Comments on: Why market aftershocks will continue http://blogs.reuters.com/felix-salmon/2011/03/15/why-market-aftershocks-will-continue/ A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 http://wordpress.org/?v=4.2.5 By: gAnton http://blogs.reuters.com/felix-salmon/2011/03/15/why-market-aftershocks-will-continue/comment-page-1/#comment-24958 Thu, 17 Mar 2011 04:46:54 +0000 http://blogs.reuters.com/felix-salmon/?p=7614#comment-24958 Most of the world economies are tottering and are very vulnerable to unforeseen and in some cases unpredictable calamities (be they due to human foibles or to natural causes). We have seen two prodigious examples of this in the last week or so.

Firstly, the Fed’s Ben Bernanke was worried about deflation, and he that that “a little bit of controlled inflation” would be a good idea. (I believe that Ben gets most of his great ideas while sitting on the toilet seat). Anyway, he printed and dumped on the world market an obscenely large amount of US dollars. While most of the effects of this action have not as yet played out, almost immediately world food prices soared. (This dollar debacle was not the sole cause of this, but it was certainly the precipitating factor.) Most of the population of the oil rich middle east and north Africa are poor and spend about 80% of their income on food. All of a sudden, due to this Bernanke foible, many could no longer buy food or eat. Some of the unintended consequences of this increase in food prices caused demonstrations, riots, and a civil war, and the ousting of governments that that were friendly (bought and paid for) to the US government. Of course, the CIA was completely surprised by this, and as a result of the CIA non-performance, the surprised Obama needed two or three days to get his act together (the situation was extremely complex).

Of course, the other great surprise was the Japanese disaster, which will have many still unknown drastic and long term effects on the US and other world economies.

The conditioned Obama administration response to these situations is “not to worry–we can handle it–we can manage the situation”. Yeah, sure they can!

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By: TFF http://blogs.reuters.com/felix-salmon/2011/03/15/why-market-aftershocks-will-continue/comment-page-1/#comment-24940 Wed, 16 Mar 2011 20:24:45 +0000 http://blogs.reuters.com/felix-salmon/?p=7614#comment-24940 I’m confused… Why again is it a disaster for society of the S&P drops a few hundred points?

Presumably anybody investing in the market understands the short-term risks. I would worry far more about another 15% drop in the housing market than I would about a 15% (or 50%) drop in the stock market.

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By: flerg777 http://blogs.reuters.com/felix-salmon/2011/03/15/why-market-aftershocks-will-continue/comment-page-1/#comment-24903 Wed, 16 Mar 2011 15:44:53 +0000 http://blogs.reuters.com/felix-salmon/?p=7614#comment-24903 Mr. Salmon, I’ve enjoyed your posts, and look forward to a reading and hearing you for a long time (pretty cool getting a gig on “Marketplace.”)

I wish you would talk to the terrible, weasley nature of markets during times of crisis. I’m watching the markets fall, and knowing that these major moves are caused by gigantic financial forces, forces that could make a stabilizing and investment stake in the immediate and future aftermath. I see Goldman Sachs, for example, give something like $6 million in donations, while I know they are pulling hundreds of millions of dollars from investment – increasing volatility and uncertainty in the meantime.

This isn’t to say that they should go in, given the market structure. But, this is definitely an example of the market failing to provide for society.

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By: TFF http://blogs.reuters.com/felix-salmon/2011/03/15/why-market-aftershocks-will-continue/comment-page-1/#comment-24894 Wed, 16 Mar 2011 11:25:16 +0000 http://blogs.reuters.com/felix-salmon/?p=7614#comment-24894 Agreed on the discount rate — best I can tell, the discount rate being applied to the probable income stream for equities is in the high single digits.

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By: TomLindmark http://blogs.reuters.com/felix-salmon/2011/03/15/why-market-aftershocks-will-continue/comment-page-1/#comment-24862 Wed, 16 Mar 2011 01:50:14 +0000 http://blogs.reuters.com/felix-salmon/?p=7614#comment-24862 OK, I won’t pile on … much.

The discount one picks to value future earnings is independent of current market rates. It’s a subjective exercise and I doubt that anyone is using today’s rates as a probable proxy.

Having said that, this was otherwise a very good post.

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By: Hookahboy http://blogs.reuters.com/felix-salmon/2011/03/15/why-market-aftershocks-will-continue/comment-page-1/#comment-24858 Wed, 16 Mar 2011 01:11:56 +0000 http://blogs.reuters.com/felix-salmon/?p=7614#comment-24858 Come on Felix, I expect better from you! You write: “And both of those effects are magnified when you’re in an economic environment of zero interest rates. That’s because the discount rate at which you value future income is very low, …..” Have you looked at a LIBOR forward curve recently? Future cash flows are certainly not being discounted at zero under the forwards!

I agree with everything else you say, but this one is a stretch I think.

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By: maynardGkeynes http://blogs.reuters.com/felix-salmon/2011/03/15/why-market-aftershocks-will-continue/comment-page-1/#comment-24841 Tue, 15 Mar 2011 19:19:33 +0000 http://blogs.reuters.com/felix-salmon/?p=7614#comment-24841 By definition, isn’t tail risk the type of risk that cannot be rationally priced in by the markets?

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