Accounting for the Market Drop

15.10.2008

Michael E. Lewitt is the editor of The HCM Market Letter and a money manager.

There are a few reasons why the stock market continues to drop like John McCain's poll ratings.

First, there is no sector enjoying the kind of good news that could lead the market up. In fact, most sectors are suffering from bad news at the same time, pushing the market down. There is no place to hide.

Second, the stock market has the patience of a flea. The government's Herculean intervention into the markets will do what they are supposed to do--lead U.S. banks to start making loans again and reignite economic growth. But U.S. stock markets continue to be driven by "hot money"--failing to see money market rates plunge immediately, they conclude that these key lending rates won't drop at all. This is short-sighted and self-defeating. The government's actions will take some time to work, but they will work. The laws of economics were not repealed on the upside--that is why the markets crashed. But these laws were also not repealed on the downside, which is why these radical steps will work sooner rather than later.

Third, America is suffering from a leadership vacuum. A lame duck President and two candidates whose proposals to fix the economic mess are obviously designed to preserve votes rather than effect real change. One calls himself a "maverick" while the other touts "change." All I see is a lot of empty words. The only real change came from the Bush Administration after it was forced to abandon free market principals or be left in the dust by Europe.

Tonight's debate would be a great chance for Obama or McCain to articulate a bold new vision to rebuild America's economy. Some suggestions: rebuild our physical infrastructure; restructure the American auto industry around less fossil-fuel dependent vehicles; invest in education, particular math, science and basic reading skills; and invest in healthcare, medicine and technology.

Finally, why hasn't either candidate suggested reinstituting the 55 mpg speed limit on federal highways? This would cut fuel consumption by a significant amount as it has done in the past.

--Michael Lewitt

Posted: Wednesday, October 15, 2008 4:35 PM with 7 comment(s)

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mschol17 said:

"Tonight's debate would be a great chance for Obama or McCain to articulate a bold new vision to rebuild America's economy. Some suggestions: rebuild our physical infrastructure; restructure the American auto industry around less fossil-fuel dependent vehicles; invest in education, particular math, science and basic reading skills; and invest in healthcare, medicine and technology."

I'm pretty sure Obama has suggested all of these things...

October 15, 2008 5:19 PM

dbhuff said:

Michael, unless I'm mistaken, in fact Obama has proposed all of your suggestions...though only one (infrastructure) has the short-term potential to head off disaster.

October 15, 2008 5:24 PM

reganad said:

Michael. I hate you. You have NO IDEA what 55 mph is like when you have to drive 3 hours (at 70) to find a Target.

Why does it have to be universally 55? Can't you cut us a break, and make it 65 out here in the big empty? OR 100 km/hr (about 62 mph)?

I think anyone who proposes this should have to drive from Fort Collins to Spokane, And back-as I have to, to take my son to school in the fall.

October 15, 2008 5:30 PM

The Ignorant Populist said:

That's all true, the indices are light years away from that 200 MA, they have to, they need to, they absolutely must bottom and pull back before heading south again.

The problem is, there's nothing, not a shred of good news to fake suckers long.

And everyone seems to have forgotten the Trillion dollar CDS's out there that could well bring down the Hedge Fund industry and gobble up the governments investments in an instant.

And that's when the pain really begins.

October 15, 2008 5:39 PM

dylanposer said:

Swing-vote NASCAR dads... to drive 55mph? Ugh.

October 15, 2008 5:47 PM

r.mendales said:

Another factor in the stock market's problems are that, despite the efforts of the Europeans and the U.S., the credit markets, which are much larger than the equity markets, are still just beginning to defrost. The LIBOR rate is still near its all-time high, indicating that banks are still reluctant to lend to each other. Part of the problem is that the arrangements that have been made are mostly informal, without the force of law or treaty; so the markets are still holding their breath until they can be sure that things won't fall apart.

October 16, 2008 2:37 PM

The Plank said:

Michael E. Lewitt is the editor of The HCM Market Letter and a money manager. The third and final Presidential

October 17, 2008 6:11 PM