The stock market started up today. But tomorrow? This afternoon? The Dow dropped 12.4 percent from the peak on April 26 through June 7, a mere 42 days. As the Wall Street Journal pointed out this morning, the only other time in 80 years that the market fell so far so fast this early in a recovery was when the Korean War began in 1950.
Of course, that was a very different market: plain vanilla, buttoned-down brokerage firms, a public still skittish from the Great Depression and certainly more representative of the state of the real, productive economy. Today’s markets are highly complex and esoteric, as well as globalized, concentrated and deregulated. That makes for high volatility and high risk. Too bad so many Americans are depending on it for their retirement funds.
It’s also not clear this is really a “rebound,” at least not yet. Some measures are pointing to an increasing possibility of a double-dip recession. The recovery seen by Fed Chairman Ben Bernanke doesn’t involve enough growth to make a major dent in joblessness.
What do you think?
When the stock market rebounded last year, President Obama’s supporters were quick to claim an Obama rally. That’s fair enough, as presidents, like quarterbacks, sometimes get more credit and blame than is deserved. It was really a Bernanke-Paulson-Geithner rally, driven by so many billions (trillions) of dollars pumped into the economy to save the existing financial system, and then make equity investing profitable with low interest rates.
Now with the European crisis, the fragility — in some ways the artificiality — of the rally has become more clear. Having been through the Panic of 2008, Wall Street may be quick to overreact, something made more fierce because of new super-fast program trading. On the other hand, as Intel’s Andy Grove said, “only the paranoid survive.” And for average investors, even that advice is cold comfort.
Today’s Econ Haiku:
BP’s damage fund
May not help many people
In bankruptcy court