A very clear and informative column in Friday’s New York Times from Paul Krugman. It explains in the briefest terms how we got here and the need for immediate action.
Day: October 9, 2008
Don’t Watch the Dow
Generations of Americans have been trained to follow the Dow Jones Industrial Average for a quick snapshot of how the economy is performing or is expected to perform. There’s a lot that’s ill-advised about that habit, but, most importantly, attending to the ups and downs in the Dow won’t tell you much about the current financial crisis. Ours is a crisis of credit: Financial firms are unwilling to lend to each other (at all-but-exorbitant rates) for fear that borrowing firms may fail or that they themselves may need the cash to fend off their own crisis.
Whereas the hourly fortunes of the Dow or any stock index are, at best, indirect reflections of this reluctance to lend, the TED Spread measures credit conditions directly. Bloomberg tracks the TED Spread here. What sounds like second-rate Nutella is actually the difference between the interest rate banks charge each other on three-month loans and the interest rate on three-month U.S. Treasury bills.
Why TED? The T comes from “T-bill,” shorthand for short-term Treasury bills, and the ED comes from “eurodollar contracts.” . . .
T-bills are the safest investment. Loaning between banks is riskier. The difference between the interest rates (the TED Spread) shows the perception of the risk. Historically the TED is around 0.5. Right now it’s at 4.23.
You know
John McCain and his running mate talking about some one-time terrorist guy while the world economy is collapsing around us puts Nero into a whole new light.
Hi Everybody
Throw me a little discussion, eh?
Yours truly,
The Management
Unfortunately true best line of the day
“We are near total financial and corporate meltdown dude.”
New York University economist Nouriel Roubini to Felix Salmon, October 7th
Roubini has been one of the primary doomsayers leading into the current crisis. Alas, he’s been an accurate sayer too as it turns out.
Here’s what Roubini wrote today. Not for the faint of heart. The lead sentence:
“The US and advanced economies’ financial system is now headed towards a near-term systemic financial meltdown as day after day stock markets are in free fall, money markets have shut down while their spreads are skyrocketing, and credit spreads are surging through the roof.”
A best line of the day
“Ralph Nader attracted only 8 people to a campaign appearance at Dartmouth College.”
5,000
Do you like round numbers? Nice round numbers? Then you can impress yourself and your friends by noting that since October 9, 2007, one year ago today, when the Dow Jones Industrial Average had its all time high close, the index has lost 5,000 points.
Give or take a few depending on where it ends up in two hours.
The high close was 14,164.53 on October 9, 2007. (The highest ever was 14,279.96 two days later.)
At Noon MDT today it’s at 9168.50.
Update at Close: So much for 5,000. The Dow closed today at 8,579.19.
So, down 5585 in one year.
And the question becomes, how low can it go?
October 9th
John Lennon should have been 68 today.
Rock and Roll Hall of Fame inductee Jackson Browne is 60.
Jackson Browne has been both an introspective, cerebral songwriter and a politically attuned voice of conscience. He emerged in the early Seventies as a soul-baring young folksinger whose songs dealt with riddles of romance and existence. In his middle period he became a more extroverted rock and roller. Later work grew more topical in nature as Browne sang of political and social realities within and beyond our borders.
Robert Wuhl is 57. Wuhl, known most recently for Arli$$, shared in two Emmys for writing for the Academy Awards show (1991, 1992). NewMexiKen liked him best as the coach in Bull Durham.
“Okay, well, uh… candlesticks always make a nice gift, and uh, maybe you could find out where she’s registered and maybe a place-setting or maybe a silverware pattern. Okay, let’s get two! Go get ’em.”
Tony Shalhoub, Monk, is 55.
Guillermo del Toro, writer-director-producer of El Laberinto del fauno, is 44.
Annika Sorenstam is 38.
Sean Lennon is 33.
Charles Walgreen was born on this date in 1873. Yes, he’s the man who began the Walgreen’s drug store chain, starting in Chicago. It was a Walgreen’s soda fountain employee who invented the malted milkshake in 1922, which puts him right up there with Edison as far as NewMexiKen is concerned.
And Bruce Catton was born on this date in 1899.
Bruce Catton was fifty when he began work on the first two of what would become thirteen books on the Civil War – Mr. Lincoln’s Army, (1951) followed one year later by Glory Road. His debut was hailed by the Chicago Tribune as “military history at its best.” He “combines the scholar’s appreciation of the Grand Design with a newsman’s keenness for meaningful vignette,” said Newsweek. Catton immersed himself in a vast range of primary materials, especially the diaries, letters and anecdotal reports of soldiers on the ground, which gave his books from the outset their unique, “you are there” ambience.
In 1954, Catton became the first editor of American Heritage Magazine in Washington, where he remained as Senior Editor until his death in 1978.
“There is a near-magic power of imagination in Catton’s work,” wrote Oliver Jensen, who succeeded him as editor of the magazine, “that seemed to project him physically into the battlefields, along the dusty roads and to the campfires of another age.”
Best sense of how I feel T-shirt of the day
The Limits of Race
“But Missouri’s always been Republican,” Pyle protested.
“I think Missouri’s had about enough,” Holly Haggard said.
Improve the Debates
“The consensus seems to be that Tuesday night’s presidential debate was extremely boring. Here are six viable suggestions for how the next one could be better.”
Six Ways To Improve The Debates
NewMexiKen suggests no more old white guy moderators. (Lehrer, Brokaw and Schieffer’s average age is 71.) Get that woman that moderated “The Weakest Link.”
Most fascinating ‘how the world turns’ line of the day
“The coordinated rate cut was unprecedented and surprising. Never before has the Fed issued an announcement on interest rates jointly with another central bank, let alone five other central banks, including the People’s Bank of China.”
Now is probably not the time to sell your stocks
Amazing fact: Less than one percent of stock exchange trading days accounted for 96% of the gains over 40 years, 1963-2004.
By fleeing for the comfort of safe and insured, however, investors with a time horizon beyond a few years may be doing real damage to their long-term finances. If you’re tempted to make a big move to cash right now, you’re doing something called market timing. It’s an implied statement that you’ve figured out the right moment to get out of stocks — and will also know the right time to get back in.
So let’s dispense with the first part straightaway. The right time to move out of stocks was a year or so ago, before various stock indexes the world over fell by one-third or more.
If you missed that opportunity, you’re hardly alone.
But if you sell now, you’ll be locking in your losses. And once you’re in cash, there isn’t much upside. In fact, with interest rates low, you’re likely to lose money in cash, because inflation will probably eat up the after-tax returns you earn from a savings or money-market account.
From Switching to Cash May Feel Safe, but Risks Remain, an article in today’s New York Times.
If you sell now, when will you get back in? You may miss the memo.
A good article.
What a difference a year makes
One year ago today the Dow Jones Wilshire 5000 Composite Index — which tracks virtually every stock listed on U.S. exchanges — peaked at 15,806.69.
It begins today at 9,926.42.
That’s a loss of 37.2%.