Why aren’t markets tanking?
I’m seriously asking. Why isn’t the DJIA in the toilet right now? I’ve always heard that markets value stability and predictably above all. That bit of CW seems to have gone by the wayside. What the fuck are investors thinking?
Isn’t irrational exuberance always the sign of a market about to tank?
As soon as the suckers come in, the smart money will get out.
I’ve been wondering the same thing.. bit of advice.. if you own individual stocks, put in stop limit orders that sell automatically when it does crash.
Conventional economic wisdom says this is exactly what happens when the investing class has lots of money to invest and few places to invest it: Too many people chasing too few stocks (or real estate, or wherever the perceived best returns are found) causes the market to inflate even if other forces are acting in the opposite direction.
I am writing this under my second hat, as Director of Investments at Mallard Financial Partners.
Markets do value stability. This Administration has not been successful in making big legislative changes, and no change = stability. There are no clear signs that this (lack of) track record is in danger of changing, hence more no change = more stability.
There are changes that the Administration has been successful in making, this has to do with executive orders and position filling. Here, many of the positions are filled with pro-business, anti-regulation types. Wall Street views this as most likely to produce profits in the short-term, and hence positively.
Finally, a country’s economy is a bit like an aircraft carrier, not something that changes on a dime. Furthermore, it is not all that dependent upon a President, a Congress, etc. There are many, many factors involved, many of them beyond our borders.
Funny, you forgot to mention the tax cuts. You think people want to sell now when a big corporate rate cut might happen soon? That’s not a love of stability, yet somehow the market won’t turn down over it.
Alby,
my personal view is that the tax cut proposal doesn’t pass.
if it does, it will likely have a short-term boost to corporate profits (due to fallen corporate tax rates), hence viewed positively by markets. (the long term is a very different story)
if it doesn’t pass, it is no change=stability.
Paul
@Paul: But if it does pass, this will turn out to have been the wrong time to sell.
As for the long term, does this administration or Congress have any policies that are not recessionary? I can’t think of any.
All of the smart people told us, before the election, that a Clinton victory had already been factored into stock prices, and that the market would stay stable, while if the impossible happened, and Donald Trump won, we could expect stocks to lose roughly 10-12% of their value. Late election day evening, when it became apparent that Mr Trump was going to win, Dow futures dropped 750 points.
I see the same thing every month, when The Wall Street Journal and others survey economists to tell us what the monthly unemployment numbers are going to be, and they could get closer using an Ouija Board; the consensus is frequently wrong, by a significant amount, getting wrong what has already happened; why should we trust them to tell us what will happen perhaps years down the road?
I learned a long time ago: investors are not the way they describe themselves, but easily swayed to take economic decisions based on non-economic, political reasons.
My favorite recent example? Investors have pushed the market value of Tesla above that of both Ford and General Motors. Ford and GM are both making money and paying dividends, while Tesla pays no dividends and is losing money, year after year. By any sensible economic calculation, Tesla should never be valued where it is. Instead, you have speculators wanting to jump on the bandwagon, to catch the next Amazon early.
Are you guys kidding. From a small business owner for 28 years, hearing President Obama say for years and years that if you have a business you didn’t build that is basically treason committed by the President of the United States. Being in business can be very risky, most small business fail. And now finally after 8 years of a fascist/socialist in office we now have a true Capitalist in office, business have a much better chance of succeeding, (by an order of magnitude). Which means a 10 times better chance of hiring more workers and lifting people out of poverty. That is the main reason the stock market is rising. If you have never been in business you just cannot understand this, no matter how many college economics courses you took!
….He says as he stocks his freeze dried beef next to his tactical go bag.
Mr Dils confirms what I wrote:
That is a judgement made on politics, not economics. But recessions come and recessions go, under Democrats and Republicans, with tax cuts or tax increases, because while the government is powerful enough to foul up things, it doesn’t really control the economy.
If the government really did control the economy, we’d never have a recession, because recessions are always bad for the people running the government.
Since the Depression, the longest run we’ve had between recessions has been ten years, March 1991 to March 2001; the median time is only 4 years and 2 months. The last recession ended (technically) at the end of June, 2009, so if that ten year maximum is matched, the next recession would be due in July of 2019, with 1½ years left in President Trump’s first term. If we look at the time periods between the last three recessions, we’ll see an average of 8 years between them . . . and that average would give us a recession starting next year.
President Trump’s policies may be much more business-friendly, but businesses succeed, or fail, not based on government policies but on whether they are producing, at a price people can and will pay, a product which is in demand. When times are good, businessmen get optimistic, and some take decisions on expanding productive capacity which turn out not to match what the market actually does; they have excess capacity, and have to slow production, laying off workers and having problems paying their debts. That has very little to do whether the President is business friendly.
@RD “…we now have a true Capitalist in office,…”
Really? All I see is a scoundrel promoting corporate pork and the worst sort of corporate rent seeking (e.g. gutting environmental laws for small profits).
Name just one policy proposal that he’s enacted that actually helps SMALL businesses.
In case you haven’t noticed: Jobs are down… they’re not increasing like they always were under Obama.
Mr Elite wrote:
This is not correct: there were job declines under President Obama, the last time being in September of 2010, five quarters after recession officially ended. The September 2017 job loss was due to hurricanes Harvey and Irma, and is expected to be a one-time event.
Just remember, as you read this thread, that economists like to pretend they’re practicing a “science.”
@D “The September 2017 job loss was due to hurricanes Harvey and Irma,…”
You do realize that FEMA spending creates jobs… Right?
So… What’s going to be the excuse next month when job losses continue?
Benghazi !
Mr Elite wrote:
It does, but you might consider that it doesn’t create as many jobs as those lost in the impacted areas. More, the data are gathered during the first part of the month, to give the Bureau of Labor Statistics time to put them together, to issue the employment statistics numbers. A job lost to Hurricane Irma, when she struck on September 8th, would count as a lost job, but a job created by FEMA in response to Irma’s damage, on September 20th, would not.
There may be continued job losses, as businesses damaged in the hurricanes simply close. Then again, there may be job gains elsewhere which more than make up for the losses. For September, The Wall Street Journal reported that economists expected the September numbers would drop to only 75,000 jobs created, due to the hurricanes; they got it wrong, with 33,000 jobs lost instead. I don’t predict those things myself.
Who knows? None of the professionals are predicting a recession starting anytime soon. Then again, the 2007 recession caught them by surprise as well.
Wall Street Journal story, from Thursday, gives a 15.85% probability of a recession starting within twelve months. That’s down from before the election, when the survey indicated a 20.24% probability in October of 2016.
@D “gives a 15.85% probability of a recession starting within twelve months.”
I believe that they are referring to a bear market (i.e. a decline in stock prices).
We are headed into a situation where the stocks may continue to rise as US jobs are being sent overseas. Job losses can be significant, and despite all of Trump’s pro-work rhetoric, he’s done nothing but promote more job loss here in the US.
Guess how many jobs will be shed by his cutting funds for the ACA?
The DJIA has been independent of the economy for decades.
Mr Elite wrote:
The article states, specifically:
The article was about how economists saw the proposed Republican tax bill, as to whether it would spur GDP growth. In general, the surveyed economists predicted a short term growth spurt, but a lesser long-term effect, the majority projecting less than 0.5% additional growth over the long term. Of course, when our annual growth rates have been two percent or less, an additional 0.5% would certainly be welcome. 85% said that the additional growth would not produce enough growth to avoid the increase in the deficit.
Of course, when you survey 59 economists, you’re likely to get 67 different answers.
And if many of those economists believe in conservative economics instead of the kind that works, their answers will be wildly wrong. Just as they were in predicting the Bush boom that never happened, because there’s no real evidence that tax cuts for the rich spur the economy at all.
See, it’s not a science, and has no valid way of distinguishing causation from correlation, which is how you get a numb-nutted idea like “supply-side” economics in the first place.
If we cared what the WSJ said in the first place, we’d subscribe, though of course we wouldn’t be able to write it off as a “business expense.”
alby wrote:
You should care what The Wall Street Journal reports, because the paper looks into those things which concern us most, how Americans can and do live their lives. Politics is the boy riding the tiger; the tiger is the economy, and no matter what the boy wants, he cannot accomplish anything not supported by the tiger.
First, off, wrong pronoun there, “us.”
They actually do very little reporting on how “Americans live their lives.” They do quite a lot of reporting on the gambling den on Wall Street. Just as the NYTimes is written for a Manhattanite’s sensibilities, so is the WSJ written for the “businessman’s” sensibilities (I put the word in quotes because most of these people are stock pushers and speculators, not business people as the word was used in our youth).
And I’m not really interested in politics. I’m interested in policy, which is something quite different. In this country, politics is the art of preventing the adoption of smart policy in order to preserve profits for the privileged. Sorry if you don’t see that.
The WSJ has made a point, for very, very many years now, under two different owners, of acting as a cheerleader for Wall Street. It’s perhaps not coincidental that conservatives’ slavish devotion to doing what their money managers tell them to has brought us an economy unduly dependent on the financial sector.
All media is biased, but generally not so much politically as in service to its own interests. In the case of the WSJ, the reporting centers on business trends and the editorial board centers on propping up the load of shit Hayek spouted and Friedman spread on the walls.
If it really spent its time reporting on how people live their lives, white people wouldn’t hate Black Lives Matter.
Also, too, Rupert Murdoch. I don’t spend money on companies whose business models and/or political positions I disagree with. In the case of a rich guy with noxious politics who bought his way into citizenship, it’s a pleasure not doing business with him.