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It’s a Downer Kinda Thang

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“Never forget that the stock market is just a market for stocks.”
– Herman Miller, an old accountant I knew when I was a kid

The bloodletting on Wall Street may have paused, but no one is taking any chances. We’re not technically in a bear market yet – the S&P500 would have to break its resistance around 1863 before that happens. But the world is braced for it. Morgan Stanley has told its investors to hold on at least into the third quarter – exactly what Barataria said a few weeks ago.

Why all the negative sentiment? After all, China’s loss can only be our gain if you believe what you hear in politics. Then again, investors aren’t that gullible. It’s one big financial world and what goes ‘round comes ‘round. While there are some good reasons to take a six month or so pause, most of the reasons for this downturn are indeed lousy. It’s time to run through, and over, these arguments.

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Panic – or Laugh?

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“This is no time to panic. There’ll be plenty of time to panic later.”
– Groucho

So far this year the S&P500 has lost 100 points (5%). Where did they put them? Isn’t hard to lose something that is pointy? Despite looking under every sofa cushion the search has so far remained pointless.

It may not seem like the time for humor, but the US market reaction to the meltdown in China is purely comical in many ways. It shows how much the market is responding to emotion rather than reality – and the prevailing emotion is fear. Run away!

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Starts With an Idea

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When Martin Shkreli was arrested the internet erupted with a dark sense of joy. Finally, the most hated pharmaceutical and finance guy in America was going to get justice – if not for raising the price of drugs 5,000% but for an unrelated ponzi scam.

This came up during People’s Economics, the discussion groups which represented a kind of “Barataria Live”. Our section on High Finance asserted that the complex and overlarge finance system inherently encourages this kind of bad behavior, which is to say that any regulation or law you might write is irrelevant compared to the kind of damage guys like Shkreli can do before they are caught.

Two interesting thoughts came out of this and subsequent discussions which provide logical ways for us to get past this problem and move to a better future. And there may be more.

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Not so Fast …

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It’s been week since a blowout jobs report set fire to financial markets and signaled that everything is about to change. Barataria predicted a good report, if very timidly, and gave everything a week to shake out. So where do we stand a week from the first clear signal liftoff is occurring?

The short answer is that markets have absorbed the reality of a rising Fed Funds Rate. The long answer is that it sure doesn’t look like it for a lot of reasons which are complicated and confusing. In an increasingly smaller world there is nothing that confines money to one “market”, meaning that pressure is on from all directions.

The upshot is that after an initial spike there is reason to believe a rise in interest rates by the Fed may yet trigger a net medium-term fall in interest rates paid by consumers, as predicted. It’s worth explaining further.

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Curtain Rises on Kashkari

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Who is the man behind the curtain? The selection of Neel Kashkari as the new President of the Minneapolis Federal Reserve is fascinating for a lot of reasons. It’s especially important to those of us who live in the district, of course, but this is not any ordinary position. Kaskkari is taking over for Kocherlakota, the outgoing President who resigned last June – leaving the Fed with one less relentlessly “dovish” member of the Fed Open Market Committee (FOMC).

Who is this new guy? How was he chosen?

The whole process gives us a peak behind the curtain and raises a series of questions about the new, more politically active Fed. Kashkari also brings a new personality and well documented series of biases as an data-loving engineer who is, by all accounts, a genuinely nice if hard-driving guy.

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