silly. Just stop. The market isn't an oracle. The point I made up-thread is that it has a remarkably poor track record at correctly predicting things over the past couple years, at the least. If the market thinks the stimulus will fail, why should we listen? If the stimulus produces the desired improvements in the real economy and stabilizes employment, the stock markets will react positively to that, I can assure you.
If Obama announced that he was going to give a half-trillion dollars to the banks, gratis, bank stocks would surely go up and the rest of the stock market would follow. This is not because it would be good for the economy.
javert:
Time for more fun with numbers. During Clinton's term, the Dow more than tripled. During GWB's term, it dropped 25%.
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anon21:
But you don't understand. Obama is somehow to blame for the Lehman collapse. I can't explain why, but I'm sure someone else here can do so.
Time for more fun with numbers. During Clinton's term, the Dow more than tripled.
Time for fun with google...
By your assessment, Clinton was not socialist, but rather GOP-lite. So what does the Dow's performance during Clinton's term have to do with socialist schemes destroying wealth?
Thank you, you beat me to it. This is an example of Juke specialty of setting up strawmen and knocking them down:)
Statement: Capitalism creates wealth (unequally, of course) and socialism destroys it.
So, here comes Juke to disprove the above by an erroneous anecdote (Clinton's polices were tempered by Newt's GOP in the House, and Clinton was a centrist, not a socialist, while bush is more of a southern conservative Dem type whose compassionate conservatism didn't include fiscal discipline).
And this is the same guy who was lecturing that anecdotes don't make data when he was covering for Mo Hassan's wife beheading:)
Second, sure the markets cannot always accurately predict what's going to happen any more than any other group of people engaged in a narrow enterprise. But I think it is quite fair to say the market acts (and thus makes a 'prediction') based on what it thinks is going to happen. I think that was the point of the article. Investors are shorting the bill because they don't think it is going to work. And I don’t think the example of the subprime failure is an example of the markets making a ‘prediction’ about the long-term health of the entire financial system. Bubbles, like crap, happens.
So, while they certainly aren't infallible, they certainly suggestive of what people with skin in the game think is going to happen with their money in the future.
In connection with the above from Christopher Cooke I would point out that the DJIA dropped from around 10,000 to 8,000 in October, then hovered mostly between 8,000 and 9,000 from November to January, then hit its recent new lows last week. The flow of bad national economic news has been pretty much steady over the whole time period, while the bad bank news came in a torrent in October, then tapered off when the TARP was in place, then resumed when Geithner revealed his proposals for the continuation of the bailout. There is a rough correlation.
Now Obama wants to use the second half of the TARP money to bail out homeowners so the banks can pretend to be solvent. Seems like we're headed for another market debacle.
- The market has gone down since Obama took office
- We don't like the Obama stimulus plan
- Did we mention the market has gone down since Obama took office?
Considering how well most investors do, I wouldn't lose any sleep over this.
Logic and horse sense, however, are.
When policies, e.g., change basic ground rules for contracts after the fact, no longer hold people even minimally responsible for debt that they knew full well they could not carry, threaten creditors with forced "cram downs" that make financial agreements worthless, and reward people who engage in intentional financial misconduct, there are plenty of legitimate concerns to be voiced about those policies.
If people have no idea what the rules are from moment to moment, and, therefore, how to predict with any reasonable consistency the consequences of current action, they will, of course, distrust the policies that caused such volatile and destructive conditions.
My main point was that it's silly to over-interpret Dow numbers (which is what the opening post does). And that people who tend to do so are in the habit of focusing on certain numbers and ignoring others.
But aside from that, there's still no contradiction in my statements. "GOP Lite," by definition, is closer to socialism than GOP (if we put aside various complications like the corporate socialism of Bush's TARP). So the Dow numbers show that getting closer to socialism improves economic performance. Hell, maybe if Clinton was a real socialist, instead of just GOP Lite, he might have quadrupled the Dow, instead of just tripling it.
I agree with your main point that we shouldn't over interpret Dow numbers, but I disagree with your second point.
Clinton (with a GOP Congress) gave us NAFTA, welfare reform and balanced budgets. GWB gave us NCLB, Medicare Part D and TARP. Leaving party labels aside, Bush was more socialist than Clinton on almost any measure.
What a fantasy. The market has been dropping for a year and a half, as economic conditions have worsened and the situation has become increasingly clear. The idea that somehow the stimulus bill is the cause of recent drops is just foolish. The outlook continues to be bad, despite the stimulus. Where would the market be without the bill, or without some of the provisions that had to be put in to get it through the Senate?
I don't know, Zywicki doesn't know, and Bittlingmayer and Hazlett don't know. So can we give it a rest?
The latest housing bailout is really galling for someone like us who are waiting to buy. Good luck playing your housing ponzi game without new buyers entering the bottom rungs of the ladder. Took it from a 15k credit to 8k at the last minute, preventing foreclosures, trying to prop up prices, writing down principles? We were seriously thinking of buying in June but now we will rent for another year or two at least. I will never buy a home while others are living in their homes for free or getting principle written down because they default. I will just wait until the prices go that much lower and all that stops.
For example, if the government cut the corporate tax rate to a nearly Irish level of 15 percent, how do you imagine the market would respond? Lower taxes on profits allows companies to spend more of the money they make on hiring workers or developing new products. The untaxed money flows back out into the economy almost immediately. There's no downside to cutting taxes except that it gives the government less money to waste on stupid shit.
If the government had repealed or suspended mark-to-market, it would have prevented the banking collapse. With no need to count unrealized losses, banks could simply have held on to their uncertain assets until things got better. Lack of uncertainty in the banking industry would have reduced all the transaction costs associated with reorganizing and bailing out banks that wouldn't be in trouble but for a poorly conceived accounting rule that is less than ten years old.
If the government had announced a suspension of NEPA or a whole host of other environmental laws, that would have removed an enormous set of transaction costs from a wide range of businesses. With lower costs, the wasted productivity that goes into complying with these stupid environmental laws could have been used to hire more workers or lower prices. It blows my mind when I see all the stupid shit that requires an environmental impact report or a clean water act approval. 99 percent of this is make-work for bureacrats.
Instead, we got more transaction costs in the form of new taxes, new regulations and more government activity. All of this is more parasitic drag on the economy. More government and less productivity.
I'm hoping this will help at least a few people to get past this nonsense and give the stimulus a little time to work.
Yeah. I understand Nostradamus says the same thing. Actually, the Mayan calender even gives us a date, Dec. 21, 2012.
Of course, if that does not cheer you up over the economic prospects consider that most life on Earth seems to get wiped out every 65 million years or so and we are overdue.
Considering the economic outlook, especially every time Obama opens his mouth, this news is almost enough to make one downright cheerful.
So, Anon21, you are investing in the stock market yourself? What stocks?
Thanks for the link to Silver. He really does a very solid job on this nonsense.
It seems to me the markets do not trust him or believe in his policies. The man talks about crises, and people are supposed to remain calm?
I don not trust in Obama or have any faith in his policies. So I am voting my money out of the market until most of the damage is done.
For those capable of generalizing from the failed history of socialist economies, we don't need to wait for the nth example to play out to conclude that it won't "work" -- if by "work" you mean ensure individual freedom and encourage wealth creation.
Translated- damn all evidence, I know what's right in my gut and I can fit every so-called "fact" into my ideology. If something smells "socialist", then it just like that failed Soviet Union, and that had, like, Socialist in the name, so naming something socialist means it will be a failure. Or produce really hot models. Or something.
And regulation (and socialism) is always bad. Look at Canada! They're socialist. And they regulate their banks more heavily than we do. Which is why their banks failed and ours didn't.
Wait, they didn't? Hmm... that must be because our banks are MORE SOCIALIST! Yeah, that's the ticket.
It doesn't matter how confusing you try to make things or spin them because logic combined with history have already shown us the failures of central planned economies. A group of dudes in a room can't decide the price of things. Nor can they decide what is fair or how to allocate anything without resorting to totalitarianism. The bizarre thing is the refusal to acknowledge this since it is so obvious. You almost have to a have pathological problem with individual rights to think socialism is the way to go.
It's more a question of malignant narcissism.
You are completely correct: If history has taught us anything, it's that government bureaucrats (or any limited group of people) simply lack the comprehensive understanding of all potential financial relations necessary to centralized control of global markets. Many people, however, cannot think past their own self-indulgent meglomania to understand that foundational intellectual limitation.
On the contrary. In an ironic twist, they proclaim that they, unlike any other human beings who have attempted such social control in the past, have -- based exactly on consistent past failures -- the superior intelligence, foresight, virtue, and wisdom necessary to pull it off this time.
Further, because the problem is a deeply-rooted paychological need, there is no reasoning such people out of the damage that they are determined to do to satisfy that psychological need.
Wall Street? Yes, yes it is.
Now you tell us. Some people may have voted differently if you had spoken up in 2000 and/or 2004.
javert
Presumably you realize we are now dealing with "the failed history" of putting into power someone "more socialist than Clinton."
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dackson:
At one point in March 2001, the Dow was down 13%, compared with where it was the day Bush was elected (or maybe I should say 'elected'). And that was not in the middle of the worst financial crisis since the Great Depression. I don't recall you blaming that 13% drop on Bush. Did you?
The smart people are waiting for a few more people like you to get their selling done, and then the buying can start.
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javert:
Hmm, very interesting. Did Canada have a president who repeatedly promoted the idea of an "ownership society," and set a goal of helping "5.5 million minorities become homeowners?"
Here's what someone thought of Bush's priorities regarding housing:
But when Bush led the effort to inflate the housing bubble, it did help the economy look good for a while. Mission accomplished!
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pmorem:
I'm glad we've got pmorem around to remind us that Republicans hate democracy. An informed citizenry is a requirement of democracy, and those who promote misinformation are indeed enemies of democracy.
federal:
Do you mean the "deeply-rooted paychological need" to promote misinformation? pmorem has a ways to go before catching up with your impressive track record (lots of proof can be seen via here).
Perhaps I'm mistaken, but I don't recall Clinton running in either of those elections.
No, your posting history is a matter of record. As is your compulsive need to stalk posters you hate and post off-topic ad hominem attacks attempting to highjack threads to distract attention from the fact that your tantrums and consistent misinformation cannot address relevant issues on the merits.
I don't either, but that's beside the point. It still would have been relevant to know that "Bush was more socialist than Clinton." But for some reason you waited until 2009 to tell us.
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federal:
You've presented an impressive number of examples of me posting "misinformation:" zero. On the other hand, I've pointed to multiple examples of you posting misinformation, and then disappearing when challenged. One of several important differences between me and you is that I back my claims with proof.
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