Wednesday, July 27, 2011

Stock market opens down, are investors finally concluding that we are controlled by 'rogue elephants'?

The stock market is a terrible indicator of anything other than panic. Until very recently the stock market indices have climbed despite bad economic news (though corporate earnings have been strong) and few signs that the future holds anything other than recession.

But people care whether the market is up or down, call it the same behavior associated with checking the daily astrology column – they know it doesn't mean anything, but, hey, why not?

This morning the markets opened down sharply, with the Dow down more than 100 points or one percent, and the Nasdaq down over 50 points, or two percent. Is it the case that investors have finally realized that Congress, and the Tea Party led Republicans really are willing to force the government into default?

David P. Barash has an interesting, and sometimes fun column this morning in the New York Times. Writing from Seattle, Barash recaps the negotiating strategies that appear to be being used in the debt limit talks, comparing them to the game of chicken. Surely, the players will eventually flinch and all this posturing will be finished. Or will it?

Barash, a professor of psychology at the University of Washington, says that it is also possible that the Republicans are actually acting more like 'rogue elephants', appearing to be, and actually, totally out of control. In this scenario, Barash states, it would be better if the President just took the Republicans at their word and moved on to govern without them.
Others have concluded the same thing, but those that have also ask the question of whether a move by the President might also rattle the markets, leading eventually to a downgrading of US credit, a downgrade that the President would be blamed for.

Of course, as all this is going along, no one is really paying much attention to the fact that jobs are not being created and the economy is continuing to sputter. Yesterday I took this picture (above) of the Border outlet near my home. The store has survived all the other rounds of store closings until now.

But the real issue here is not one store: in the same shopping center two other major retailers have closed their doors and other smaller ones have, as well. This medium-sized strip mall, located in a fairly middle-to-upper income city, is now 60 to 70 percent vacate (or it will be once the Borders finally closes its doors).

A drive to a neighboring town, less wealthy than the first, revealed a mall that was almost completely vacate, only a couple of very small retailers hanging on.

This very much reminded me of growing up outside of Detroit in the seventies. I never thought, never, that the U.S. would return to those days.

But things will get worse, guaranteed: both parties are sold on austerity, which means more cut backs, more lay offs, less economic activity.

And that's the best case scenario. This morning the markets are not reacting to that possibility, but the possibility that 'rogue elephants' now control our future.