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Trader Albert Young, center, works on the floor of the New York Stock Exchange Friday, May 21, 2010. (Richard Drew / AP Photo) The Dow dipped below 10,000 Tuesday, battered by bad news from abroad that the markets would normally shrug off. Randall Lane—author of the forthcoming book The Zeroes: My Misadventures in the Decade Wall Street Went Insane—on the temporary blindness that could have traders on edge through the summer.
Shortly after 9/11, Admiral John Poindexter, fall guy of the Iran-Contra scandal, rejoined the Defense Department to launch something called the Policy Analysis Market. Its mission: a global trading exchange, where people could bet on the likelihood of terrorist attacks and assassinations. As prices went up, so could national defenses.
I talked with a half-dozen Wall Street insiders Tuesday. Three leaned bullish, three stood bearish—and all six were skittish.
Subject to immediate mocking—Senator Byron Dorgan called it “unbelievably stupid”—the program was disbanded in short order: A rogue running something that lets people make money from the deaths of innocents wasn’t politically palatable. Even if, in reality, it was a good idea. Rather than surveys or meticulous analyst reports, numerous studies have demonstrated that markets, where people put actual money where their mouth is, prove the most effective prediction device of all.
That’s exactly what made Tuesday—when the Dow spent most of the day down almost 3 percent, below the psychological barrier of 10,000, before yo-yoing almost all the way back—so damn scary. It was as if the collective radar had short-circuited.
• Charles R. Morris: Are We Headed for Another Global Crash? • Roubini and Bremmer on Why We’re Still Doomed The markets usually resemble some creature from a menagerie: a bull, a bear, or perhaps a dead-cat, all perfectly acceptable, as traders and CEOs can make money and plans, respectively, during any of them. What Wall Street, and business in general, abhors is uncertainty. And the results from Tuesday—indeed, from most of this month, starting with the May 6 “flash crash” which still hasn’t been fully explained—resemble an animal pattern more akin to a rabid bat.
Just look at the feeble factors driving the markets plummet on Tuesday: saber rattling in Korea and new debt problems for some of the European Union’s sicker members. With all due respect to these two headaches, which can and should have the folks in Washington scrambling, Wall Street would normally steamroll over such news.
“On a normal day, Korea might be good for one-quarter of a percent,” scoffs the managing director at one bank. In this rabid bat environment, however, paranoia rules. This managing director likens the vibe to the national mood after 9/11, when a prank call, however unconvincing or unfunny, could clear 10,000 people out of an office building.
Meanwhile, the issue with Europe goes past how far the troubles will extend—it illustrates how little control the U.S. maintains over its own market health right now. Greece is no longer the biggest worry—some kind of default has already been baked into prices worldwide. And increasingly, the markets are also bracing for a possible default from Spain.
But the debt problems in Europe are pernicious: Italy and Ireland are both basket cases, too, and while the consensus remains that some further bailouts are likely, it’s also a total blind guess. It only takes the most gentle whisper, “boo,” to send the markets screaming down.
Until they scream up again, as they did Tuesday, buoyed by some decent numbers on consumer confidence and home prices. Suddenly, the Dow’s huge loss for the day was largely erased, the S&P’s entirely so. If you went out for lunch you probably missed it. It was emotion compounding emotion—the foreign news shouldn’t have depressed prices so much, nor should have the mildly positive reports supercharged them.
View as Single Page 12 Back to Top May 26, 2010 | 6:40am Facebook | Twitter | Digg | Share | Emails | print var OutbrainPermaLink=document.location.href.replace(document.location.search, '').replace(/\/\d+\/$/,'/').replace(document.location.host, 'thedailybeast.com'); var OB_Template = "The Daily Beast"; var OB_demoMode = false; var OBITm = "1255455386150"; var OB_langJS ='http://widgets.outbrain.com/lang_en.js'; if ( typeof(OB_Script)!='undefined' ) OutbrainStart(); else { var OB_Script = true; var str = ''; document.write(str); } Business, Dow Crash, Market Predictions, Why The Markets Fall, Market Analysis, Dow 10000, Stock Market Drop, John Poindexter, Policy Analysis Market, Stock Market Crash, Traders, Eu, Defense Department, Korea, Markets, European Union, Stocks, Dow, Dow Jones, Stock Market, Wall Street Crisis, Wall Street (–) Show Replies Collapse Replies Sort Up Sort Down sort by date: HiMomItsMe
> "**they all agreed**, will lead to wild, unpredictable markets all summer" LOL guess it's time to sell volatility again.
Flag It | Permalink | Reply 7:25 am, May 26, 2010 Banjo1It is sinking in on Wall Street and the other financial capitols that the remote and detached mystery man running the show in Washington hasn't got what it takes. He can't even give a speech before kindergartners without a teleprompter, and talking was all he was known for through his career, if you can call it that. Imagine the assessments the various national intelligence services have put together for their masters. You can boil it down to: Now's the time, boss! That's why Iran is running wild, the Russians, Turks and Brazilians (!) are helping them, the North Koreans have chosen this moment, the Eastern Europeans know they can't trust us anymore, the Chinese are feeling their oats, everyone on the Gulf Coast is wondering why Brownie isn't being called in for want of someone better, and so on and on. The left finally got the president they wanted, a bower and scraper abroad and big spender here at home, and now we're all paying the price.
Flag It | Permalink | Reply | (–) Show Replies Collapse Replies 8:12 am, May 26, 2010 erotemeAh, the usual attempt to whitewash the fact that the mess was created before the Obama administration and by the Bush administration. You also seem to not understand the constraints on Presidential power in a democracy with checks and balances between the different arms of government. Unlike Bush Obama is a true democrat and has not subverted democracy as Bush and Cheney did for 8 years. Funny thing is that the greenback is again seen as a strong currency and others (especially the Euro) as weak and likely to get weaker still - why? Because the real US economy is slowly but steadily recovering. The parasitic Wall Street investment banking clique are still fighting like mad to avoid legislation with real teeth and that battle is definitely not over.
Flag It | Permalink | Reply | (–) Show Replies Collapse Replies 9:21 am, May 26, 2010 Banjo1eroteme: The economy is recovering? But where are the jobs and what about these monstrous deficits? The light must be too bad for reading where you've got your head stuck. But whatever you do, don't light a match!
Flag It | Permalink 9:39 am, May 26, 2010 David WalkerBanjo: There are no jobs, and there are not going to be any jobs. A great deal of manufacturing has moved overseas, and when what little manufacturing America does have was bailed out - GM and Chrysler, and perhaps to no avail - the right wing whined like a bunch of sissies. The consumption economy is consumed out. Are you so blind you haven't noticed the incredible proliferation of storage units? They're full of THINGS. Garages are full of THINGS. You know, THINGS. Most Americans don't need more THINGS! Just once, instead of posting your bull shit, why don't you tell us what you would do to create jobs? That's all. You don't even have to worry about how to fix a well blowout, fight two wars, repair a looted economy, try to guide a party that does NOT march in lockstep much less get cooperation from the opposition party that's determined to sabotage your every effort, and deal with a few other minor inconveniences. Just tell us how you would create those jobs. That's all.
Flag It | Permalink 11:20 am, May 26, 2010 mcmchugh99Banjo needs to study the history of the 1920s, even though that's not the most popular decade among historians. It should be, because so many of the events repeated themselves. Not exactly, of course. The US was not nearly as globalized back then and basically had protectionist economic policies, so imports and exports were only about 5% of GDP. (That's why the Smoot-Hawley Tariff of 1930 was not that imporatnt, since the US already had a protective tariff going back to 1862). At that time, most of the Fordist, mass production industries were still in the US, while today they have moved to China, Mexico, etc, hollowing out the economy in many regions of the country. Nothing really replaced those millions of jobs that were lost, unless you think a real economy can be based on people selling real estate, legal services and paper assets to each other. But there was a big consumer credit boom in the 1920s, too, and when that maxed out and demand had been saturated,--when stock prices had been run up far beyond their actual value--then the whole thing fell apart very fast. Well, as a famous economist once said: history does repeat itself, the first time as a tragedy and the second time as a farce.
Flag It | Permalink 12:49 pm, May 26, 2010 AlanD2Banjo: If the current growth in jobs continues for the rest of 2010, Obama will have created more jobs in one year than George W. Bush did in eight years.
Flag It | Permalink 1:23 pm, May 26, 2010 JohnnyappleseedEver feel we are alone in this boat as it takes on water?
Flag It | Permalink | Reply | (–) Show Replies Collapse Replies 8:47 am, May 26, 2010 AlanD2Yeah, but that was back when Bush was President, Johnny. Obama is busy plugging up the leaks.
Flag It | Permalink | Reply 1:24 pm, May 26, 2010 briansaysthe problem is the markets are being driven not by investors but traders snake oil salesmen enabled by cnbc and the likes short term rallies prompted by cheap fed money sucker others in then sell and take profits more casino and ponzi games sociopaths plus regulatory incompetance and capture you want to restore confidence lets see some of these perps handcuffed and sent to jail From Jesses Cafe today: "Gold traded all day below 1200, at times rising to within fifty cents of the key strike price of 1200 where a large concentration of call options were clustered. Well, since the call options at 1200 have expired worthless, why bother using the energy to continue to suppress the price? Blatant and arrogant price fixing is done with the cooperation of the regulators at the CFTC who are willing to turn a blind eye to repeated price manipulation by insiders in the US futures markets in precious metals, stock indices, and several key commodities"
Flag It | Permalink | Reply 10:13 am, May 26, 2010 bwshookThe traders and investors have every right to be skitterish right now. So should consumers, and the currently employed. Even the experts now see the possibility that we are in a "double-dip recessionary cycle". It's coming, and we've only been through the first of it so far. The second dip is always worse, because so many resources have been used up trying to get out of the first dip. The second part of this double-dip is going to hurt us bad.
Flag It | Permalink | Reply 11:30 am, May 26, 2010 DicedPeasWhat doesn't scare Wall Street?
Flag It | Permalink | Reply | (–) Show Replies Collapse Replies 12:37 pm, May 26, 2010 wareagle82stability. Put this to a more personal level - say you own a business and would like to expand. Factor in the things you can reliably predict and those you can't. The latter is going to include the real price tag of health care reform, how loans and financing might be impacted by financial reform, will cap and trade pass, are SS and payroll taxes going to stay put or not, etc. Lot of unknowns and that usually means stasis.
Flag It | Permalink | Reply 1:04 pm, May 26, 2010 AlanD2The politicians they've bought?
Flag It | Permalink | Reply 1:25 pm, May 26, 2010 mcmchugh99I assume that the Wall Streeters have seen North Korea bluster, bluff and stomp around many times in the past, making a lot of noise before it finally backs down. That's happened a million times, and let's assume that anyone who follows the news at all--which these people must--would know all about that. I don't blame them for being jittery, though, given that the whole system just recently came down like a house of cards--collapsed like a cheap folding chair, and very quickly.
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