When in the history of the United States of America has the market corrected itself upward?
That means no tax cuts nor tax hikes, no influxes of money from the federal government, no rate cuts by the Fed, and no change in monetary policy. It just bounced back all on it's own.
If nobody has an answer to that question then I want to know why the Republicans keep saying it can happen and why talking heads on Tee Vee and other media folks keep repeating it.
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SG, the problem with these talking heads is
ReplyDelete1. There understanding of correction
In theory they're right, if the govt did nothing the market would eventually self correct upward, but that up would only come after a severely chronic oversold market (I would predict 5 on the DOW). If after going to 5 the market then bounce back to 6500 and ranges +/- 1000, that would be a correction. What they are trying to convince laypeople of is that if the govt did nothing the DOW would be back to 12 by tomorrow, which is patently false to any market observer regardless of their politics.
So your friend is right that it would correct, but if he knows anything about trading or investing then he knows that a correction is simply an adjustment from an oversold or overbought market.
I've traded APPL for over 18 months now. It's down from a high of 212 to a low of 79 over that period. It now ranges from around 80-110, but no where near 212. The problem with the talking heads is they don't admit the fact that corrections are not made equal. They may take more than they give or give mor than they take.
Dude, all that the stimulus and bailouts are doing is tangentially adding liquidity to the market. In theory it's the same as Buffet deciding to buy 1M shares of Apple or Jobs deciding to offer more shares.
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ReplyDeleteYou missed the question. I didn't ask about theories, I asked about real life examples. See the problem with the theory that it will self correct is that
1. We have no data to back it up
2. We don't know what will happen to the businesses that see a sharp fall in their value. Think the internet bubble of the 90s. How many of those companies folded when there was a big sell off? And in that instance Bush took the action of cutting taxes. Had he not done that what would have happened to the country and the markets?
My point is that in theory yes you would think that once the market hit the bottom or what we thought was the bottom people would buy back in. But what if there is nothing to buy back in to? And what if the usual suspects who would buy back in lost their shirts in the down turn just like what has happened recently? People keep saying that the bailout didn't work. I know I am a voice in the wilderness but even though it didn't work as well as most would have liked, the fact that the Dow hasn't plummeted to 5,000 says to me it DID work on some level. Free markets only work during an upswing. In a downturn the govt has to take corrective action because nothing else will stop the economy from going in the shitter. Ronald Reagan's goofy economics should have taught everyone that and thats why Bush 41 ended up having to raise taxes.
1. Your question is akin to asking when has my little brother ever lost a fist fight, when Mike Tyson has not jumped in on his behalf. The answer is never. But that's a silly question...
ReplyDelete2. You're clumsily making the point that if the govt didn't jump in things would not recover without allowing for the fact that the govt has never not jumped in to disprove that???
3. In the absence of data, theories usually suffice in debate.
4. I assume that what you're really asking is not regarding an upward correction but recovery, essentially 'would the DOW go back to 12K in a free market with no govt intervention?' and the answer is no, not anytime soon (See Nikkei from '89-present). So you're right...that is if you're asking about recovery and not self correction.
Now, I was verbose last time so it may have got lost, I try again.
Correction: A retracement from an oversold or overbought condition. Corrections ARE NOT MADE equal. That is, a downward correction may be 45% and an upward correction may be 15%.
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ryanculver.blogspot.com
1. So your brother won every fight he has ever been in? Must be a tough dude.
ReplyDelete2. No that wasn't the point I was trying to make. The Free Marketers try to make the point that the the markets WILL come back if we allow them to correct themselves. I am just asking them to prove it, quantify it, or STFU about it.
3. Not when there are competing theories, see Keynes
4. I understand what a correction means. But I also know that whenever there is a downward correction something is done to mitigate it. Therefore we don't really know if the market would even come back up 15% you listed in your example. By the by even if we got a net 30% loss in our markets and there is no government intervention we are pretty much fucked. Thats MY theory.
1. Touche. I meant to say has jumped in. You still get my analogy though.
ReplyDelete2. Sure it is. In your original post you ask for examples of recovery without govt intervention and then retort that there is no data to back up the claim of non govt recovery. If you're on the free market side of this argument I'm seriously missing something.
3. Um...I said theories, plural. I allowed for competing theories, just not to the exclusion of 'no data'.
4. Inaccurate. Corrections happen all the time (usually no more than 10%). There is not always something done to mitigate them (this follows your friends fundamental misunderstanding of recovery v correction) We saw market corrections on our way up and on our way down (even pre-Bear Sterns and that was Q2).
McCardle had a series of very good post detailing this back in November, if you get sometime check it out.
I will say again, that I think the spirit of your post is RIGHT ON! That is, we cannot have a RECOVERY (pre-crisis levels) anytime soon without govt spending.
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