Wednesday, October 15, 2014

Slow motion stock market crash

RtO has not had much to say about financial markets recently, except to note that people worried about beating down inflation are kinda nuts. ("Whip Inflation Now! Whip it again!," Sept. 14)

But the graceful swan dive by Wall Street -- the DJIA managed to get under 15,000 today before closing at 16,141, about a thousand below where it was just a couple weeks ago -- merits some comment:

Listen up, people. Inflation is whipped. Beat, over and done with. RtO has been saying so almost since its inception in early 2008. Deflation is the problem, and as we learned in the Republican-engineered Crash of '29, deflation is the hardest of all possible economic crises to manage your way out of. (The famous hyperinflation in Germany was controlled rather easily by replacing all the money with "Rentenmarks," though the damage done was irreversible.)

Some people just won't believe it. According to Bloomberg News:

Investors who poured more than $1 billion this year into a $3.8 billion leveraged exchange-traded fund that bets against long-dated U.S. Treasuries are suffering a 4.1 percent loss today alone, Bloomberg data show. The fund is down 38 percent this year, a small window into the magnitude of pain in a market where many traders have been wagering debt prices would fall.
Gold, at last, finally woke up to the fact that securities are tanking and started playing its accustomed role as refuge when people are worried. Monied people, I mean. Gold, after managing to get below $1200 an ounce, was up to $1241 today. Not fabulous compared to where it has been over the last couple of years but reversing a slide that has been going on almost all year.

More from Bloomberg:

“The markets are clearly very jittery,” said Larry Milstein, managing director in New York of government-debt trading at R.W. Pressprich & Co. “It’s not just the global slowdown.”
While Wall Street economists may be sticking to their forecasts Treasuries will lose value, a lot of bond buyers aren’t listening right now. And the bears are suffering the consequences.

Worse off maybe than bond traders is Vladimir Putin. A different Bloomberg story says:

 Oil has been the key to Putin’s grip on power since he took over from Boris Yeltsin in 2000, fueling a booming economy that grew 7 percent on average from 2000 to 2008.
Now, with economic growth slipping close to zero, Russia is reeling from sanctions by the U.S. and the European Union over its land grab in Ukraine, and from a ruble at a record low. Putin, whose popularity has been more than 80 percent in polls since the annexation of the Crimean Peninsula in March, may have less money to raise state pensions and wages, while companies hit by the sanctions also seek state aid to maintain spending.
“His ratings remain high but for a person conducting such a risky policy, Putin has to understand the limits of patience for the people, business and political elite,” said Olga Kryshtanovskaya, a sociologist studying the country’s elite at the Russian Academy of Sciences in Moscow. “Putin is thinking hard how not to lose face while maintaining his support.”
Couldn't happen to a nicer fellow, either. I await momentarily John McCain's going on Fox to take back all that bad stuff he said about President Obama.

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