Mercury Rising 鳯女

Politics, life, and other things that matter

Markets cheer debt deal

Posted by Charles II on August 1, 2011

I think this kind of cheer is called a raspberry. I was just on a conference call and noted that the listeners were more pessimistic than Nouriel. Some phrases:

* What parts of the economy are healthy?
* Is there no light at the end of the tunnel?
* 3-4 years of anemia
* What about state level fiscal strife?
* Are bubbles developing from QE2?
* Will there be another leg down to the financial crisis?

By contrast, Nouriel seemed relatively cheery. A mere 10% correction to the market, for example.

The reason that the listeners are more pessimistic, I think, is one that I identified a long time ago. Business and markets are based on expectations. If the economy has a significant chance of a double dip and a near-certainty of subpar growth, and if another one-third of the world economy (Europe) is “a mess” and if the remainder of the world economy is wobbly, then there is absolutely no reason to put new money to work, either in business investment or in financial investment. This expectation, in turn, will feed on the first-order economic drag to create a second-order effect.

This is “liquidate, liquidate, liquidate” economics, with no end in sight. For an investor, this sounds like “sell, sell, sell.” And that’s what I see in the market reaction. Economists do not have this same sense of the likely social impacts of economic movements, so they tend to misjudge policy decisions.

2 Responses to “Markets cheer debt deal”

  1. All too true, alas.

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