Not a panic, a sigh of resignation

I wasn’t really paying attention, and I definitely wasn’t watching CNBC, but it appears the stock market had a pretty bad day–the Dow down 7.8%, the S&P 9%. As always, I think the main lesson here is that these are volatile times, and in volatile times you’ll get days like this.

But a pretty convincing narrative thread for the day’s events, and one that appears to be backed up by the individual stocks I looked at, is that today’s market reaction was no longer about financial-system panic but about the reality of recession, possibly a pretty harsh one. The stocks of financial companies perceived last week to be at significant risk of some kind of less-than-friendly government takeover–Morgan Stanley, Citi, Goldman Sachs–are still much higher than they were last Friday. Pretty much every company on the stock market, though, was down today because of fears that the sharp slowdown in consumer spending hinted at in today’s September retail sales report and Fed Beige Book means that earnings will be much lower in the quarters ahead.

Those fears are almost certainly justified. And they’re kinda scary. But I’ll take ‘em any day over the fear that the banking system is about to shut down.

vinedcamaro

being that i had worked for one of said financial institutions, I breathed a sigh of relief as the decent chunk of their stock I own is doing pretty well. The rest of my 401k? I try not to think about it.
Adam Florzak

7 out of the top 10 (and 11 out of the top 20) biggest one day point swings in the Dow index (from high to low) in the past 20 years have occured in the last month alone.

Stock prices are moving like the needle on a seismometer during an earthquake. The underlying forces almost seem akin to the butterfly effect, where small and seemingly insignificant variations in the initial conditions of a complex system ultimately have the potential to produce large and often radical variations in the final outcome of that system.
bdbd

Justin, I think you need to move to the more technical term “way volatile” for describing the current environment.
lp1

who didn’t see this coming?

One of the dumbest things that was done was Bernacke’s decision to drop interest rates in the face of the mortgage/liquidity/financial crisis.

Most surprising, given the deficit numbers, is the continued relative strength of the dollar…
lp1

oh, btw, I wouldn’t be to sanguine about the “bailoutees” at this point. The two banks most likely to require a takeover tanked.

Citibank, with “foreign office deposits” comprising over a quarter of its assets, was down nearly 13%. (Forget about the lack of insurance, do you really think that foreign companies that have money in US banks aren’t going to be pressured to repatriate those fund to banks in their home country? –If/when that money goes, Citibank will have to be taken over.)

And State Street was down 17.39% — a third of its assets (as of the end of 2007) were in mortgage backed securities, and another 22% was in Morgan Stanley (which despite the rescue efforts, is still down more than 60% since Jan 1.)

Did Paulson Plan Two include any kind of preference for the money it gave these banks if they still went belly up?
vinedcamaro

a guest on the daily show stated that besides being known for the greatest losses in stock market history, the Great Depression was also known for (on a percentage basis) the greatest fluctuations and day to day increases in history.
Considering last week, then Mondays rise, then today…. anyway, food for thought.
williambanzai7

There are so many bubbles and incongruities that need to be corrected financial industry, housing and real estate, USD, $60B CDS overhang, bloated consumer debts, Federal debt, hedge fund illiquidity, leverage…its surprising the markets are performing so well.