the wreckage at the end of the day

[solarbird]

Today's fall of 733 points in the DJIA was the 2nd largest by point total ever, just a bit behind the 29 September drop of 777.68 points. By percentage, it makes the top ten at 9th worst (7.87%), just below the week after the Crash of '87. Other than those two dates in 1987 (the Crash itself, and the week after), all other worse dates are from before 1933. (Data from Wikipedia, here.)

The S&P 500, a much broader index than the Dow Industrials, actually did worse, falling just over 9%, to 907.94 - a 42% decline since October 7th last year, its highest close. The TSX lost 631.81 points, down nearly 6.4%. US Treasuries sold off much of the day, again, as cash continues to be hoarded, but late buying ended up pushing end-of-day yields very slightly down.

Most of this is on bad news; the Baltic Dry Index, a measurement of shipping activity, has augured in, with banks doing very, very little of the necessary lending. Various people suggest that hedge funds are imploding, with each implosion setting off another round of implosions. And consumers are running scared, for good reason.

It's almost certainly meaningless that Mondays' bounce started the instant the major averages hit their 1987-1995 trendline, but I mention it anyway. It's also too early to call this the shortest damn Wave 4 ever, but the five-day charts do show a very clear head-and-shoulders. Well, okay, it's not as clean on the NASDAQ, but on the Dow and S&P500, it's nearly picture-perfect.

In social mood update news, Andrew Sullivan thinks that if he wins (as I've been saying for some time that he will), Senator Obama will get to be a Depression president. Isn't that delightful.

As a silver lining, oil closed below $75/barrel today in continued anticipation of demand plummet - but with severe negative effects on the TSX and its energy sector. The Canadian dollar has seen a larger swing down than I anticipated on the problems in the energy sector. This timing is extremely problematic in that it will hurt a broad spectrum of energy efforts, making recovery later more difficult. And finally, in not at all good news, the TED spread did not decline at all during the day, staying within a very high trading range throughout. The LIBOR is down, but not significantly as of yet. They're both still off their peaks, but far, far, far into crazy territory.

eta: Read National Review White House Correspondent Byron York try to blame it all on minorities. Watch New York Magazine correspondent Matt Taibbi lay on with the smackdown. See Byron York EJECT EJECT EJECT. (Seen previously, thanks kathrynt for making me actually read it.)

Comments

"Is this still a financial crisis, or has it become a way of life?"

[silussa.livejournal.com]

That's the opening line of American Public Radio's Marketplace this evening.

I'm inclined to agree with the latter. We're all in the mood to pay down outstanding debts...both personal and business. Over the years, the economy has been massively stimulated by leveraged investment...which is now being UNleveraged and, as a result, reversing the stimulus effect into a depressive one.

In the long term, it's good. In the short term, though, we're going to have a lot of pain. Or more. short term being, I would estimate, a couple of years.

Re: "Is this still a financial crisis, or has it become a way of life?"

[solarbird]

Minyanville has talked a lot over the last year and a half or so about how deflation is a mindset as much as anything else; a social phenomenon as much as one economic.

Re: "Is this still a financial crisis, or has it become a way of life?"

[silussa.livejournal.com]

If you mean social in terms of "if people begin to believe in it, it will occur", then I'd agree. Otherwise, I'm not quite sure what you mean.

The interesting thing, though, is that most folks alive today have never been through a full-blown deflation. Certainly not I, although I'm familiar with the theoreticals of it, and the computer industry has given a nice sector example over the years.

Re: "Is this still a financial crisis, or has it become a way of life?"

[solarbird]

Deflation - monetary deflation - is in large part a function of dramatically reduced appetite for risk, which manifests as unwillingness to borrow or loan. Accordingly, risk aversion spiking - which happens cyclically - helps trigger these events, and perpetuate them.

This is one of the reasons I'm in favour of the short-sharp-shock theory, because what we've been going through has given people time to adjust and start this cycle. The short-sharp-shock would've been a big punch to the face, but then with renewed transparency and liquidity - aided, if necessary - would have allowed things to pick up again quickly. But once you get into these kinds of grinds, it takes a long time to work your way back out of them.

Re: "Is this still a financial crisis, or has it become a way of life?"

[silussa.livejournal.com]

Does that mean a willingness to accept risk is going to be harder to find, and increasingly profitable, in the upcoming deflationary cycle, assuming it happens?

Re: "Is this still a financial crisis, or has it become a way of life?"

[solarbird]

...combined with cash? Yes. Yes, indeed. But it has to be very smart risk acceptance, particularly at first, because you'll have to operate with a lot of other people who won't tolerate much of it at all.

[llachglin.livejournal.com]

Matt Taibi just totally owned Byron York. Quite entertaining.

As for the economy, I don't think it will right itself from the new deflationary psychology. (You mention the short, sharp, shock method above.) I agree that it's good in the long-term for people to reevaluate how they live, but the problem in the aggregate is that even the low-risk economic activity stops because no one wants to take any risk at all.

That's why we need government intervention, but not "business as usual" attempts at stimulus, which will either fail or flip the switch into a hyperinflationary reaction. We need government-led lending and investment around infrastructure that will create a stable basis for people and banks to begin taking measured economic risks again. Some of the same experts who predicted the current situation (e.g. Roubini) are now being savaged by their avid readers, who seem to think that the best thing to do is to do nothing.