Watching the markets and the Fed from a snowy place

I really can’t think of a better place to spend a global financial semi-meltdown than in the cozy bar/cocktail lounge of the Parkhotel Silvretta in Klosters (a sweet little resort town just down the hill from bigger, less-charming Davos). Outside it’s snowing. Inside it’s warm, and I’m sitting in a comfy chair, partaking of an excellent (if expensive) Wifi connection while the Young Global Leaders of the World Economic Forum (a group to which, thanks to some kinda big-time clerical error a couple of years back, I belong) learn about competitive strategy in a changing world in the next room.

Oh wow, now a waiter just stopped by to ask if I want anything to drink! A mineral water, please.

There’s a Wall Street guy a couple chairs away from me, also skipping out on the meeting for obvious reasons, e-mailing and yakking away on the phone. He seems to be keeping pretty calm, though. Oh, and a Canadian politician just walked by and said he told his broker to sell all his stocks last week (the guy raised his cash position, but couldn’t bring himself to sell out).

I’d feel silly relating such trivialities, except that coverage of stock market craziness like today’s and yesterday’s is always an assemblage of trivialities. It seems pretty obvious that the market drop of the past couple of days has something to do with fears of a deep U.S. recession and fears that ever more sectors of the global debt market will follow the steep downward path blazed by subprime mortgages. Beyond that, who knows?

And it seems to me that the Fed’s 75 basis point rate cut today will steady things a bit but won’t end the debt problems or the talk of recession. Beyond that, who knows?

As I’ve written before, consumer indebtedness in the U.S. has been rising since the early 1980s. Then, starting in about 2001, it absolutely exploded. In fact, let’s replay that chart (I put it together in November):

Now we’re dealing with the unraveling of that. It’s going to continue for a while, and at times it will be ugly. And it’s really not the Fed’s job to stop it. It’s the Fed’s job to try to keep the financial system from freezing up along the way.

Apple CEO Cook Gives Up $75M in Stock Dividends

NEW YORK — Apple CEO Tim Cook is giving up $75 million in dividends on restricted stock that the company is awarding to all of its employees.

In a filing with the Securities and Exchange Commission on Thursday, Apple Inc. said that Cook requested that his restricted stock units not receive dividends. The dividends that Apple workers are getting amount to $2.65 per quarter for each restricted stock unit held. The shares are not normally eligible to receive dividends, so Apple’s decision is a perk for its employees.

mediasux

does anyone else get a sense of desperation from Bernecke’s move?

To me, the smarter move would have been to act as if a mild recession was coming, and that it would be accompanied by a significant “market correction” — basically say that there is a stock market bubble, and that the housing bubble burst has resulted in the bursting of the stock market bubble… and that it would be foolish at this point to lower rates solely to reinflate that bubble.

(And does anyone else suspect that there has been something akin to market manipulation by foreign investors….that the big selloff in asian markets was done with the knowledge that such a sell-off would lead to a huge drop in the Dow–and an opportunity to pick up “bargains” with all the cash these investors had thanks to their sell-off of asian stocks?)
bacalove

Yesterday, at debate Barack Obama accurately predicted that the stock market may have a problem tomorrow due to some other country’s stock market having low numbers and Wolf shot back, no one knows what will happen on the Stock Market tomorrow. Well, apparently, Obama DID and was able to have the foresight to connect the dots!
marcus

Justin: I was wondering if you had any observations about your own profession and their ability (or inability) to provide quality analysis of this kind of “market meltdown”? Do these events sort the men and women from the boys in terms of financial journalists, analysts and commentators?

Watching the primary season from the other end of the world, my main observation is that the political commentary pack’s ability to predict and analyse should come with the qualifier that it does not apply to actual real world conditions in actual contested races. I am assuming that the same rule applies to the finance pack as soon as the financial tide becomes stormy rather than just floating all boats?

Given you’re going to be spending a bit of a time with a lot of your colleagues in Davos in the next little while, I’d be curious if you have any observations of their collective state of mind and quality of output..?
That Anonymous Dude

marcus:

i dont know if this helps you come to a conclusion or not (and some of these ‘facts’ may in fact be things I have misremembered).

1. It takes approximately 7-10 years of consistently beating the market to be considered true skill as opposed to being that guy who rolled snake eyes 5 times in a row. And even this is not conclusive..just indicative. The only good news is hopefully you’ve packed away a boatload of money in the meantime before you are found out – and there’s almost always some other sucker out there who’ll give you their money after a disaster. The fellows at Long Term Capital Mgmt are all running a new hedge fund despite losing all the money..

2. Even in above, luck plays a factor. Much todo was made of that guy at Legg Mason who’s market beating streak came to an end after a number of years. Yet someone noted, his streak would have been over years ago after a significantly shorter period had the year been defined june to june instead of jan to jan..

3. Separately, stock analyst earnings projections one year out (i.e. what they think the company will make next year) for companies they cover are way innacurate when compared with reality (accuracy
That Anonymous Dude

hey my last post looks truncated…

accuracy
That Anonymous Dude

okay dont use the less than sign..

accuracy less than 30 percent). Since these projections are what they then plug into their models (further sources of innaccuracy) you can imagine the value of said analysis of the markets..