Friday's Fed move turns Wall Street from panic back to giddiness - 23-Aug-07 - Generational Dynamics

Investors seem to have regained their old giggly confidence on Wednesday, as they pushed the market up by a little over 1% (Dow).

With respect to the countdown to September 10-21 that we've been discussing as the likely date range for a major panic, the 1% rally makes no difference at all. What is important is whether investors are getting confident enough to push the bubble up again.

Macroeconomics

Understanding deflation: Why there's less money in the world today than a month ago.: As the markets continue to fall, the Fed is increasingly in a big bind.... (10-Sep-07)

Alan Greenspan predicts the panic and crash of 2007: He's said this kind of thing before, but this time it's resonating.... (08-Sep-07)

Bernanke's historic experiment takes center stage: An assessment of where we are and where we're going.... (27-Aug-07)

How to compute the "real value" of the stock market. : And some additional speculations about stock market crashes. (20-Aug-2007)

Ben Bernanke's Great Historic Experiment: Bernanke doesn't believe that bubbles exist. His Fed policy will now test his core beliefs.... (18-Aug-07)

Redemptions of money market funds now fully in doubt: Wednesday is the deadline for 3Q redemption of many hedge fund shares.... (15-Aug-07)

Alan Greenspan defends his Fed policies, as people blame him for the subprime crisis: Greenspan never ceases to amaze, and he did so again on Monday.... (8-Aug-07)

Nouriel Roubini says: "Worry about systemic risk." Whoo hoo!: His arguments show what's wrong with mainstream macroeconomics.... (6-Aug-07)

Robert Shiller compares stock market to 1929: He says the recent fall was caused by "market psychology," but is puzzled why.... (20-Mar-07)

A conundrum: How increases in 'risk aversion' lead to higher stock prices: Maybe because the global financial markets are increasingly "accident-prone."... (12-Mar-07)

Pundits are suddenly talking about (gasp!) "risk aversion": Fearing full-scale panic in the mortgage loan marketplace,... (6-Mar-07)

Alan Greenspan blames the housing bubble on the fall of the Berlin Wall: Meanwhile, the stock market keeps skyrocketing and appears unstoppable to many investors.... (25-Oct-06)

System Dynamics and the Failure of Macroeconomics Theory : Mainstream macroeconomic theory, invented by Maynard Keynes in the 1930s, has failed to predict or explain anything that's happened since the bubble started, including the bubble itself. We need a new "Dynamic Macroeconomics" theory. (25-Oct-2006)

Alan Greenspan gives another harsh doom and gloom speech: Saying that "the consequences for the U.S. economy of doing nothing could be severe,"... (4-Dec-05)

Ben S. Bernanke: The man without agony : Bernanke and Greenspan are as different as night and day, despite what the pundits say. (29-Oct-2005)

Fed Chairman Alan Greenspan says that the deficit is out of control: France's Finance Minister Thierry Breton quoted Greenspan... (25-Sep-05)

Fed Governor Ben Bernanke blames America's sky-high public debt on other nations: I'm normally wary of applying specific generational archetypes to individuals, but Bernanke is acting like a Baby Boomer.... (14-Mar-05)

Greenspan's testimony further repudiates his earlier stock bubble reasoning: The Fed Chairman has now completely reversed his previous position on the stock market bubble... (17-Feb-05)

Alan Greenspan warns that global economic dangers are without historical precedent : In a speech on Friday, Greenspan buried a major change of position in a speech admitting that his assumptions about the economy for the last decade were wrong. (6-Feb-2005)

On Wednesday, four major U.S. banks announced that they've taken advantage of the Fed's new bargain discount rate, and have borrowed $500 million each. One pundit on CNBC said that this marks the end of the credit crunch, since all this money is now available to lend to people. Happy days are here again. The reporters were all giddy again.

It's been a long time -- years -- since anything that's happened on Wall Street bears any real relationship to common sense. Those four loans total $2 billion, and that's a tiny fraction of the hundreds of billions of dollars in credit that was floating around just weeks ago, and even less compared to the tens of hundreds of trillions of dollars of subprime mortgage-backed securities in most organizations' portfolios. Still, it was enough to cheer up investors on Wednesday.

From the point of view of Generational Dynamics, none of this should make any difference in where we're going. Remember from the 1929 vs 2007 comparison chart that I've been posting every few days that two weeks before the 1929 crash, the Dow spiked up 6.3% That might happen again, and you can just imagine how giddy the CNBC reporters will become after that.

What we're doing is a real-time test of a theory: That the level of anxiety and panic spreads among the public at an exponential rate that is independent of historical time and place, and that therefore we can predict when a full-scale panic will occur -- sometime in the September 10-21 time frame.

So if the pundits are right, and confidence has been restored, then the test will have failed, and that would be a big surprise to me. What I expect is that the level of anxiety and panic will continue to grow exponentially, as will become apparent as soon as there appears some bad news.

Generational Dynamics Web Log for 23-Aug-07
Friday's Fed move turns Wall Street from panic back to giddiness

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Generational Dynamics Web Log for 23-Aug-07 Friday's Fed move turns Wall Street from panic back to giddiness

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Generational Dynamics Web Log for 23-Aug-07
Friday's Fed move turns Wall Street from panic back to giddiness