I Don't Get It
Economists predict that the effects of Katrina, combined with high oil prices, will reduce GDP growth by one or two percentage points. Yet I can not see that Katrina has had any effect on the stock market. We are partying on. Yet, normally, a catastrophe like this would create at least a dent in the market. (Example: 9/11.) I don't understand it. This situation reminds me of a cartoon in which Wiley Coyote has run off the cliff, but has not begun to fall.
What are some possible explanations?
a) Rebuilding New Orleans and the Gulf cities will create a building boom that will stimulate the economy. Well, that's true, but it has been taken into account in economic predictions of a decline.
b) Trading is dominated by hedge funds. Their complicated strategies are temporarily holding up the market. I have a hunch that this is true, but I do not know how one could prove it.
Beyond economics, there is the possibility that disappointment over the administration's actions will affect the mid-term elections next year. That could drive the market down.
There seems to be more downside risk right now than likelihood of upside gain. I am sticking to the conservative asset allocation that I described previously on July 12.
posted by James Moule @ 9:35 AM
3 comments
3 Comments:
Possibly there is an effort now to support the market, just in case of events such as these. In the 1980s panic in the market caused a crash that was attributed to programed trading, where many computer trading stop loss orders were tripped and contributed to a mass sell off. Market Makers might have colaberated to offset a panic sell off buy supporting the price. This would benefit them ultimately as well. Just a thought. Maybe the government is involved.
I am reminded of my old boss Bob Wieser, who used to say, "Whenever you think that conspiracy is the reason behind some unexplained event, consider the other alternative: stupidity".
Hi James,
Welcome back to the blogging world, miss your entries. I did not check till now. Happen to stumble onto your blog(am a beginner). Your pictures that show the descanso is what attracted me. I stayed in a country with no such thing and didn't know that term. Hope to see more descanso pictures. Anyway your pictures and your life seems pretty interesting....envy envy envy
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