the visible hand

it is the theory which decides what can be observed – einstein

day of reckoning?

Posted by ecoshift on January 21, 2008

I don’t normally prognosticate about the stock market. It’s behavior has been so flighty. From my perspective the last 1500 points of gain leading up to the October peak was based on nothing — other than some kind of of group think spin and speculative delusion. So really, what business did I have trying to guess when — if ever — the correction to reality-based economics would occur ? Bulls were making money hand over fist while I searched in vain for the fundamentals that supported their optimism. So I’m not naming any stock targets today either.

With all that said, it does appear that tomorrow’s market will be worth watching. Asian and European markets have been taking on major declines (5% + in a single day’s trading) while we take the day off to honor Martin Luther King. Futures markets indicate the Dow could open as much as 500 points down. There is much speculation that the FED will declare an emergency rate cut prior to market opening. Perhaps that will slow things down and take the panic out of the air. We’ll see.

So I’m not predicting anything specific… Just sayin’: Could be worth watching the market tomorrow…

Stock futures pointing to sharp losses when U.S. re-opens Tuesday – MarketWatch
U.S. stock futures point to major decline on reopen
Markets in Europe end day in bear-market territory
By Steve Goldstein & Sarah Turner, MarketWatch
Last update: 3:57 p.m. EST Jan. 21, 2008

LONDON (MarketWatch) — If futures contracts traded on a day when U.S. stocks weren’t even due to open are anything near accurate, then markets will be in for a major decline on Tuesday, with concerns about bond insurers and the health of financial institutions dragging markets lower.The Dow Jones Industrial Average futures contract was recently off 520 points at 11,586, the Nasdaq futures were at 1773.25, down 76.25, and the Standard & Poor’s 500 futures recently were at 1265, down 60.3.

Futures contract don’t move in complete lockstep to the underlying indexes, but by comparison, the Dow industrials fell 382 points on Sept. 20, 2001, just days after the terrorist attack on the Twin Towers, and by 387 points on Aug. 9, 2007, shortly after the recent credit crunch first emerged.

U.S. markets were closed Monday for the Martin Luther King holiday. Trading resumes Tuesday.

The futures declines come on the back of big drops in European and Asian stock markets.

From developing markets like Shanghai — down over 5% — to established ones in Paris — down nearly 7% — financial institutions around the world sold off. See Europe markets. Canada and Latin America also took hits in trading on Monday.

Day of reckoning in the US glasshouse – Times Online
From The Times
January 21, 2008
World Economic Forum: The Davos Agenda
Jospeh Stiglitz

There is a growing consensus: America is going into a marked slowdown, if not a downright recession. There will be a large gap between potential growth – usually estimated at 3 per cent to 4 per cent – and actual growth, meaning lost output of hundreds of billions of dollars. America actually faces three separate but related problems; a credit crunch, a debt crisis and a macro-economic problem….

Even the Fed is beginning to realise that, although misguided monetary policy and inadequate financial regulation got the US into the mess, reversing course will not get it out. (In a classic case of shutting the barn door after the cows are out, regulations have now been tightened. It has admitted, in effect, that it was asleep at the wheel.)

Can fiscal policy do the trick? President Bush’s cureall for any of the nation’s ills – making the 2001 and 2003 tax cuts permanent – will drive up the deficit but not the economy. In some sense, they are at the root of the problems that have ensued. Tax rebates for lower-income Americans will have the biggest stimulant per dollar of deficit (in the jargon, the biggest bang for the buck). And it will be fast-acting.

But will the Bush Administration, so long focused on helping the rich, be willing to change course? And is it wise to encourage America on its consumption binge? What America desperately needs is more investment, in infrastructure, in research, in education. This, too, would provide a big bang for the buck. But while defence spending has soared, including billions for weapons that don’t work against enemies that don’t exist, will it be willing to countenance more government spending in these areas?

This is an election year and anything is possible. My betting is that the Administration won’t want to admit just how bad the economy is, and that even if a compromise is achieved, it will be too little too late.


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