Thursday, October 11, 2018

This little piggy went to market, but the market had taken a hike.

The stock market has taken a five meter dive.  It’s been jumping off the low board for a while, but this was a big one.  Because it happened on Wednesday, there will probably be a modest rebound by Friday as investment managers rebalance their portfolios.  But what’s up?

Is it a reaction to the Fed raising interest rates, as Trump has claimed?  Probably not. They’ve been in the works for over a year and are highly predictable.  More likely the market is showing deep concern over the disruptions caused by the good and easy to win tariff battles that aren’t working quite the way Trump expected.  It’s also possible that the market is expressing some discomfort with the amorality of the administration that has become manifest in blatant immorality.   You can add a few members of congress to that.  

In an odd way, the market claims amorality for itself, but expects a degree of morality from political leaders who create the environment in which it can make some money.  While many investors have benefitted from the recent tax act, the market is aware that it has ballooned the deficit and forced the debt into dangerous territory.  It makes the market nervous.  

Corporate earnings may be up, but the market understands how much is due to increased sales and improvements in productivity, and how much has been generated by stock buy backs and accounting tricks that jack up stock value.  Savvy investors have made money but know it’s all smoke and mirrors that can’t last.  Time to bail, at least for a little while.  

The market knows that vaunted reductions in regulations haven’t done anything to improve government’s commitment to customer service or make it more efficient.  Add that to the list of causes.  It sounds schizophrenic, but that’s the way the market works.  There’s nothing invisible about the invisible hand of the market.  It’s out there probing everything from global warming to how many angels can dance on the head of a pin as it tries to assess how to make money.

Speaking of things global, global economic growth is projected to be a tad lower than previously expected.  International trade relationships are strained.  China is not a weak as Trump thinks.  Russia is not as strong as Trump thinks.  Saudi Arabia is not as friendly as Trump thinks.  Other nations are carefully romancing each other to see how they can circumvent Trumpian intentions without putting themselves at greater economic risk.  They’ve always known he’s a buffoon, but now they understand he’s a dangerous buffoon.    

On top of it, the Brexit debacle illustrates the fantasy of thinking that old time nationalism can restore a golden age that never existed.  None of it makes for a happy market.  The market is not nationalistic.  It takes a global view.  When the world’s largest economy begins acting like a moderate sized 19th century economy using a 17th century economic theory to restore an imaginary mid 20th century industrial base, the market will milk it for whatever it can get, and then take a hike.  

Is that happening now?  Maybe.  I don’t know.  Stand by.  We shall see.


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