Counterparties: Why did markets move?

October 23, 2012

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Today, the Dow Jones ended down 1.82% and the S&P 500 was off 1.44%. Of course, the media needed to come up with a reason why.

Here’s a video from CNBC this morning that’s just over five minutes long but offers a dozen reasons why stocks are down:

Concerns about the strength of corporate earnings, particularly multinationals like DuPont, IBM and McDonald’s; increased selling by liquidity-seeking Europeans; China’s slowing economy; Wilbur Ross decided it might be better to invest in Spanish banks next year; Spain’s GDP continues to shrink; The short-selling ban in Spain expired yesterday; Obama used the word “sequestration” during last night’s debate, reminding people of the fiscal cliff; Fed policy continues to keep assets prices at some level above their fundamentals, but the fundamentals are worsening; Each round of QE has been decreasingly effective; The technicals of the S&P 500; Romney might win the election; Apple’s roll out of the iPad mini might be underwhelming.

At the NYT, Nathaniel Popper chalked the decline to falling corporate revenue and profitability. The WSJ’s Chris Dieterich also points the finger at earnings, but only because they “refocused the attention of investors on the fragile global economic recovery”. Bloomberg’s Rita Nazareth adds falling commodity prices. Then again, maybe it was S&P technicals, and the fact that the index fell through the 1420-1425 range.

Alternatively, said CNBC, maybe it was the Fed! If Ben Bernanke is propping up the markets, then Andrew Ross Sorkin and Binyamin Appelbaum contemplating what the Fed might look without him might be enough to roil markets. (Although this possibility was also contemplated four days ago.)

Even if you think stocks got “crushed“, you can have positive causes, too. Tech stocks, we’re told, were up on strong earnings from Yahoo, and transportation rallied because of the earnings report at Ryder System.

All post-hoc explanations of the day’s trading are vulnerable to the so-called narrative fallacy. Here’s Nassim Taleb:

Explanations bind facts together. They make them all the more easily remembered; they help them make more sense. Where this propensity can go wrong is when it increases our impression of understanding.

Or, more succinctly, “you’ll never learn anything from a market report”.  — Ben Walsh

On to today’s links:

Apple announces thing that’s smaller than other thing – Verge

Crisis Retro
75% of America’s biggest mortgage lenders in 2006 are out of business – Matthew O’Brien

EU Mess
Hedge funds are currently in love with Greek debt – WSJ
Berlin is now the unofficial capital of Europe – FT
EU backs financial transaction tax – BBC
Britain has left the European Union in all but name – Telegraph

New Normal
America’s doctor shortage: In Las Vegas, it can take 6 months to get a check-up – Bloomberg
Why market dynamics aren’t enough to support a health care market – Synthenomics
“Colleges may in some cases be pricing themselves out of the market” – Bloomberg

Loss Leaders
Apple, Google and Amazon are really good at knowing what to lose money on – QZ

Popular Myths
5 misguided economic themes from last night’s debate – Matt Yglesias

They can’t both be right: “Savvy” experts vs. polls in the Presidential race – James Fallows

Low rates are “transforming the banking industry from savings and loans to service and loans” – WSJ

The Greg Smith Files
Goldman’s PR chief on how to get a “fair shake” from the NYT – Kevin Roose

Strange Bedfellows
Barney Frank sticks up for JPMorgan – Reuters

Billionaire Whimsy
John Paulson donates $100 million to his morning jogging path – NY Post

Mission accomplished: Brian Moynihan says BofA has built a “fortress balance sheet” –Bloomberg

Why the CBO’s forecast about the fiscal cliff is way too optimistic – Sober Look

There’s no good reason for hearing-aid inflation – NYT

Right On
In defense of trade deficits – Reason

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