So, at least we learned one thing from the Congressional Super Committee for the Production of Political Theater. Twelve politicians does not constitute a too big to fail organization. (H/T to Fay for that line) If the Wall Street Journal is to be believed, the stock market sold off because a bipartisan committee of committed partisans failed to reach agreement on how to reduce the budget deficit.
Really? Were there actually sentient beings who expected this group of political hacks to agree to anything that compromised the production of campaign slogans? Supposedly, the committee’s actual admission of their expected failure could trigger a ratings agency downgrade and that’s why investors were tossing out stocks like used kitty litter. Are there really people who trade on such things?
I’m of the opinion that the sooner and deeper the ratings cuts, the more likely someone assumes the identity of an adult up on Capitol Hill. It took two downgrades for Canada to get its act together back in the early 90s and a posse of bond vigilantes to turn the trick in Europe this year, so why would we expect our politicians to do any better?
So, is the market so skittish that even the appearance of white swans induces panic selling? Was there anything more predictable than this failure? The consequences of failure were known in advance and if you weren’t expecting it, you might want to have your doc check the dosage on your happy pills because you were way, way too optimistic. And the “consequences” probably won’t happen anyway. Will Republicans really want to go out on the campaign trail without renewing the paltry payroll tax cut for the working class? I have my doubts. They’ll try to horse trade something out of the Democrats for it, but they’ll eventually cave and extend the cuts until after the election. And the other cuts don’t happen until 2013 so that will be up to a newly elected and bribed Congress to repeal.
Meanwhile, back on planet Earth, the US economy continues to turn in economic statistics that are surprising the hell out of the Wall Street economists. Existing home sales were better than expected (although with an extraordinarily high number of closing failures; what’s that about?) and the Chicago Fed National Activity Index improved a little and remains solidly just below the long term trend but safely out of the recession zone. The economy is still a long way from good, but it doesn’t appear to be getting worse and in some areas seems to be improving.
So why did the market sell off? My guess is that at least part of the explanation is this statement from Chinese Vice Premier Wang Qishan:
Amid uncertainties, the one thing we can be sure of is that the global recession caused by the international financial crisis will be extended.
Now I don’t know Wang Qishan from General Tso and his famous chicken so I have no idea whether he knows what he’s talking about, but a negative statement from a high government official in a country where the economy is controlled by the government probably carries some weight. Anyway, Asian markets didn’t seem to like it and US traders are so nervous they sell first and ask questions later and that was probably enough to knock us down nearly 2%. Besides, haven’t you heard? The world is coming to an end and the Mayan calendar ends in December. Better sell ’em now.
Or maybe not. Who knows what goes through the minds of the millions of investors who make up a market? Certainly, nothing rational.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.