Tuesday, February 10, 2009

Unharmonious convergence?

Interesting, isn't it? The other day when it was announced that we'd lost some 600,000 jobs in January, the Dow jumped over 200 points. Today, as the Senate passes its version of the stimulus bill, The Street tanks. Almost 400 points lost.

Anyone who's accumulating evidence that Wall Street dances to its own rhythms and is utterly disconnected from the day-to-day foibles of Main Street* should file those two juxtapositions in a prominent place in the folder.

* I'm not saying that Wall Street is unresponsive to the overall condition of the economy. Clearly that is not the case. I am saying that things that seem like bad news to the rest of us may not necessarily be seen as bad news on Wall Street, and vice versa. Either that or Wall Street considers the news irrelevant, or has factored it into the mix a long time ago, based on projections and inside info.

3 comments:

Anonymous said...

Bad new to us usually means "good" news to wall street. War, famine, natural disasters are all money making opportunities for them. Look at oil prices during the Iraq wars or Katrina.

roger o'keefe said...

There is some truth to what you write here, Steve, but you make it sound much more callous than it needs to be. The fact is that the market responds to events that bode well for profit and productivity. This is particularly true in the case of individual stocks. If a company is carrying a lot of bloat, like let's say an excess of thousands of workers, and the company has a large layoff, the stock will often rise on the news. That doesn't mean investors are happy that people lost their jobs. It means that investors know that carrying excess salary from workers who are a drain on overall productivity hurts a company's bottom line. This is also why when there's an announced merger that will result in consolidation of facilities and layoffs of superfluous workers, the market receives it as good news. Efficiency = good.

The same "trim the fat" ethic is true for the economy as a whole, although this is a more difficult balancing act because after a certain point the loss of jobs means a general decline in consumer spending and consumer confidence. And you are also right in the fact that the market "discounts bad news" well ahead of time. Highly paid analysts know when a jobs report is going to be particularly bad, and that is already factored into their estimates a long time before the Labor Dept. makes the announcement.

By the way, when I read your nasty remarks about that anon lady, the first thing that popped into my mind was: The Sheriff rides into Dodge to restore order!

Anonymous said...

Steve:

There are many reasons why the stock market will move in one day; and many of them are not rational. And I don't think you have isolated the reasons the market moved.

I think yesterday's big drop wasn't at all related to the spending plan approved by the Senate, but due to the new Treasury Secretary's ( Geithner -the guy who didn't pay his taxes until he wanted to run the Treasury) dismal performance in his news conference. He showed that he doesn't have a plan to fix the banking mess, and he spoke in general platitudes as opposed to specific policies and procedures. Unfortunately, as the architect of the banking bail-out, he's supposed to have a plan. So the market tanked after Geithner started talking.

The president put a lot of political capital behind this clown who flunked his first test. The cabinet is there to take the heat off the president not generate more.