Wednesday, October 15, 2008

The markets re-price themselves for recession, but what about purification?

Once again, today, the Dow tanked over 700 points, giving back most of what was gained Columbus Day. Again, the last hour was brutal, with programmed selling driven by demands to make sell orders. To say the least, the whole system ought to change to soften this.

But as of the time that NBC’s Knight Rider runs, the futures are down 111 more. And CNBC offers various reports that hedge funds are throwing in not only their stocks but their bond funds. The market is repricing itself for hard times.

Steven Pearlstein writes this morning in The Washington Post, on p. 1, “Buckle Up: We Haven’t Reached Bottom Yet”. The link is here. Now its economic fundamentals. We know how recessions work. But it’s also personal. Americans have to cut their consumption by about 7% to stop living on debt, but they also have to cut about 3% more because of the demands by seniors living longer while (in many but not all cases) being unable to work and consuming health care and custodial services. This is the first time I’ve seen a major financial columnist connect the credit crisis and economy to demographics.

Tonight’s episode of NBC's Knight Rider explained to Michael (through the smart car’s voice) how short sellers can attack a whole economy pretty well. That’s odd, because the episode would have been written a few months ago, well before the collapse of Lehman. A lot more people saw this coming than we realize. "Knight Rider" even hints at a wholesale purification.

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