Well, this is all very exciting, isn't it? As I write, the DJIA has rebounded a bit to -300 from opening, the TSX is down closer to 350 (a similar percentage fall), and major US indices are all down at least 2.5%; oil and gold have both spiked down as well, indicating possible margin calls. We bounced off the lows set in futures overnight, which means that the current midday bounce may be cash-ins of overnight futures. If it is, watch out. Globally, markets are now officially in "correction" territory. There's some argument going around about being oversold. I suspect there's some technical support for that idea. I also suspect it doesn't matter.
Part of the proximate cause is Europe's overnight stock tumble, with major indices there down between 3.2% and 3.9%. Most of that is related to the debt crisis spreading to Italy. (Scroll down past the part on the US debt crisis, he talks about southern Europe further below.) The ECB is going to have to save Italy's next bond auction, and has announced plans to start buying member government bonds.
It doesn't help that we've got a whole spout of lows in various indicators, such as the ISM services and manufacturing indices.
Nor does it help that the unemployment report came in with another four-handle. Once again, we have the traditional revision games; it's reported as "down" from last week's "revised" total - but last week was, as usual, revised upwards. Compare unrevised-to-unrevised, and it ticked up, not down. Throw that in with an ADP jobs-growth report that even Marketwatch calls "tepid" and a 60% surge in layoff announcements, and you have traders deciding to get ahead of the oh-look-another-recession curve.
Also not helping: the treasury market has been flashing some alert signs that were really hard to read until a debt extension deal went through. And people have also been doing some 2008 curve fittings and while, again, technicals are bullshit, a lot of people believe in them, so, um, yeah. Mmmm, self-fulfilling prophecies.
I promised some notes on the debt agreement, but have been late, because I wanted a few more days to think about it. Bluntly, it still sucks, to the degree that I think it competes with no agreement at all. Defenders of the agreement insist that the supercongress agreement (lol supercongress - anybody else think of Super Grover when they envision that? Only with a little capitol dome on his head instead of the knight's helmet?) will force an ending of the Bush tax cuts. If that happens, then this deal does become somewhat less bad, and specifically, does improve to better-than-nothing. But all that relies on the Republicans being unable to force a crisis - and the Democrats being unwilling to fold - when push comes to shove. What's the last 20-odd years got to say about that possibility?
Yeah, I thought so.
Seriously, this is a no-way-forward compromise. It's the kind of "compromise" that has everyone pissed off not because everybody gave up something - arguably true - but because it sucks.
Seriously, let's go through the list. Keyesnians get no stimulus; welcome to the United States of Austerity. Except it's not productive austerity; it's stupid austerity, the kind without debt reduction which just makes everyone angrier and more frustrated. See below for a note on food stamp usage.
Hayakians got no actual net spending reductions - just slowing increases - which means that the debt overhang continues to build, until and unless everything just falls over in a highly disorderly fashion, suppressing economic growth and suppressing any opportunity for hiring. C.f. commentary like this regarding "dysfunctional" governments. And, of course, the zombie banks are still propped up. C.f. this interesting article in the BBC about how Iceland refused the bailout, let the debt go to bankruptcy, and seems to be doing pretty well now.
Chicago school... I don't even know what they're wanting right now, but they're certainly accepting of what they're getting from Mr. Obama. Honestly, I think they're just opting for freezing current conditions and hoping magic happens. I don't see it.
A deal allowing for stimulus would boost the street (if not, in real terms, the economy); a deal reducing the debt would provide confidence (deserved or not) in corporate boardrooms and a way forward after the immediate pain; what we got - this whole fiasco - boils down to, "well, we didn't drop this bomb. Go us. Oh, but there's still a timer."
I wonder if that debt clock in Manhattan flips over to black and red hieroglyphs after reaching the debt limit?
Oh, and with sad predictability, despite dire warnings, Moody's caved on downgrading the US. The US is still on credit watch negative, which means... hm... let me check my references... not a goddamn thing, that's right. (Chinese credit ratings agency Dagong, by contrast, did downgrade. But nobody cares.)
Meanwhile, the currency wars are kicking up. These interventions to keep currencies low against a deflating dollar - necessary to keep export advantage - are ramping up in both scale and frequency, and starting to get a bit more bellicose. These have the potential to turn into trade wars. I am hearing that RGE Monitor's Dr. Roubini thinks that QEIII will come in the form of currency manipulation - intervening to bring the dollar lower - but I don't have a firsthand link for that. (Yay, paywalls.)
And get this: The Bank of New York is going to charge large depositors for holding cash. Wow.
Various social notes: For commentary on the social forces behind much of the situation in Europe, you may enjoy this article in Le Monde diplomatique's English-language edition. In the US, I suspect a component of moral panic to this article, but I also suspect it's in part true: college students using 'sugar daddies' to pay off loan debt. Unarguably, US food stamp enrolment hits a record high, almost entirely on Alabama's usage rate doubling. Food stamp equivalents are accepted at every farmer's market here in my region of Cascadia, as well.
Not much change when typing this. US dollar index is up. Dow is bouncing up and down around -300, S&P 500 hanging around -33, TSX level at -350. Good luck, everybody.