DOW DROP | Why Now? Top Ten Reasons

Here is the Dow at 3:24 pm. It fell from a high of 25,521 to a low of 23,924,
a record intraday drop of 1,607 points.

The intraday Dow suffered a record point drop of more than 1,600. 

It recovered somewhat, ending the day with a record point drop for the day of 1,175, more than 4 percent.

I am collecting "explanations". Take your pick. Send me an email* on which ones you believe and I will re-rank these reasons to reflect a consensus. 
*john@cityeconomist.com

1. Treasury bond yields have risen sharply in recent weeks. So smart money is betting on higher interest rates. 
2. Outgoing Fed Chair Janet Yellen announced before she retired that the Fed is committed to raising interest rates, so maybe you didn't have to be quite so smart to see this coming.
3. Just a Flash Crash, computer-driven like 2010. Relax, folks, this is a buying opportunity, says one commentator. (But after-hours trading for the first hour showed more selling.)
4. Hey, the market was overvalued, maybe by 20 percent. We knew this was coming.  Investors were just cashing in after the rally in stocks since the GOP victory in November 2016.
5. Friday BLS data showed rise in hourly earnings  for workers. Fed said it saw signs of inflation – i.e., it read the BLS data same as we did.
6. The BitCoin et al. Bubble.
7. Baby Boomers who are retired or are getting ready to are gradually exiting stocks, using the old rule of "100 minus your age" in stocks. Their problem has been where to put their money while they wait for interest rates to rise; rising rates offer more opportunities.
8. A new Fed Chairman creates uncertainty. GOP tax cuts will increase the deficit but mostly won't put money in hands of people who will spend it.
9. A stagnant economy may be in the cards.
10. May be the beginning of a long-overdue corrective bear market.

PBS has since published a list of the Top Five reasons the market is crashing. I have edited the list above slightly after reading this article. 

VIEWS | 390K. Ten Most-Viewed Posts in December. Thank You for Reading.

Guadalajara, December 30, 2017 – Thank you for reading this blog.

We just passed the 390,000-view mark. Next stop: 400,000.

The top ten posts that you, reader, were looking at in December were  focused on the tax bill that was passed at the end of December. Here is the list:

Entry

TAX BILL | Details, details Dec 2, 2017 4 comments

TECH WARS | Have You Noticed? Taxis+Uber+Lyft=More... Dec 28, 2017

TAX BILL | Latest on House-Senate Conference Dec 13, 2017

NEW YORK CITY | Best Workplaces, by Type of Busine... Dec 2, 2017

TAX BILL PUZZLE | Thatcher Policies in Reverse Dec 17, 2017

TAX BILL | Sen. Heinrich Calls the Tax Bill "Immor... Dec 4, 2017

RISE OF HITLER | Mar 5, 1933 – Nazis Elected, Dest... Mar 5, 2017

PSEG | Toxic Pole March, N.J.-L.I., NY Aug 28, 2014

FOOD BIZ | Do You Think Restos Have Genders? Dec 29, 2017

STOCK MARKET | What does this look like? (2:10 pm ... Nov 30, 2017

Please let us all have the benefit of your thinking by commenting on any of these posts or contact us at info@cityeconomist.com or john@boissevainbooks.com.

To subscribe to this blog, or its comments, or to search its contents or to forward it using G+, see the options at top right.

STOCK MARKET | What Does This Look Like? (Nov 30, 2:10 pm EST)

CHINA | You Called the Crash–Thanks, Mase Gaffney!! (Updated Jan 8, 2016)

Note How Fear Is 3X More Powerful than Greed

Mason ("Mase") Gaffney has sent around the following note to his mailing lists, noting that he correctly forecast the China crash several months before it happened.

He was in print predicting the crash would happen in 2015, and the article was published in March 2015, which was pretty brave for an academic economist.

Generally you try to predict so far in the future that no one is likely to remember your prediction.

This rule is violated by the people (like Reuters) who publish a forecast of the job numbers on the first Friday of every month, up to an hour before the job numbers are released, leaving themselves open to contradiction within minutes.

Another rule is:

• If you give a date, don't give a number.
• If you give a number, don't give a date.

I believed Gaffney when I first read his article in April 2015. I sold out all my stake in the China fund at Fidelity on April 21, 2015. Not quite at the top of the market, but as Bernard Baruch once said, "the only people who buy at the bottom and sell at the top are liars."

Gaffney is eager to let people know about his successful forecast, because it is evidence of the validity of his underlying views, which give more emphasis to land values than mainstream economists.

I am writing about Gaffney's prophetic skill for two reasons:

• The idea that land values should play a bigger role in economic analysis resonates with me. The history of the American Revolution, especially why the southern states joined with New England, history would be more understandable with more emphasis on land values in the territories claimed by Virginia and then made part of Quebec by George III. 

• His article saved me from heartache over the dropping Chinese stock market. (I cannot attach his full article, but I can forward it on request. Contact me at john@cityeconomist.com.)

I acted on Mase's advice and saved myself from losses on the China Fund. His risk-taking deserves some reward, which I am providing in the form of a Thanksgiving. God Bless Mase, Henry George, Everyone.

Here is his email, in bold face to set it off from the rest of this post.

In March 2015 I published a forecast (attached) that China’s economy would crash in that year. China promptly did so in July, around our Independence Day, while our press was obsessing over threats from ISIS kamikazes and the drama of Greece, a tiny nation next to China. I am indebted to Cliff Cobb, Editor of The Am. J. of Ecs. and Sociology for letting me go out on a limb in his journal. 

Cliff also let me give both the analysis and the evidence behind the forecast. You will find my essay heavy reading because analysis usually is, so I don’t expect all or even most of you to clamber up its hills and down its ravines. Please do notice, however, that: 

Prof. Mason Gaffney, UC Berkeley

1. It is largely independent of what passes for mainstream analysis by the most visible economists today.

2. It gives a central role to land markets as leading autonomous factors in the cycle, building on while varying in important details from Henry George’s pioneering observations in 1879 (call it “exegesis”). 

3. It incorporates the reverberations between land pricing and deposit expansion by commercial banks.

4. It incorporates the “Austrian School” emphasis on the role of capital turnover, but without the narrow focus on central banking found in most Austrian works, and without the philosophical anarchism.

My aim in circulating this information widely is not to play the Donald Trump, but rather in the hope that the success of its risky forecast will lead to a wider acceptance of the role of land and its pricing in economic analysis.

CHINA | Is It 1929?

China Stock Prices Down, Volume Up.

July 8, 2018–China's stock market is the second-largest in the world after that of the United States.

It is now in a free fall that extensive government intervention does not appear to be slowing.

The major Chinese market has fallen by one-third from its seven-year high last month and continued to drop today. Expectations are for a further drop despite suspension of trading in one-fourth of listed stocks.

Is it 1929 in China? The political impact of 1929 in the United States was enormous, ushering in two Democratic decades in the White House, FDR and Truman.

The end of the free fall in the U.S. economy after 1929 did not come until 1933. What turned the economy around was:

• FDR and his Treasury Secretary (William H. Woodin) declared a bank holiday, printed money for the banks and opened only the solvent banks.
• They required the sale to the government of privately held gold. Later, FDR devalued the dollar against gold (i.e., raised the price of gold).
• FDR instituted projects to create new jobs.

The program worked until budget-balancing came back in 1936, causing a brief dip again in the economy.

The political impact of the stock market collapse is likely to be great in China because 80 percent of investors in the Chinese market are reportedly individuals, many of whom borrowed money to increase their stake in the market.