Dan Gross gets it. Andrew Leonard gets it too. In fact, any halfways-decent financial journalist gets it, and, if honest, would simply write a story saying “the market went down and we don’t know why”. But instead we’re inundated with “explanations”, from an assassination attempt on Dick Cheney (Daily Intelligencer: “Are investors balking because Cheney was attacked? Or because he wasn’t hurt?”) to a drop in one of the most boring economic series in the US. (Go on — quick — tell me what a durable goods order even is.)
One thing worth noting: Risk assets got hit, and the riskier the asset, the bigger the hit. Equities were hurt, and emerging-market equities were hurt more than US equities. Riskier bonds went down, safer bonds went up. In general, the markets behaved entirely rationally, and there didn’t seem to be much if any panic selling. Things are working the way they’re meant to work. If markets can go up — and they’ve been going up a lot over the past few years — then they should be able to go down too.
When the Dow hit its all-time high in October, there was a certain amount of commentary pointing out that high stock prices are mainly good for stock-market investors rather than for the economy as a whole. I wonder if anybody’s going to point out that a modest drop in the stock market is not really bad news for anybody — even stock-market investors are still sitting on healthy profits at this point.
Durable good = something generally manufactured (or used to be) in what some folks call fly-over country and others call home …
I thought leonhardt was better than usual — manufacturing is in recession, which, among other things, suggests that demand for exports (mostly tradable goods still) hasn’t offset the contraction in the manufacture of goods for homes/ autos.
that said, higher stock market price are better for owners of stocks than for the economy as whole — juts as higher housing prices are far better for owners of homes than the economy as a whole. though in both cases there are wealth effects that spill over.
When so many journalists – especially those from the financial newswires – are focussed on a particular market, it makes sense that they struggle to see the bigger picture in an event like this. Also, are we really surprised to find them searching for a firm reason for the move when they spend their days phoning traders and analysts to get the low down on latest 30pips move in the USD (or other instrument)?
Even though many analysts and journalists must know a good chunk of the day to day price action cannot be explained, they must write something…unfortunately this can often be worse than writing nothing at all.
suggests a set of macros for financial journalists:
My brother and I have discussed the idea of writing a computer program to generate market commentary. If the market drops after a couple of up days, that must be “profit-taking”. If bonds dropped at the same time, the market dropped on interest-rate concerns — or, indeed, on inflation fears, even if TIPS dropped even more (I’ve seen this explanation used in this scenario).