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« Obama on Jobs | Main | Understanding Chinese Policymaking »

September 11, 2011



Angel -- You have a good analysis in the terms of the index. I think most of us would have trouble thinking about this artificial "crisis" as the equivalent of 9/11 -- a point that I was trying to dramatize.

How about this idea? Since it is so far off, we might have some mean reversion. I think we will see it in behavior.



Andrew -- I have written several times that I don't think the 2008 comparisons are appropriate. This is something that I am watching closely.

Your question is good, with plenty of detail. I can't answer more completely right now, but stay tuned.

Thanks for joining in!



John -- My first take on this was with the liquidity camp. I did some research and observed trading.

I revised my opinion, as noted here:

We should all accept new information.

The HFT guys move the market, increasing volatility. We can exploit this.

Good question, and thanks.



Tim -- No question is dumb. The search for wisdom begins with questions.

The market fights the "last war." In 2008, there was a sequence of failing banks. The popular perception is that Europe is an analogy to the early stages of 2008. In this viewpoint, usually described with "dominoes" or "cockroaches," Greece is only the first nation to fall.

My three-point analysis in this article is designed to provide some analysis for what might happen. I think it is unlikely.

Thanks for asking a question on the minds of many!



The funny thing is Greece has the population of Ohio. So why do they effect the world markets so much?
Sorry if this is a dumb question new to this.


Thanks again for a good post Jeff.

What is your opinion on trade done by computers? This issue is being brought up on regular basis where I live.

Some people claim that it increases volatility and enforces on going trends, hence being bad for the market, and some people think that it is good for the market because it increases liquidity. What's your take on this?

My abilities to analyze this issue are a bit limited.

Andrew H

The single factor I see weighing on the market is the rising fear around a liquidity crunch and bank refinance risk. Absent a resolution of the Eurozone debacle it is hard to see any recovery in bank stocks as the contagion risk contaminates everything. If banks can't access the equity or debt capital markets they will default unless bailed out. The scale is too big for a general bail out so which entities survive and what happens to their offshore subsids and branches? If banks can't raise funding they can't lend. If banks can't lend clients can't borrow. This is about second and third order consequences, confidence and liquidity. I like the data analytics but I fear they may get steam-rollered by the mess in Europe. I listened to one manager saying that if she were following fundamentals and analytics she would be fully invested but she isn't because she sees much more downside and opportunity to come. I am especially fearful about structured note issuer risk - it could be deja vu all over again. And I'm by nature an optimist.....

Angel Martin

Jeff, a well argues summary as always.

However, I would add an additional consequences of 911 and the wars that followed: there was also a temporary price spike, especially commodities, farmland and residential real estate. This sort of price action is usual during wartime and Afghanistan/Iraq was no different.

On the public opinion scoring the debt ceiling worse than Sept 11: I disagree with your analysis. In times of national crisis, most of the public (excluding the extreme partisans) want the Washington politicians to work together. That happened after 911.

With the debt ceiling crisis the public saw the opposite: they saw politicians in Washington use the threat of intentional debt default or large scale program non-payment as leverage in political bargaining, and the public was not impressed.

Viewed on that perspective, the debt ceiling was a more significant confidence reducing crisis than 911, because it showed just how bad Washington at it's worst could be.

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