The Market Has Spoken, and It's Not Impressed

The stock market reacts to last night's speech:

U.S. stocks tumbled, sending the Standard & Poor's 500 Index to the longest stretch of losses since January

The news media is blaming the drop on economic data such as the news about rising jobless claims that was released today, or are unsure what caused it, but in good old Republican spirit, we know the market dropped for one reason, and one reason only, it doesn't like Sarah Palin and John McCain's economic plans. The increased chance they might win after last night's speech sent the market into a tailspin.

This has been another issue of "What Would They Say If It Was a Democrat?"

[Update: In response to comments, please note: I AM NOT SERIOUS!!! The point is about saying one thing when it's Democrats, another when it's one of their own - e.g. it is quite common for them to say that a drop in the market was in response to some Democratic proposal and I was poking fun at that (I thought that was commonly known, my mistake). But the serious part of the what would they say question, for me anyway, is that I really don't understand why Republicans get away with so much hypocrisy. Democrats get nailed for technical flip-flops, but the blatant hypocrisy from the other side is ignored? I don't get that.]

Comments

[dd]

Any investor with a brain understands that two loose cannons with no understanding of economics or financial markets present a clear and present danger. Wealthy Republicans are very upset as there is no predicting what these two will do about the current credit crisis. Palin might just suggest everyone shoot and dress a moose to make it through the "bad" times.

[anne]

Clever.

[Ronald Rutherford]

Dr Thoma, Well still working my way through your videos of Econ 421.

But today, like most economists that have blogs (like Angry Bear), get their politics and economics mixed up.

First the random walk of the market is hardly a guide to tell us that: "...we know the market dropped for one reason, and one reason only, it doesn't like Sarah Palin and John McCain's economic plans."It would be prudent to note that most of Wall Street has actually been supporting the Democrats party with more money. So I do not see them as suddenly fearing that Obama might win since he actually has been knighted already by the press.

If anything this tells me (in my completely unscientific way) that this actually creates uncertainty in the markets. Even bad news is ok as long as it is expected. Here if this did revive McCain's chances then like so many in the blogoshere, the Dems are scarred shitless. And as a result the bets for Obama winning does not look so certain. The markets for the most part would not like a close race and that is what might happen. Think recounts, supreme court decisions, and general distractions...

I have no idea what "they" would have said if it was a Democrat, but what would you have said would be more enlightening to me.

[Cas127]

[I've had a ton of spam today, about 100 times the usual, and I hit the wrong button on this comment as I was deleting things - this is my best attempt to reconstruct it - MT]

This is the dumbest post in the history of the site. If it was an attempt at irony, it failed badly, and you need to post a link to what you are being ironic about.

[RW]

"...post a link to what you are being ironic about..."

It seems doubtful that even a link could help anyone unaware of either the reference or the intended irony.

OTOH IOKIYAAR

[anne]

Mark Thoma, really, really clever.

[Ronald Rutherford]

Dr. Thoma, hahaha, still clever.
I think it must be selective bias as I do not see what hypocrisy you are talking about.
Did the market react to Hillary losing? Or Obama's speech? Or even the news of Biden? Then why Sarah Palin?

Now if you are talking about lifting the ban on oil drilling or some other acts of Congress, then yes that can affect the market as a tangible act that may affect supplies in the future.

[esb]

Sorry, but the action today reflects worries regarding tomorrow's employment data and a series of rumors regarding Cerberus and an (unnamed) hedge fund that supposedly just imploded.

My guess is that the implosion of the Bernanke "crude and food" bubble has done more damage to the leveraged hedge fund community in a shorter period of time than any other single event in history. We will know no later than end October.

What amuses me is that BB got less than a year out of this one and that it did more harm than good from day one.

[esb]

An examination of the one year chart of UNG is instructive in this regard.

[Richard H. Serlinr]

They attack Obama because his spouse said, "for the first time in my adult lifetime, I am really proud of my country. And not just because Barack has done well, but because I think people are hungry for change." She later clarified adding, "of course" she was proud of her country. (http://blogs.usatoday.com/onpolitics/2008/09/obama-aide-pali.html)

Well Sarah Palin's spouse was a member of a political party whose "primary goal is merely a vote on secession, something that Party advocates say Alaskans were denied during the founding of the state." (at the Alaska Independence Party website: http://www.akip.org/introduction.html), and "The call for this vote is in furtherance of the dream of the Alaskan Independence Party's founding father, Joe Vogler, which was for Alaskans to achieve independence..." (http://www.akip.org/).

The Republican machine would be going crazy with charges that he's not just unpatriotic, but a traitor, if this were a Democrat.

[spencer]

IT IS CLEAR THAT MOST OF THE PEOPLE REACTING HERE NEVER WATCH CNBC.

[LJM]

They have an economic plan besides keeping W's tax cuts for the rich in place forever and "drill baby drill?" They really are the grand oil party.

[dd]

It is too clever by half as the irony is the hidden truth. It is what Republicans would say; but indeed market participants do understand the real dangers here. The Bill Gross tantrum was breathtaking. Imagine the wealthy pondering their choices: continued lower taxes or imploding super-leveraged hedge funds, a corporate bond meltdown, an equities nightmare, a failing mortgage market and stalled credit markets. The odds that "maverick" McCain would endorse a bailout dropped with his choice of "moose" Palin.
esb I'd argue that BB was giving them a nice length of rope. The derivatives and hedge fund community have had ample warning. Banking will be saved; shadow banking not so much.

[mo]

If you don't know what Dr. Thoma is referring to ...

check this out.

http://corner.nationalreview.com/post/?q=NzQxNWU2YWVlZjg4NjI5MTAyMDZhOWI4NDMzNDNiOGQ=

[John]

> Democrats get nailed for technical flip-flops, but the
> blatant hypocrisy from the other side is ignored? I don't
> get that.

How about this? Summer of 2001, right in the middle of the media feeding frenzy about Representative Gary Condit and a you female Chandra Levy, the dead body of young female aide Lori Klausutis was found in Representitive Joe Scarborough's Florida office.

The result? Outside of the local Northwest Florida media, a virtually complete news blackout was imposed nationwide somehow or other.

[hari]

Mark - There is no reason to distract from your good and clever conclusion: The market is disappointed and disapproves of GOP platform and its proceedings, so far.

You can't imagine serious (print) press in Lon/Paris/Frak/Berlin have all singled-out VPs speech as something serious to consider during this election period.
What does that tell about the intelligence of the ghost speech writers>they're milking the cow!

[Gerard MacDonell]

Well, they said the Clinton boom was an 8-year lag on Reagan's policies, so the premise behind the intended irony seems sound to me. I don't think it is really fair to say that journalists have a conservative bias, though. I think mostly their biases are: laziness, herding instinct, incompetence and a tendency to confuse cynicism for sophistication. I generalize, but this is a social science web site not a psychiatry clinic.

[piglet]

Thanks for the link mo!

And Mark, please don't do this again (I mean the update). What should a casual observer think of the audience of a blog whose author has to explain that his irony wasn't serious...?

[im1dc]

Re the market yesterday and today from The Big Picture Blog by Barry Ritholtz:

BR: In an interview with Bloomberg, Gross all but pleaded for a Federal bailout of Fannie/Freddie (U.S. Must Buy Assets to Prevent `Tsunami,' Gross Says):

"The U.S. government needs to start using more of its money to support markets to stem a burgeoning "financial tsunami,'' according to Bill Gross, manager of the world's biggest bond fund.

"Banks, securities firms and hedge funds are dumping assets, driving down prices of bonds, real estate, stocks and commodities, Gross, co-chief investment officer of Newport Beach, California-based Pacific Investment Management Co., said in commentary posted on the firm's Web site today.

"Unchecked, it can turn a campfire into a forest fire, a mild asset bear market into a destructive financial tsunami,'' Gross said. "If we are to prevent a continuing asset and debt liquidation of near historic proportions, we will require policies that open up the balance sheet of the U.S. Treasury.''

"The government needs to replace private investors who either don't have the money to buy new assets or have been burned by losses, Gross said. Pimco, sovereign wealth funds and central banks are reluctant to fund financial firms after losses on investments they made to support the companies, Gross said. The world's biggest banks and brokers have raised $364.4 billion in new capital after more than $500 billion in writedowns and credit losses since the beginning of last year.

BR: OK, I'm game for a Federal bailout -- but what's a fair haircut for Stock holders? Preferred holders? Bondholders? In exchange for the US putting the 5 trillion dollars worth of exposure back on the US books, I propose haircuts of 100%, 25% and 10% respectively.

BR: Perhaps there is no natural exit, and they are fearful of holding this to term, as some of the marks will be quite negative between now and when the paper is due.

BR: Their solution? You and me and that guy behind the tree !

BR: The rescue of Frannie PIMCO is proposing risks hyper inflation, as the government would be on the hook for another 5-6 trillion in liabilities, of which less than 10% are likely to default...
==============================================================

Call your Senators and Congressmen/women and tell them "NO MORE BAILOUTS!"

[Holly W.]

LOL!

But you mean there isn't already a blog called What Would They Say If It Was a Democrat?