So, stocks fell only about 1.1% today - just over 128 points - which, considering the waterfalls in Asia yesterday is at least encouraging. Of course, they initially fell 450 points, but the Fed's rush to cut the federal funds rate three-quarters of a percent helped. Today.
I honestly think that having a holiday yesterday was a good thing for the stock market. Rather than get caught up in the swirl of the Asian tumble, New York managed to keep its head despite the futures predicting doom. All those sellers require buyers, after all, and even though two big banks - Wachovia and Bank of America - reported really bad earnings early this morning (I think I heard B of A reported a 95% loss over the previous year), there is a part of me that wonders if this initial bad news isn't so much the beginning of something horrible as it is getting the worst news out front. Of course, there will be further write-downs as all those defaulted mortgages and credit cards and car loans continue to come in. But, I wonder.
This is not to say that I actually know what I'm talking about; four classes in economics in college do not mean anything. Two real economists, Duncan Black and Paul Krugman, argue over the possibility of recession, its length, etc., with far more understanding of the details than I could even pretend to have. Yet, I wonder if the fears in Asia aren't overblown - if exuberance in the markets, as irrational as it may have been, hasn't been replaced with an equally irrational gloom.
First of all, the unemployment rate is still at historically low levels (5% used to be considered "full employment" until the 1990's when it dipped below that level without any serious inflation). While that number, I am sure, masks underemployment, the number of people who have given up looking, and stagnant wages, it is still something to consider.
While inflation, especially due to the steep rise in oil prices, has been a worry, the price of oil has been declining slowly but steadily as worries over the US economy have grown.
On the other hand, even with the federal funds rate cut today, banks are understandably leery of making substantial loans, or even consumer loans, such as car loans. Who can blame them? Yet, once again, how much of this is irrational gloom following a period of irrational - and poor - business decisions, lending to people with bad credit, no equity or collateral? I honestly wonder how much of what has been happening, while serious (to be sure; please don't think I am discounting the reality of the credit crunch, or the real pain of losing one's house, car, etc.) is as much psychological as it is economic? Considering the fact that the New York market kept its head relative to the very real panic in Tokyo, Shanghai, Hong Kong, and Mumbai, I have to just toss out the observation that we might be in the midst of the wild pendulum swings of the banking version of bi-polar disorder. Perhaps the Fed's action today, combined with serious economic stimulus (something other than making Bush's tax cuts permanent, that is) may be the kind of medicine needed to stave off the worst.
This was just one day. Tomorrow may make me take back everything I wrote here. I think the AA mantra is what is needed here.
