Friday, August 5, 2011

08/05/11 Market Biology: The Crash That Refreshes



'Market biology' is no metaphor, bro. Is the market a living entity? Well, what comprises 'the market?'

What happens after 'the market' binges? No worries- these dudes will be chasing new highs in no time.

100 comments:

  1. Have we really all become this cynical? I mean I hate to sound like a pollyanna or whatever they call it but any time the market drops do we really need to be talking about Depressions and what not? In the history of the market, how many times has the market dropped this much? Our society is fascinated with the concept of depression...every time we see a big drop we trot out Roubini and El Erian and Whitney and reminisce about 2008.

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  2. What do I think: I suspect a lot of people look back in 6 months and regret not buying here. I turned on CNBC just now to see what the talking heads have to say and some woman says something to the effect of "traders say we have to test 1,170 first or else if we don't the market will have that hanging underneath us". Since when do we tell the market what it has to do?

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  3. Steve Liesman did mention that there was a corrective factor in the jobs numbers related to 'teachers in the summertime' so WTH knows what the real number is....

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  4. Hopped back in my long BTU premarket at $49.5. Now 100% long again

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  5. "Reminisce about 2008."

    Can we not trivialize it?

    I think the circumstances leading to the event were tragic for many people who were led to believe the system was legitimate, the debt was no problem, and had worked all their lives, paid taxes, risked their lives in illegitimate wars, etc, etc.

    These people worked, scrimped, and saved all their lives and were wiped out because of all the oversights and lapses.

    Seems like the wealth the baby boomers built during their careers is being trivialized, and now someone want them to give that away too.

    If I'd known things were going to turn out like this, I would've gone to work for the government and earned my guaranteed pension and healthcare.

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  6. "traders say we have to test 1,170 first or else if we don't the market will have that hanging underneath us".

    Since when has CNBC ever been right? Stats, please! Leave the TV on and do the exact opposite.

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  7. Ya know, I bet if you look at the chart in the right perspective, you can gain a clue or two about whether we're going to complete the H&S pattern.

    I suppose we're going to throw away the charts?

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  8. "signs of stabilization in housing (oh, the horror!)."

    When I can buy a 64 acre lot that's been cleared of farm trees for $149k in this area, that's a pretty amazing sight for my eyes.

    Then I look at beach real estate for sale and each time I check the price it's been dropped a few percent, it opens my eyes.

    A place I was looking at last year went for half it's asking price, at auction. Across the street from the beach, no less!

    Someone's taken a real bath on these places, real estate margins aren't quite as fat as some people might imagine, all my rental properties I've had barely paid for themselves if I had good tenants, and some ot them would tear the place apart. Needless to say I lost money often enough to where I threw the towel in and sold when I saw too many homes were going up for sale.

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  9. CP > I don't understand the fascination with H&S patterns...do these always work? Why does a chart with three humps have to result in a lower hump? and why does the lower hump have to be as far away from the middle of the higher humps and the lower hump? is it really that simple?

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  10. Sorry guys I'm done with my anti-pessimism rants...

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  11. Take a look at the open in SD.

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  12. Unemployment dips to 9.1% I sure hope DC can focus on trying to accomplish something to reverse whatever caused employment to crash starting a couple decades ago, take care of the root problems proactively and you won't be fighting fires down the road.

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  13. tof- I agree with your comment re the CNBC analyst. The older I get, the more I'm able to 'see through' these kinds of statements. Unfortunately, it's just not good for ratings to remind viewers on a daily basis that no one really knows shit about the market, and they may as well turn off the tube and do something more productive.

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  14. commercials are heavy sellers, es, this a.m.

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  15. would actually like to see a major wash out, then assuming I still have b*lls, move 10% more into my longs

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  16. "the fascination with H&S patterns...do these always work?"

    No, they haven't typically worked. This one was a little different than the previous ones though, in that it co-incided with the July double top and I never heard anyone talking about it at all as it was developing. These are still some charts I look at where it's not identified. Actually, I caught onto it from one of RB's posts, I was following the double top formation. They both puked at the same spot on the chart.

    I thought it was interesting and posted the observation a number of times. You even threw out similar target, so I thought you had picked up on it as well.

    Anyway, it's not that all of the H&S formations play out, b/c honestly this is one of very few that I've noticed that actually was working.

    I look for these patterns b/c there's always the chance they do work out.

    I've followed quite a few of the double top and double bottom patterns that do work though, and they usually overshoot somewhat. So in this case, mt theory is the H&S probably wouldn't have worked if the double top wasn't in there with it. I suspect the double top morphed into the H&S, and if it didn't, the double top overshot to the downside more than I'd anticipated.

    Hopefully that's all clear...

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  17. relentless selling in the ES and TF, no bids at all

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  18. good luck bro, I've just got to stand aside.

    I had a great 6E trade at 2 this a.m., so I'm just going to sit on what few $$$ I've got left

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  19. BWEN - Down to $0.88. Yes, all energy is crashing. BWEN is do to earnings report which actually was pretty good.

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  20. BEXP - The crazy trendline target is $22, but do you really imagine it going past $25?

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  21. Well that girl on CNBC got her wish...so now that that is done with hopefully she has the power to bring us back to 1,300.

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  22. I think I could play this game much better if there was a joystick interface.

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  23. BEXP- Look at KOG which reported yesterday.

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  24. haha funny stuff CP!

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  25. great entry bro, you nailed that second lot to the absolute bottom of the low candle for the day, so far, what is your upside target?

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  26. We also hit the 50% retracement. 1190.

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  27. PBR - Hit a 52 week low earlier but has recovered $1 from that. KOG is the rose among the thorns today.

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  28. EOG is up more than KOG. Earnings and an upgrade.

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  29. Optimism will prevail eventually. A good jobs report soothes a lot of fear.

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  30. Down 10% from Monday's highs. That would qualify as a crash, no?

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  31. "Does it seem a bit coincidental that, just when treasury issuance begins anew at record levels, the world is suddenly, once again rushing toward the "safety" of U.S. government bonds? In the markets, there are no coincidences."

    T. Ferguson, paraphrased

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  32. I think a econ prof would say correction. If you are an investor it is a crash!

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  33. GPL - Gap up is closed now, SLW's July 5th $32.47 gap still open.

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  34. 1 buck to reach MOG's floor.

    GL guys. Frankly, I'm sure I should take profits in BEXP, so I wont.

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  35. FYI: There is a rumor that there will be an s+P downgrade of US debt. Barclays. Probably bullshit and probably already priced in. Might be on some traders minds.

    I don't think it is true S+P would get some extra regulation if that was true.

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  36. Retest and hold of LOD would be good. If we break looking at 1172 on the ES.

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  37. My guess still is we bottom around when Europe closes. Think a lot of the weakness this morning is European companies selling US stocks to repatriate capital (Euro up 1 cent vs. US$) and forced sells by overleveraged funds who got missed in yesterday's margin calls.

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  38. I think todays bottom was just put in. Emphasis on today.

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  39. RB - No the bottom was on Wednesday when I went 100% long :(

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  40. Just let me know when I can come out of the fetal position

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  41. I've held out as long as I can, the obama presser sent me over the edge....COCKTAILS!!

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  42. 2nd > Maybe you should re-title this post the Crash that Re-Crashes?

    Seriously, though, THIS IS THE BOTTOM! I now sound like the inverse of the permabears.

    For what it's worth, I have no set my sell limits on all of my positions at just over break even under the assumption we get a nasty reversal higher a la September 2008 due to any number of things including Europe issuing Eurobonds or some other co-ordinated intervention

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  43. sorry meant to say I have "now" set my sell limits.

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  44. The volatility this morning is par for 'the day after,' IMO.

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  45. Don't even watch Obama anymore - good speaker, but don't think he really understands all th issues.

    Europe now fully closed (except some German markets). Market is moving up (pretty sad when you're excited by a 12 minute uptrend). Let's see if it continues.

    Lots of stocks are good buys here (assuming the macro clears up). Torn between getting some largecaps at a reasonable price (UTX, PEP, HMC) and the smallcaps which have been hammered. More upside, but more risk in smallcaps.

    Illini, not sure why but KCLI one of the best performing stocks today - strange market when a very conservative, underleveraged insurer is near the top of any stock performance list.

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  46. BB - agree, I'm not wasting another second listening to him, very scary.

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  47. BB - Its all good man, the bottom is in.

    Seriously, though 2nd is probably right. Look at the 1987 crash. The next day it actually went a good deal lower, then bounced straight up for the rest of the day and the next. Ultimately it came back and re-tested the low but never got lower.

    In that crash the market made a bit more than half of the crash back. I don't know at what point to consider the crash of this year started but if it's 1,300 then that would be a bounce to may 1,250 or so....that makes sense too given that was the support level we were all watching.

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  48. Holy shit volume on SPY is 400 Million. Ok, I'm serious...we have seen the bottom. We will do 600+ Million shares today most likely.

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  49. Seriously I like CP's idea...let's just bring some joysticks to this next time around. I'll bring the lounge chairs. JB's got the surround sound covered. Someone get David out from the dance lessons room next door.

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  50. IT WILL PROBABLY TRADE 600 MILLION AND WE WILL CLOSE AT 1200

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  51. RB - can you bring the chips and dip?

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  52. The wicker ticker leads the pack: quite a turnaround in PIR

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  53. I never thought I would say this but PIR is best of breed in that space. Lets tiki.
    Damn everytime I want to say something + the market moves 1/2 %

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  54. Now that I am awake, I'm looking at the intraday S&P chart, I am getting the feeling that it will close below 1200 today (but above the intraday low) and then, with some luck, the market will gap up on Monday.

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  55. That is, the scenario we hoped for on Wednesday will play out today. Too bad the options premium is much higher now...

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  56. The fact that DB is up 5% now suggests that things are not so bad in Europe now...

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  57. " The fact that DB is up 5% now suggests that things are not so bad in Europe now...
    "

    It's funny you say that David because I was just looking at STD and DB....the fear trade is probably over....

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  58. SPY 123.3 should be a big area of resistance....lots of shares traded there on Wednesday and yesterday.

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  59. Man, I just got back and checked DB also.

    I also looked at IPSU/PMI....

    $85 was hit in crude I see and bounced smartly, along with the markets.

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  60. I know some of you guys follow Huntsman (HUN)...


    Huntsman Corporation (NYSE: HUN) today announced that the company's board of directors has authorized the company to repurchase up to $100 million in shares of its common stock.
    This program is effective immediately. Repurchases under this program will be made through the open market or in privately negotiated transactions. These repurchases may be commenced or suspended from time to time without prior notice.
    The board also declared a $0.10 per share cash dividend on its common stock. The dividend is payable on September 30, 2011 to stockholders of record as of September 15, 2011 .
    nop
    (c) 2011 Benzinga.com. All rights reserved. This material may not be published in its entirety or redistributed without the approval of Benzinga.

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  61. It makes sense that stocks hit a lot of resistance at the opening price. I am pretty sure S&P will close below its opening price, most likely in the red, so as to put some fear into people.

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  62. Well, I guess we filled quite a few gaps up and established double bottoms in one fell swoop today, huh? Doesn't a retest of recent bottom count as double bottom along with corresponding upside target?

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  63. Quite a few yearly lows were established today also.

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  64. "It makes sense that stocks hit a lot of resistance at the opening price. I am pretty sure S&P will close below its opening price, most likely in the red, so as to put some fear into people. "

    David - If this is truly a replay of the flash crash, which is sure seems like it is...then that makes sense to see a weak close followed by a large spike up next week, possibly to the 200 DMA.

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  65. Well, at least intraday my script is playing out -- it surely seems like we'll get a red close on S&P...

    TOF, 2nd_ave -- should we once again expect an up day on Monday, after such an expectation didn't work out during a similar setup on Wednesday?

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  66. Took profits in BEXP. Looking across the other players I see a ton of stacked sell orders. 26.80.

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  67. This comment has been removed by the author.

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  68. David- Your scenario sounds good. No way we rally today- no one wants to hold over the weekend, right? They're all thinking about a replay of 1987.

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  69. David - Take a read at this article by Hulbert:

    http://online.barrons.com/article/SB50001424052702304374104576490082076464922.html?mod=BOL_hpp_highlight_bottom

    To be honest, given my long exposure now at 100%, I'm rooting for a sharp couple day rally, which according to Hulbert would be very bearish. If it happens I will most definitely be using it to lighten up and go to cash.

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  70. 3:51 (Dow Jones) S&P chief technical strategist Mark Arbeter says some evidence of selling capitulation suggests a short-term bottom could be in place, but he senses too much technical damage has been done to think that bottom will last long. He suggests using any market strength to "lighten positions." Arbeter sees a "heavy layer of overhead supply" that starts at S&P 500 1250, and other chart points above that include 1263, 1275 and 1286. To the downside, the "head- and-shoulders" reversal pattern completed this week targets 1153, he says, and next major zone of support starts at 1128. S&P 500 off 1 at 1198, off an intraday low of 1167.

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  71. Just bought 5 September $120 SPY calls at $4.60.

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  72. Also bought 2 September $32 puts on VXX at $5.45.

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  73. Going camping for the weekend now once again -- catch you all on Sunday night or on Monday! Good luck with your positions!

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  74. Have fun David! By the way, I see you're going with a bounce huh? What's your target? I'm targeting a bounce to 1,270. As such, I have set my sell price on my ill-timed calls at $5 (accounting for no premium), which would give me a 25% return.

    I have also set a sell price limit on my large WNC position, which is now down about 10%, at $6.5 since a bounce to 1,270 would probably yield a price higher than that but I don't really want to nit pick my exit on that. That would yield me a 5% return.

    I have also set a sell limit price on BTU at $53 which would give me a 7% return. And last but not least I have set a buy to cover limit on my BGZ short at breakeven, which was $39, which would give me about a 4 or 5% return.

    Buying ahead of a crash is expensive. My balance at close is 11.5% below my highest close this year before I went dip buying, which was Tuesday. Luckily it would probably take a Great Depression for me to go red for the year.

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  75. meant to say BGZ short cover at $39 which would be a 4-5% return. Was originally thinking of just closing at breakeven...

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  76. What do you know? The CNBC analyst was right.

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  77. yeah i feel stupid 2nd.

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  78. Well, now we no longer have 1170 to worry about.

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  79. I see plenty of charts with the same double top/H&S downside target convergence.

    Can't help think this wasn't coincidence, sorry 'bout that.

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  80. "Have fun David! By the way, I see you're going with a bounce huh? What's your target?"

    I don't have a target anymore in this crazy market. A bounce to the previous 1250 support level would make sense, though. Even during the 1929 crash, the market always came back to retest the previous support level from the downside and then failed...

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  81. Picked up AKS and added to FDX 75 calls at the close.

    Picked up quite a bit of CVV throughout the day as it dipped to its 10wma.

    Tried to pick up some SAPX, but too thin.

    Looks like S+P will announce U.S. debt downgrade tonight. Nonetheless, we could see a face-ripping rally to the upside.

    IWM and IYT look good as well. Tons and tons of volume all around today.

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  82. Alternatively, if the market doesn't bounce at all but rather stalls for the next two days, then I will probably use that as a sign that there are much more disturbing things going on that we don't know about and I will exit all of my longs.

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  83. What no good job on my rehab post from last night? :) Yes the market is a junky. It will go down until The Dealer Ben gives the market its fix. I think the charts and S/R lines will mean little. A big injection the market rallies. A small injection we go side ways. No injection the market could go into spasms.

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  84. Latest from LAS
    (the other Las)
    https://www.schwab.com/public/file?cmsid=P-2751277&cv43

    I enjoy some hand holding into the weekend.

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  85. Just came across this:

    Karen Finerman Discloses 5.3% Stake in Navios Maritime Acquisition Corp (NYSE: NNA). Here is the link to the 13G filing:
    http://xml.10kwizard.com/filing_raw.php?repo=tenk&ipage=7751298

    That's the chick on Fast Money right? That company sure looks dirt cheap and sports a 7% yield.

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  86. 'I enjoy some hand holding into the weekend.'

    After these last 2 days I need a hell of a lot more held.

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  87. Tim Duy on How the Fed Needs to Start the Helicopters
    Tim Duy:

    That. Was. Unpleasant: The rapidity with which confidence can shift is nothing short of a wonder of nature. I am not sure there was any terribly new news today. The evidence the US economy is weakening has been mounting for weeks. That equities had not sold off yet was something of a testament to the underlying profit situation.

    But now fear grips financial market participants as the rush to cash or cash equivalents accelerated. A rush to judgment on the US economy?…

    The slow learning curve on Constitution Ave. argues against action next week. The reality of the world argued for action last month. Go figure….

    Bottom Line: The market nosedive does not yet guarantee Fed action in the near future. History has shown the Fed tends to react with a lag. They should have learned better by now, but if they had learned anything, they would not have pushed forward with hawkish rhetoric earlier this year. Arguably, they will hold firm, let the markets think they are out of the game and further bid down implied inflation expectations, and then, once the damage is done, up the level of stimulus. Terrible way to run an economy, I know. Still, it would be remiss to declare anything is certain before the employment report is released. A downside surprise could promt the Fed into more rapid action. I am now entirely speechless on the European situation – with Trichet's ongoing hawkish stance, it has truly devolved into one of those slow-motion train wrecks that one only sees in the movies.

    http://delong.typepad.com/sdj/

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  88. Noah Smith: Identifying the Causes of Recessions
    NOah Smith:

    Noahpinion: Supply-side vs. demand-side recessions: Does output falter because people don't want to buy as much stuff, or because we become unable to make as much stuff as we used to? This is a debate that has gripped the macroeconomics profession for many decades. Which is kind of surprising to me, because it is so obvious that demand shocks are the culprit.

    The reason is prices. If recessions are caused by negative supply shocks, then we should see falling output accompanied by rising prices (inflation). If recessions are caused by negative demand shocks, we should see falling output accompanied by falling prices (disinflation or deflation)….

    In all of the recent recessions, faltering output has been accompanied by lower, or even negative, inflation. This means that demand shocks must have been the culprit. If "uncertainty about government policy" were really the cause of the recession, as many conservatives claim, then we would have seen prices rise - as companies grew less willing to make the stuff that people wanted, stuff would become more scarce, and people would bid up the prices (dipping into their savings to do so). I.e, we would have seen inflation. But we didn't see inflation. So it seems that the stories that conservatives tell about the recession - "policy uncertainty," "recalculation," or even a "negative shock to financial technology" - are not true. The stories that everyone else tells about the recession - "a flight to quality," "increased demand for safe assets," etc. - look much more like what basic introductory macroeconomics would predict….

    The basic point here is about the dangers of doing what Larry Summers calls "price-free analysis". If you ignore prices, it is possible to convince yourself that recessions are caused by technology getting worse, or by people taking a spontaneous vacation, or by Barack Obama being a scary socialist. If you pay attention to prices - as all economists should - it becomes harder to believe in these things.

    So the question is: Do conservative-leaning economists push these stories because they believe that we live in a world that is vastly more complicated than anything that can be described in Econ 102? Or is it just because they choose to ignore Econ 102 completely?

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