Patterico's Pontifications

8/24/2015

Stock Market Opens with Dow Down More Than 1000

Filed under: General — Patterico @ 8:00 am



Regular readers know I don’t consider the Dow an accurate measure of much of anything . . . but still.

FWIW, this was me at 9:15 pm last night:

98 Responses to “Stock Market Opens with Dow Down More Than 1000”

  1. Always trust content from Patterico.

    Patterico (3cc0c1)

  2. I do!

    felipe (b5e0f4)

  3. Oil hit $37 bbl, gold and silver down too. Fear now driving the market, panic in the offing.

    ropelight (f8e618)

  4. After the 200 -300 point swings years ago, I realized I don’t trust these money grifters. Took it all out and never put it back.

    mg (31009b)

  5. Buying opportunities!

    Actually, the market has been hovering near its all-time highs since last September; it’s not a surprise that we’d see a “correction.” It was just a matter of time before it happened. As long as you aren’t retiring this year, or maybe next, you’ll be OK.

    The economist Dana (f6a568)

  6. Actually, the market has been hovering near its all-time highs since last September; it’s not a surprise that we’d see a “correction.” It was just a matter of time before it happened. As long as you aren’t retiring this year, or maybe next, you’ll be OK.

    Yup, you’ll be OK. Unless you won’t.

    I’m not as sanguine as you.

    Patterico (3cc0c1)

  7. I heard about what happens when a company’s stock is valued on the basis of the price of its stock. I think the company’s name was Enron or something like that?

    nk (dbc370)

  8. 5.Buying opportunities!

    Actually, the market has been hovering near its all-time highs since last September; it’s not a surprise that we’d see a “correction.” It was just a matter of time before it happened. As long as you aren’t retiring this year, or maybe next, you’ll be OK.
    The economist Dana (f6a568) — 8/24/2015 @ 8:25 am

    Yep. This is how I more or less view it. Sure, will it suck for the money I have already squirreled away in my retirement account? Yes. However, I still have another 30 years to go (hopefully) before I touch it, and I certainly don’t mind getting more shares at a lower basis with each paycheck.

    On the positive side, if oil is at $37 per barrel, it should hopefully make Labor Day vacations and trips a little more affordable. However, prices at the pump seem to be higher than a year or two again when oil was this low. Just the normal delay between oil prices and gasoline, attempts to maximize profit, role of the summer gasoline blends, or a combination of all of the above?

    Virginia SoCon (8eb3c5)

  9. Having retired several years ago, I’m still hopeful that we’ll be OK. However, I have come up with a way of projecting this current correction, which may amuse you. The Federal Reserved pumped about $2T into the economy with QE in all its versions. On Friday, the market lost about $200B, and today it looks to do the same. This $400B represents a drop in the DOW of about 1000 points. If we are to vaporize all of the digital currency created by the Federal Reserve with this correction, we will need to fall about 5 times further, or another 5000 points. So bobathome’s prediction is that this correction will peter out at about 11,000, plus or minus a few thousand. Easy come, easy go. So I’m sitting on my small stash. Cash may be king in a week or two.

    bobathome (6f310e)

  10. perfect explanation of why the DOW and S&P are no longer reliable indicators note that there are no such breaks for stocks going up.

    seeRpea (a7b697)

  11. Virginia, I suspect the ethanolies, judging from their activities in Chicago. They’re taking advantage of the drop in oil to increase their more expensive ethanol content and its price.

    nk (dbc370)

  12. Well, that’s not too bad: Dow down 317 from opening at 1150ET.
    I wonder how badly some of Obumer’s crony capitalist friends got hurt?

    askeptic (efcf22)

  13. sell sell

    happyfeet (a037ad)

  14. Oil hitting 37, the lower oil goes as oil is a major input into 100% of all consumers, this is good for everyone but those 20% of the oil industry.

    Also Dow may have a positive day, people deciding to take their profits, and then buy other stocks they’ve had their eye on.

    Also where are you going to put your money? In the Federal Reserve System?

    School bonds are so fought over they are a premium

    EPWJ (d1eba0)

  15. Turned on the TV and there was some expert (who knows, he could be, I dunno) talking about how “The fundamentals are good…”

    Ouch. Talk about your October 2008 flashbacks.

    L.N. Smithee (e750c1)

  16. VSC wrote:

    Actually, the market has been hovering near its all-time highs since last September; it’s not a surprise that we’d see a “correction.” It was just a matter of time before it happened. As long as you aren’t retiring this year, or maybe next, you’ll be OK.
    The economist Dana (f6a568) — 8/24/2015 @ 8:25 am

    Yep. This is how I more or less view it. Sure, will it suck for the money I have already squirreled away in my retirement account? Yes. However, I still have another 30 years to go (hopefully) before I touch it, and I certainly don’t mind getting more shares at a lower basis with each paycheck.

    Actually, it won’t suck for the money you already have invested unless you sell while prices are down.

    I remember the 1987 crash . . . and that the people who didn’t panic, and held on to their shares, were back in positive territory by the beginning of 1988. The 2008 crash took longer, but wer were still back in positive territory in a few years.

    Well, who knows; perhaps our less sanguine host is right, and this will be a long lasting downturn, but that’s not what I see.

    The economist Dana (f6a568)

  17. the people who didn’t panic, and held on to their shares, were back in positive territory by the beginning of 1988. The 2008 crash took longer, but wer were still back in positive territory in a few years.

    As one who has had powder dry for damn near all of these occasions, works for me. Had buys in today for VYM fund at 66.22 and due to the collapse I actually got it at 60.00 this morning. It’s back up to 62.17 at this writing but you will never hear that sort of story reported by the media, Fox or MSM. Something similar for SDY, which for some reason plummeted below 50 but is now back at 72.97. My order was at 73.22, though I’m guessing I got it considerably cheaper (no email as yet on that one).

    It never ceases to amaze me how fearful and conspiratorial certain conservatives are in regard to the stock market. There is nearly as little understanding of our free market economic system on the right as there is on the left. There are many on the left who understand things than a certain number on the right.

    WTP (d553bf)

  18. You tell’em WTP. I made four trades Friday and so far six today. When the market moves like this Rev. Hoagie becomes a day-trader. No conspiracies here, WTP. Just ride the waves and take your money. Amen.

    Rev. Barack Hussein Hoagie (f4eb27)

  19. bobathome (6f310e) — 8/24/2015 @ 8:47

    I’d say that you are on the right track.

    I nearly quadrupled (bought in @$2.90) my investment on MNKD when the FDA approved Afrezza (I sold @$11.10). Now that MNKD has tumbled to below $4 I am very tempted to jump back in at $3-$3.50 – but my better judgement says to wait for the correction to run its course.

    This is exactly why one cashes out and sits on cash; to take advantage of the inevitable correction.

    felipe (b5e0f4)

  20. WTP wrote:

    It never ceases to amaze me how fearful and conspiratorial certain conservatives are in regard to the stock market. There is nearly as little understanding of our free market economic system on the right as there is on the left.

    One problem with conservatives on this is that it seems as though the stock market just has to have some relationship to the economy, but in a lot of ways, it doesn’t. The stock market is as much of a political market as an economic one — if not more — with wide moves based on political news that ought not have any real bearing on how the vast majority of privately owned companies are valued.

    I have been persuaded, for several years now, that way, way, way too many people react strongly to political news rather than economic information because so much of the economic information gets drowned out by other noise, and they aren’t really informed about how the economy is doing or how businesses work.

    Right now, Ford is trading at $13.08; it closed Friday at $13.86. What makes Ford 6% less valuable now than it was on Friday? Yet, in 2008, Ford hit $1.94 per share, and the supposed economic geniuses at the Motley Fool told us that it was not a good buying opportunity.

    The savvy economist Dana (f6a568)

  21. I’m of the opinion that this correction has legs. The European markets, and the Euro, were not looking so good during the Greek crisis, and I think a lot of European money flowed into our markets as a “safe haven”, or at least as a better bad option. But since Thursday morning, the Euro has gone from around $1.08 to $1.13, meaning that any losses suffered by Europeans still invested in our markets have been amplified by about 5%. So these investors have to consider two things: will the Euro rise or fall, and will their dollar dominated stocks rise or fall. These are not pleasant thoughts. If they hold on to their stocks and the Euro keeps going up they will need a significant positive recovery in stock prices just to break even.

    bobathome (6f310e)

  22. PP ALERT!
    New video out about shipping baby “Calvariums” (heads) intact to “customers”.

    But, they make a point of making sure the eyes are closed.

    askeptic (efcf22)

  23. Dana, agree with much of that. But I would say even more than being a political market, the stock market is an emotional one. As to your point on Ford and MF, most definitely. I’ve had MF pegged for fools for years. They seem to follow one of my biggest return stocks, ILMN, and are constantly playing the Debbie Downer game. I’ve suspected they are the flip side of pump & dump, but eh…don’t really care.

    You seem to understand the markets and economics fairly well. I know practically no one who grasps wth is going on in either of those departments, including a couple financial planners I spoken with. Tell me, are there others out there?

    WTP (8894aa)

  24. 22- The ‘Market has always been a sophisticated “crap shoot”, but in the Age of His Preciousness, it may have been the only reliable economic indicator available.
    Now, it is being attacked on several fronts:
    The Euro, The Renmibi, and then there’s the Fed.
    The only reliable investments may just be Guns, Ammo, & Canned-Goods.

    askeptic (efcf22)

  25. Actually, it won’t suck for the money you already have invested unless you sell while prices are down.

    I remember the 1987 crash . . . and that the people who didn’t panic, and held on to their shares, were back in positive territory by the beginning of 1988. The 2008 crash took longer, but wer were still back in positive territory in a few years.

    Well, who knows; perhaps our less sanguine host is right, and this will be a long lasting downturn, but that’s not what I see.
    The economist Dana (f6a568) — 8/24/2015 @ 10:58 am

    Well, yes and no. I understand your point, and fortunately I don’t have to liquidate or sell anything in the account. However, I was a little surprised about how high stock prices had gotten and suspected that a correction was not unlikely, especially given the weeks of bad news from China. However, I didn’t try to time the market by shifting from stocks to T-bills, bonds, or other counter-cyclical investments. Had I done so, I could have missed this recent correction and been prepared to jump back in around now (and thus buy more shares of the same fund for the same price). Of course, no one ever knows when the actual bottom or peak is except in hindsight. Hence, I pretty much purchase and leave put, and trust that something will be there in a couple of decades.

    As long as the government doesn’t try to mess with the rules of Roth IRAs, I should be okay.

    Virginia SoCon (8eb3c5)

  26. It is also the case that all of the major foreign markets closed today with 4% to 10% losses, and investors in those markets may be facing liquidity issues, which might compel them to sell on our markets. It is an interconnected world, and we benefitted from the confidence crises elsewhere over the past year, but it is a two edged sword.

    bobathome (6f310e)

  27. Virginia SoCon #26 – the US Stock Market has mostly gone up because there really aren’t any better (in the sense of potential return on money) around … with interest rates so low to non-existant, while the Stock Market is more risky, it is also giving better returns *until* it crashes …

    The looming problem is when interest rates finally go back up … and the federal government has to make payments on the national debt …

    If the Labour Participation Rate was higher and interest rates were at reasonable numbers for basic investors, then a Stock Market at the level of a week ago would be confirmation of a thriving economy … with Labour Participation Rate at Carter levels or worse, and with interest rates barely perceptible with an electron microscope, the Stock Market level is a desperation sign … and when confidence falls a bit further, it is going to plummet … sadly, that is one of the things about which I am positive – the when, not the if …

    Alastor (2e7f9f)

  28. You know what we need right now? We need a super-ticket of Joe Biden and Elizabeth Warren to come rescue us! Because clearly the answer to all of our problems is a 73-year-old white guy who has been stumbling around Washington DC since 1973 paired with a 67-year-old Harvard professor phony-Indian woman who hates the free market.

    JVW (d18ea7)

  29. The performance of the stock market during Barack’s failed economy, or rather, his war on the economy should have divorced anybody of the notion that the market responds to anything other than money being pumped into it.

    JD (60fc4a)

  30. JD, the market also responds to money being pulled out of it.

    bobathome (6f310e)

  31. Buying opportunites?

    Perhaps. But not just yet. There are still some bulls who have to be defenestrated. The Dow will see 10K before it sees 20K. There is too much debt that was taken on by governments in the last crash, with the idea that growth would diminish the burden. But no growth, thanks to Obama thinking mass programs, deep structural deficits, plus lawyers and regulations promote growth.

    Now China is tanking and there is nothing outside to prop them up. It’s going to be a bad summer for investors.

    Kevin M (25bbee)

  32. Don’t forget to blame Bush!

    Kevin M (25bbee)

  33. Alastor wrote:

    The looming problem is when interest rates finally go back up … and the federal government has to make payments on the national debt …

    The Fed will (probably) keep its current interest rate policies due to the past couple of days in the stock market. As for making debt service payments, given that the Fed completely got awway with the various “quantitative easing” moves, it’s pretty obvious that we’ll always have the money to do that, given that we simply make money appear, as if by magic, when we need it.

    This is part of the politics of economics: the Fed used a fancy name for it, but it was really no different from just printing money, other than nowadays, we don’t even have to spend the money to print money, but simply declare that it’s there.

    Our esteemed host very much disagreed with me when I pointed out how it works, but it’s really pretty simple. If you don’t have sufficient money in your checking account, the bank bounces your check. But when the government doesn’t have enough money in its accounts, there’s nobody with the authority to bounce the checks! As long as nobody bounces the checks, and everybody down the line accepts the checks as good, then the government has created new money. And it works right up until it doesn’t.

    The difference between Zimbabwe and the Weimar Republic and us is that all of our debts are denominated in our own currency; as long as that’s the case, we can always pay our debts. That changes only if creditors start refusing to lend us money unless it’s denominated in Chinese Yuan; then we’re f(ornicated).

    I used to think that we’d eventually wind up inflating our way out of our debts, but as long as we’ve proved that we can simply declare the money to exist, we don’t even have to do that.

    The monetarist Dana (f6a568)

  34. I’m in The monetarist Dana’s camp. Today even the notion of inflation is quaint. After all the quantitative easing and all the bail-outs and all the “programs” like Cash for Clunkers our inflation rate should be to the moon. Yet it’s really not, considering. They’ve been pumping something like 85 billion a month into the economy yet inflation is not somewhere around 20%? How’s that? We have 93 million Americans not working and our unemployment is 5.4%. How’s that? When will someone other than The Donald say these bastards in Obamas government have ben lying their asses off to us all along about everything from AGW to GAO figures? It’s just s The monetarist Dana said, the money’s there because they “declare” it’s there….until it isn’t.

    Rev. Barack Hussein Hoagie (f4eb27)

  35. I think the Fed will raise interest rates if a Republican wins the White House, and maybe if Hillary wins, but the rates will stay the same if an Obama-supported Dem wins.

    DRJ (1dff03)

  36. DRJ #36 – that depends upon which Republican wins the White House, and how big the increase in number of GOP Senators and GOP Representatives … if the Fed feels the cold clammy winds of reality and mortality sweeping past their position, they will cooperate actively with the President … because their first try to mess things up will be their last act as a member of the Fed …

    Alastor (2e7f9f)

  37. My previous estimates of the loss incurred by the market plunge need to be revised along the lines of this article:


    http://www.marketwatch.com/story/households-still-hold-22-trillion-in-stocks-even-after-market-rout-2015-08-24

    At this rate, the QE money will be gone by tomorrow if we have another drop like those we’ve seen the last two days.

    It will be interesting to see what happens in Japan and China when their markets close on Tuesday.

    I wonder if the Fed will diagnose this as yet another liquidity crisis and throw some more cash at it? Replaying the fix that was needed in 1932 hasn’t worked so far, but maybe QE4 will do the trick.

    bobathome (6f310e)

  38. <i After all the quantitative easing and all the bail-outs and all the “programs” like Cash for Clunkers our inflation rate should be to the moon. Yet it’s really not, considering. They’ve been pumping something like 85 billion a month into the economy yet inflation is not somewhere around 20%? How’s that?

    Because corporations and such have been snatching up as much of that as they can and putting it in their coffers. With interest rates at/near zero if you don’t do it your competition will. But most are not investing it anywhere until the horizon looks better. This is a big factor in driving the market up over the last couple years in spite of the mediocre economic growth. If Romney had won in 2012 we’d be swimming in all that cash pouring out into the economy chasing commodities, skilled labor, and such that did not grow at anywhere near the rate of the money supply.

    WTP (fdec5d)

  39. After all the quantitative easing and all the bail-outs and all the “programs” like Cash for Clunkers our inflation rate should be to the moon. Yet it’s really not, considering. They’ve been pumping something like 85 billion a month into the economy yet inflation is not somewhere around 20%? How’s that?

    Velocity of money has slowed down tremendously as result of Dodd Frank.
    Tax Policy has discourage repatriation of profits.
    Corporations are not putting their money to work adding capacity and growing.

    Simple.

    Rodney King's Spirit (ab8c0d)

  40. bobathome #38 – we are having early 1930s weather patterns; we have Pres’ent Obama trying to carry our early 1930s economic and fiscal policies; we have Planned Parenthood trying to carry our Margaret Sanger’s eugenics policies …

    Hopefully, we can avoid the mistakes of the middle 1930s – and, at least, throw out the Progressives/Democrats, so that we can get the economy back on track *without* having to have a war …

    Alastor (2e7f9f)

  41. Alastor (2e7f9f) — 8/24/2015 @ 2:41 pm

    Alastor, you magnificent b4st4ard, I agree!

    felipe (56556d)

  42. For those in the market who move their chips around, there are usually a lot of mixed messages and misdirection in the media, and data to take in. I made this chart to keep an eye on where things stand and some of the risks. Looks at corporate profits (which undergird market values) and GDP vs the S&P, and my algo’s target. Not a perfect correlation, but I hope a decent picture to help make some sense of things.

    Joseph D (8bc5c1)

  43. we can get the economy back on track *without* having to have a war

    Very common misconception taught endlessly in schools. War is not good for an economy, unless you are seizing territory or assets or such, i.e. stealing from other nations. Then your economy may be ok, but that other nation is toast. Another “knowledge” curse of the Keynesians.

    WTP (4090b3)

  44. “We have 93 million Americans not working and our unemployment is 5.4%. How’s that?”

    – Rev. Barack Hussein Hoagie

    Children, students, retirees mostly?

    Leviticus (f9a067)

  45. This chart gives a picture of the potential for continued money print-, er, QE.

    Joseph D (8bc5c1)

  46. War is how the Right does quantitative easing.

    Leviticus (f9a067)

  47. And a different way the Left does quantitative easing, to be fair. Not trying to accuse the Right of a monopoly on warmongering.

    Leviticus (f9a067)

  48. Sillier-than-usual Leviticus !

    What took this planet out of the Great Depression (in spite of continuing Democrat/Progressive policies that had caused a deepening of the Great Depression around 1937) was the various Ueropean nations sending most or all of their National Treasuries to the United States to buy war materiel … *that* gave the vast influx of cash that helped US industry to modernise and re-tool and spurred surges in employment, again in spite of Democrat/Progressive policies …

    The Lev can claim (both brainlessly and duplicitously) that “War is how the Right does quantitative easing” – the Right, however, are aware that the lead-up to the Second World War was what brought the US and us out of the Great Depression …

    I *hope* that Pres’ent Obama isn’t trying to strengthen Iran so that Iran triggers a Middle East war – and I wish I could say with any confidence that Pres’ent Obama was too smart for that … (sigh) …

    Alastor (2e7f9f)

  49. #41: Alastor, I don’t think WWII got the economy back on track. The dismissal of the New Dealers during and after the war, and FDR’s belated death were the keys. Very few people really benefitted from the mass production of B-24s, B-17s, Liberty ships, etc. My Dad used the same set of tires throughout the war because civilians couldn’t buy new tires. It was a time of hardship, heartbreak, and death. All the smart people thought the economy would tank with the (overly) rapid demobilization, but surprise! surprise! all those soldiers and sailors who’d put off life for the duration had better things to do than sit around waiting for a handout.

    It is true that the public supported the effort and the expenditures, but the race riots that swept thru many northern cities are an indication that many were unhappy.

    Otherwise, we’re on the same page.

    bobathome (6f310e)

  50. Leviticus, this is before your time, but I thought you might like to know:

    WWI, Democrat Wilson President
    WWII, Democrat Roosevelt President
    Korean War, Democrat Truman President
    Vietnam War, Democrat Johnson President (following up on Kennedy’s initiative)

    These were real wars, most over 60,000 killed or MIA, hundred of thousands wounded. Ranks filed with Draftees. Hardly a reflection of Republican economic policy. And Republicans in those days were somewhat conflicted with a progressive strain, and they didn’t have the advantage of experiencing the failures of Democrat economic policies as we do today.

    bobathome (6f310e)

  51. Leviticus – are you not aware of the historically low labor force participation rates as a result of the failed Obama policies and his war on jobs?

    JD (3b5483)

  52. Wow. 53 comments so far, and Donald Trump’s name is nowhere to be found.

    That give me hope, regardless of the Dow.

    Beldar (fa637a)

  53. * “gives” I meant to say. So hopeful my grammar is suffering.

    Beldar (fa637a)

  54. [belated groan] I suspect I’ve spoken of the Devil ….

    Beldar (fa637a)

  55. Boy, and when Trump gets in that Dow won’t dare go anywhere but up!

    Kevin M (25bbee)

  56. This issue seems made for Trump. Either Fate is cooperating with his campaign or he’s right about issues like China.

    DRJ (1dff03)

  57. and when confidence falls a bit further, it is going to plummet … sadly, that is one of the things about which I am positive – the when, not the if …

    Me, too. I think we are in 1929 territory. The exact same mechanics are at play. In the 1920s, the German reparations were the drag and inflation was thought to be over because the fed could pump money out and the market just kept going up. That time, Benjamin Strong was the genius. Then he died.

    This time we have Obama and his “stimulus” which is the same a Weimar Germany for my money, which is in gold by the way.

    I was worried in 2010. Nothing has increased my confidence.

    “Under any administration, federal agencies seek to implement the president’s policies by developing regulations,” Jeff Holmstead, a lawyer at Bracewell & Giuliani LLP in Washington who has represented coal-heavy utilities, said. “But in most cases, the judges on the D.C. Circuit are the people who decide whether those regulations comply with federal law.”

    And Obama has packed the DC Circuit.

    Mike K (90dfdc)

  58. Chase that little whelp home, Bob-at-Home. Never ceases to concern me that young folks who have graduated with degrees don’t have much knowledge of fairly recent American history. I wonder why that is? No… that was a lie… I know why that is.

    Colonel Haiku (ef4f0e)

  59. Are widgets still a good buy? What about Lucky Strikes? I like pork bellies.

    mg (31009b)

  60. #45: Leviticus, the labor force does not include children under 16, nor adults over 64. Nor members of the Armed Forces, nor prisoners. The 93 million who are not considered participating in the labor force are home makers and those that aren’t looking for work. This link clarifies things.

    http://useconomy.about.com/od/glossary/fl/Labor-Force-Participation-Rate-Formula.htm

    Prior to 1960, very few women participated in the labor force. That changed rapidly.

    If we had a booming economy, a lot of those 93 million would be employed. Right now the participation rate is about 62%, say 5 out of 8. In a good economy the rate might be 66%, say 2 out of 3. So 93 million is 3 out of 8, and it would be reduced by 8/9th in a better economy, say 10 million more employed. If those 10 million are included in the 8 million unemployed now, the unemployment rate would be around 11%.

    The 5.4% number is created by the administration so that their supporters will feel comfortable. As I explained above, its count of the “unemployed” does not include any portion of the 93 million, which probably is substantial. But then again, the denominator doesn’t include the 93 million either.

    bobathome (6f310e)

  61. bobathome #50 – WWII didn’t bring us out of the Great Depression – the enormous infusion of external funds in the lead-up to the 2nd World War did … and, if the War hadn’t happened, we would still have been out of the Great Depression … the War did force renewal, but that renewal also cost enormous amounts beyond the loss of life …

    Where do we get the external infusion *this* time round ?

    Alastor (2e7f9f)

  62. this is one of those days all you can do is thank God for the food stamp multiplier effects

    happyfeet (831175)

  63. Hopefully, we can avoid the mistakes of the middle 1930s – and, at least, throw out the Progressives/Democrats, so that we can get the economy back on track *without* having to have a war …

    WWII did not get us out of the Depression.

    Patterico (3cc0c1)

  64. bobathome #50 – WWII didn’t bring us out of the Great Depression – the enormous infusion of external funds in the lead-up to the 2nd World War did

    Huh?

    Patterico (3cc0c1)

  65. We don’t need an external infusion (except possibly of labor because too many of our lardasses don’t want to work). We have sufficient natural resources to create our own wealth if we want to work for it. That might not be enough wealth flowing to the bloated leeches multinational merchants and moneylenders, but they can always move to Singapore and fund the People’s Liberation Army from there.

    nk (dbc370)

  66. Alastor @62.

    WWII didn’t bring us out of the Great Depression – the enormous infusion of external funds in the lead-up to the 2nd World War did

    Patterico:

    Huh?

    I am not sure what he means by external funds.

    But the point is the Great Depression was definitely over by the year 1940 in the United Stated – which was before the United States got involved in the war.

    But actually by 1936, the United states economy (Consumption Expenditures and Disposable Income) was back to where it was in 1929 – then in 1937, came the tightening of the mony supply and fiscal retrenchment. Not wanting to use the old word depression, they invened the word recession.

    The year 1938 also equalled 1929 and 1936 – 1937 itself actually was a bit higher – and after that there was growth.

    Sammy Finkelman (0f2215)

  67. Robert at his Residence wrote:

    I don’t think WWII got the economy back on track. The dismissal of the New Dealers during and after the war, and FDR’s belated death were the keys. Very few people really benefitted from the mass production of B-24s, B-17s, Liberty ships, etc. My Dad used the same set of tires throughout the war because civilians couldn’t buy new tires. It was a time of hardship, heartbreak, and death. All the smart people thought the economy would tank with the (overly) rapid demobilization, but surprise! surprise! all those soldiers and sailors who’d put off life for the duration had better things to do than sit around waiting for a handout.

    World War II presented the United States with an amazing economic opportunity, but one which had its own problems. After the war was over, the US had 45% of the entire world’s industrial plant, our industrial competitors being kind enough to destroy each other’s.

    The built in problem is that as our industrial competitors rebuilt, they wound up with newer industrial plants than we had, and eventually we felt the consequences of industry built in the 1920s and 1930s having to compete with industry built in the 1950s and 1960s.

    The realistic Dana (1b79fa)

  68. Alastor seems to think there were a lot of purchases of war material. I don’t think that can be for before 1940. In 1914, there was a massive selloff of stocks hed by foreigners, mostly British, and there were purchases and it absolutely cut short the depression that was happening then.

    Sammy Finkelman (0f2215)

  69. Alastor wrote:

    WWII didn’t bring us out of the Great Depression – the enormous infusion of external funds in the lead-up to the 2nd World War did

    But it wasn’t that big an infusion: The United Kingdom’s cash reserves were only about $5 billion, which was spent mostly on cash-and-carry, but the UK ran out of money quickly, and we then wound up with Lend-Lease.

    In FY1946, fully 99% of the national debt was owed to American citizens, so the debt service on the national debt was an economic stimulus program in itself. Mr Spirit noted that

    Velocity of money has slowed down tremendously as result of Dodd Frank.

    but he missed an important part of the reason. Since a significant percentage of our debt is now owed to foreign nations and investors, every dollar paid to them in debt service is a dollar removed from our economy, and that slows the velocity of money. That isn’t the whole story, but it’s a significant part of it.

    More, Treasury Bills aren’t that attractive an investment to Americans at their current low interest rates; American investors tend to prefer the higher risk/ higher reward equities, and invest more heavily in the stock market than in bonds. Thus, the “economic culture” of American investors actually slows down the very velocity of money that could help increase their profits.

    The historian Dana (1b79fa)

  70. I used to think that we’d eventually wind up inflating our way out of our debts, but as long as we’ve proved that we can simply declare the money to exist, we don’t even have to do that.

    How, exactly, is “declaring the money to exist” different from “inflating”?

    Patterico (3cc0c1)

  71. I’m in The monetarist Dana’s camp. Today even the notion of inflation is quaint. After all the quantitative easing and all the bail-outs and all the “programs” like Cash for Clunkers our inflation rate should be to the moon. Yet it’s really not, considering. They’ve been pumping something like 85 billion a month into the economy yet inflation is not somewhere around 20%? How’s that?

    It hasn’t been pumped into the economy. It’s been given to banks which have kept it in reserves and not lent it out.

    If that changes, you’ll see the higher prices.

    Patterico (3cc0c1)

  72. The Great Depression was effectively over before WWII ever started. Not saying the country had recovered 100%, though maybe so…going on recollection of previous study here, but the downward trend had ended and things had turned up.

    I dug into this subject a couple decades ago after a discussion with my father concerning those times. The poor bastard didn’t have the “advantage” of being “educated” by my high school AP history teachers. He simply lived through it and was quite surprised by my mentioning this “fact” that WWII ended the depression. His insistence, and the new availability of the Internet, led me to dig into the statistics and such. the GD was over by 1937 or so, iirc. Again, things weren’t like the excesses of roaring 20’s, but the U.S. recovered and was on the upturn.

    WTP (094b61)

  73. Not 1937, there was another trough then.

    Patterico (3cc0c1)

  74. Respected Patterico #64 – I believe I explicitly said at #62 “WWII didn’t bring us out of the Great Depression” and #49 ” the various Ueropean [sic] nations sending most or all of their National Treasuries to the United States to buy war materiel” and “the lead-up to the Second World War was what brought the US and us out of the Great Depression” … the second World War itself was a net negative – but the retooling and modernising caused by the enormous influx of orders for goods prior to the War *did* jolt the US out of the Great Depression, in spite of the Democrats/Progressives in government …

    This time round, we have already seen a foretaste of what can help us out of our current ObaMalaise … the significant increase in energy resource production (in spite of the Obama administration’s best efforts to prevent it) by the various States on mostly-private lands has brought down the cost of energy significantly … if the US was allowed to export some of these resources to Europe (and perhaps the Ukraine), that would help, too … absent that energy resource production increase, the Labour Participation Rate would be even *lower* …

    Does that clarify ?

    Alastor (2e7f9f)

  75. WTP #71 – you will find that there was a deepening of the depression around 1937, as I said in #49 – “What took this planet out of the Great Depression (in spite of continuing Democrat/Progressive policies that had caused a deepening of the Great Depression around 1937)” … I am going by memory on this, but I am reasonably confident of that year …

    Alastor (2e7f9f)

  76. War is how the Right does quantitative easing.

    Leviticus (f9a067) — 8/24/2015 @ 3:09 pm

    And a different way the Left does quantitative easing, to be fair. Not trying to accuse the Right of a monopoly on warmongering.

    Leviticus (f9a067) — 8/24/2015 @ 3:13 pm

    Quantitative easing is a policy executed by the Fed, in which they purchase large amounts of bonds in order to keep interest rates (unnaturally) low. It’s what’s been in effect during the entire Obama administration. War or any other spending does not facilitate such a policy in any way. If anything it makes it more difficult. Lately there’s been talk of the Fed finally beginning to phase out of quantitative easing.

    Gerald A (949d7d)

  77. We can slice and dice what we mean by “end of the Depression”, but it was effectively over and there was a definite turn around before the war. Yes there was a significant hiccup around 36, 37, or 38, depending on where you want to put the lags between the statistics and the actaulitues, which I’m guessing was due to ND policies finally getting traction and dragging business down and throwing business planners off their game. See charts here:

    http://www.economics-charts.com/gdp/gdp-1929-2004.html

    Not the best source but you can get the general idea based on the damned lies of statistics, but what choice do we have?

    WTP (094b61)

  78. Our esteemed host asked:

    I used to think that we’d eventually wind up inflating our way out of our debts, but as long as we’ve proved that we can simply declare the money to exist, we don’t even have to do that.

    How, exactly, is “declaring the money to exist” different from “inflating”?

    If people saw this as inflationary, and acted accordingly, it would be. But inflation has been very low, for years now, despite the Fed’s “quantitative easing” programs declaring the money to exist.

    By all of the economics you and I learned in college, the President’s huge budget deficits and the Fed’s quantitative easing programs should have triggered significant inflation, but they didn’t. Actual results have to be taken into account.

    Technically, “declaring the money to exist” is far more akin to the creation of money by commercial banks than it is to inflation. The FOMC recognizes this, and that’s why they’ve actually been fairly moderate in the way that they’ve engaged in the three QE cycles; they were, in effect, acting as though constrained by reserve requirements, the same way commercial banks are.

    The Fed could have acted more aggressively in buying back bonds, and tried to actually reduce the national debt, especially from foreign debt holders, but they didn’t: to have acted more aggressively could have had the inflationary results we fear.

    The economist Dana (1b79fa)

  79. Our honored host wrote:

    Not 1937, there was another trough then.

    The Keynesians blamed this on President Roosevelt cutting federal spending and raising taxes in order to balance the budget. I find that too convenient an answer, but that’s the point they make.

    The Dana who is not a Keynesian (1b79fa)

  80. I think there’s a generational aspect to how people think of the stock market. In the first 50 years of my Dad’s life the stock market was basically flat. In the first 50 years of my life the market has basically tripled (up more than 200%). Of course WE think it’s going back up. It always has.

    East Bay Jay (a5dac7)

  81. If people saw this as inflationary, and acted accordingly, it would be. But inflation has been very low, for years now, despite the Fed’s “quantitative easing” programs declaring the money to exist.

    Technically, inflation IS the expansion of the monetary supply and not the price effects. But if you want to talk price inflation, my point stands: the money remains in reserves at the banks.

    Technically, “declaring the money to exist” is far more akin to the creation of money by commercial banks than it is to inflation.

    Creation of money by commercial banks IS inflation. Technically.

    Patterico (3cc0c1)

  82. Our long-suffering host wrote:

    Today even the notion of inflation is quaint. After all the quantitative easing and all the bail-outs and all the “programs” like Cash for Clunkers our inflation rate should be to the moon. Yet it’s really not, considering. They’ve been pumping something like 85 billion a month into the economy yet inflation is not somewhere around 20%? How’s that?

    It hasn’t been pumped into the economy. It’s been given to banks which have kept it in reserves and not lent it out.

    If that changes, you’ll see the higher prices.

    Even the part which hasn’t been “pumped into the economy” has had an economic effect. The supply of money held by the commercial banks which is available to lend exceeds the demand for loans, which keeps interest rates down. The demand is suppressed by the perceptions of potential borrowers that the banks won’t approve them for loans.

    By any conservative standards, the banks are doing the right thing, not lending money for noncreditwothy borrowers for risky ventures; that was part of the problem in 2007-2008 that led to the crash.

    The Dana who is not a banker (1b79fa)

  83. The Keynesians blamed this on President Roosevelt cutting federal spending and raising taxes in order to balance the budget.

    Beyond that, I find it astounding that supposedly learned, supposedly intelligent economists remained baffled why the Great Depression became and remained the Great Depression — in spite of the do-gooder-ism of FDR (who merely carried out the tax-and-spend policies of his Republican predecessor Herbert Hoover) — even though income tax rates were at an absurdly high level, up to the 80-percentile range. The sheer idiocy of that — and the obliviousness of policymakers/politicians of how such confiscatory policies would go against the gung-ho aspects of human nature and put a big chill on investors’ ambitions — is hard to figure out decades after the fact.

    Mark (30fc68)

  84. Our gracious host wrote:

    If people saw this as inflationary, and acted accordingly, it would be. But inflation has been very low, for years now, despite the Fed’s “quantitative easing” programs declaring the money to exist.

    Technically, inflation IS the expansion of the monetary supply and not the price effects. But if you want to talk price inflation, my point stands: the money remains in reserves at the banks.

    That isn’t how the Federal Reserve defines inflation. There are two definitions, price inflation and monetary inflation, but almost everybody, including myself, is referring to price inflation in these discussions. Perhaps that’s too careless a shorthand here, but 97¾ people out of 100 — statistic pulled from my nether regions — would never take the term “inflation” to mean an increase in the money supply, and think that the writer was referring to price inflation.

    The Dana who cites his sources (1b79fa)

  85. I think the Fed has been out of quantitative easing (bond buying) for some time (since Q1 I believe). I’ve been thinking that at some point they have to sell the bonds. But I guess that’s wrong – why not just hold the bonds to maturity and let the activity flow into the ‘wash’ of the day to day activity? The various government agencies treat us like suckers at their 3 Card monte game – the opaqueness of this isn’t a bug, folks. It’s designed that way.

    East Bay Jay (a5dac7)

  86. Remember that the money from Federal borrowing and from tax revenues enters the economy via the payment of debts to contractors, Federal employee salaries, and by entitlement payments. The latter category constitutes the bulk of the expenditures. We have it on good authority from Nancy Pelosi that every dollar given to an unemployed worker generates two dollars. So all that borrowing should have resulted in three times the amount circulating around. Alas, I fear Nancy was wrong. The money was spent by the welfare client. The grocery store, liquor store, casino, etc., receiving the money deposited the money in their account at the bank, and most of it then went to pay their suppliers and their employees. Since this was pretty much the same amount that had been spent the previous month, no new economic activity was generated. The profits from the existing activity were deposited, and the business generating those profits had the opportunity to expand, but with Dodd-Frank and ObamaCare, who was stupid enough to do that? Ditto the bank where the money was deposited. The businesses they dealt with were trying to figure out how to get along with fewer than 50 employees, or how to limit working hours to under 30. Not an ideal environment for expansion. And ordinary contractors got more and more trouble from the BLM, EPA, Forest Service, and all the wannabe local permit tyrants, and so they retreated to a survival mode. This is the recipe for extinguishing inflation and pretty much any growth of business.

    bobathome (6f310e)

  87. That isn’t how the Federal Reserve defines inflation. There are two definitions, price inflation and monetary inflation, but almost everybody, including myself, is referring to price inflation in these discussions. Perhaps that’s too careless a shorthand here, but 97¾ people out of 100 — statistic pulled from my nether regions — would never take the term “inflation” to mean an increase in the money supply, and think that the writer was referring to price inflation.

    I don’t care how the Federal Reserve defines inflation, or how 97 whatever people out of 100 do. The proper definition is the one I gave. Let me quote Henry Hazlitt, from his book on inflation:

    The word “inflation” originally applied solely to the quantity of money. It meant that the volume of money was inflated, blown up, overextended. It is not mere pedantry to insist that the word should be used only in its original meaning. To use it to mean “a rise in prices” is to deflect attention away from the real cause of inflation and the real cure for it.

    This is why I am insistent about it.

    Patterico (3cc0c1)

  88. Let’s say you have a mortgage on your house. You pay your mortgage, but no one else does.

    However, your lender has a free supply of cash because it has established its net worth on slave labor. Then the slave labor creates a middle class. The middle class starts demanding more capital as its slave labor diminishes. So the government devalues its currency to reestablish slave labor.

    And you, as a mortgage holder, sit around and thumb your fingers about what went wrong as you lose your house because the mortgage was just too big for what you could afford.

    And all the wolves are at the door.

    Ag80 (eb6ffa)

  89. Associated Press propaganda slut Elliot Spagat sluts hard right out of the gate with this bold stab at an Official Narrative

    For many investors, lessons of the Great Recession are fresh. They survived, and some thrived with patience. They see no reason to panic now.

    no, seriously folks

    it’s time to cozy up

    John Londoff Jr. cozied up to his computer Monday to check on the market at his family’s Chevrolet dealership outside St. Louis and declared it was far too early to be concerned.

    happyfeet (831175)

  90. I also woke up this morning and counted my hoots, and I still have as many as I had Monday morning. Wall Street is only as important to you as you make it.

    nk (dbc370)

  91. Our very tolerant host wrote:

    I don’t care how the Federal Reserve defines inflation, or how 97 whatever people out of 100 do. The proper definition is the one I gave. Let me quote Henry Hazlitt, from his book on inflation:

    The word “inflation” originally applied solely to the quantity of money. It meant that the volume of money was inflated, blown up, overextended. It is not mere pedantry to insist that the word should be used only in its original meaning. To use it to mean “a rise in prices” is to deflect attention away from the real cause of inflation and the real cure for it.

    This is why I am insistent about it.

    Therein lays the problem: “The word ‘inflation’ originally applied solely to the quantity of money.” That’s like insisting that, because the word “gay” originally meant happy and carefree, it cannot now mean homosexuals, yet you, on this site, have used the word “gay” to refer to homosexuals.

    If I recall correctly, you had this discussion with Jeff Goldstein a few years back, in which you took the position that you words had to mean what listeners thought they meant, or your words became subject to an interpretation that you might not have meant; ’twas Mr Goldstein who insisted, I believed incorrectly, that no, what you said was what you meant it to say, even if other people misinterpreted what you meant. If my recollection is accurate, then you are currently taking a position contrary to the one you took with Mr Goldstein.

    (To be fair, I refuse to use the word “gay” to refer to homosexuals myself, but I still recognize that other people interpret it that way.)

    I shall attempt to use the more precise “price inflation” formula in our future discussions, so as not to sow any future misinterpretations, this being your site and not mine, but, in reality, it would be better if you specified monetary inflation as your meaning, because that is how most readers will interpret the word inflation.

    The Dana who's probably annoying our host by now (f6a568)

  92. As of right now, the Dow is up 353.09, or 2.52%.

    The Dana who watches the market (f6a568)

  93. As of right now, the Dow is up 353.09, or 2.52%

    Gee that sure sounds like good news. At least it take some of the edge off the fear and loathing from yesterday. Nobody cares.

    WTP (41d24a)

  94. “Money” is not an absolute, it is an artificial commodity used as a common object of barter. Ideally the money supply expands or contracts with the value of all goods and services for sale, and its value remains constant.

    “Inflation” in the modern sense can happen with a decreasing money supply if the value of what you can buy with it decreases faster (e.g Suppose I smash all of DeBeer’s diamonds tomorrow). Similarly with deflation.

    Since it is not in any way wise to have a fixed money supply, nor a money supply that changes without respect to the overall economy, it makes no sense to define, well, anything with respect to some fixed amount of money.

    Kevin M (25bbee)

  95. BTW, the market closed down over 200 points.

    As I said:

    Buying opportunites?

    Perhaps. But not just yet. There are still some bulls who have to be defenestrated.

    Kevin M (25bbee)

  96. Well I took the opportunity to establish a position in MNKD today at the siren call of $3.30. I expect to invest about 1% of my cash pile every day (and average down) until MNKD flatlines, at which point I will consider larger outlays. If MNKD begins to rise (very unlikely) I will continue to invest 1% until it stalls, then I will consider cashing out with whatever profit there is to be had.

    felipe (56556d)

  97. The Dow closed down 204.91, or 1.29%. Most mutual funds in 401(k) and 403(b) plans buy on Mondays or Tuesdays, so if you’re in one — I am — you probably got more shares for your money this week than you would have a week ago or a month ago.

    The funds I am in did not buy on Monday, so unless something really unusual happens, they will buy today.

    The market-savvy Dana (f6a568)


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