“Total fear”: Dow drops 512 points

posted at 4:06 pm on August 4, 2011 by Allahpundit

Remember the last time America had a nice quiet year of economic stability and relative political tranquility? If you do, let me know. Maybe it’ll jog my memory.

“Total fear”:

U.S. markets were already sharply lower on widespread worries, including the weak job market. But the selling gained momentum as Japanese and European policymakers stepped in with dramatic measures to shore up their financial markets.

There’s “total fear” in the market, said Bob Doll, chief equity strategist at the world’s largest money manager, BlackRock.

All three major indexes tumbled more than 4% Thursday and erased all their gains for the year. The indexes have also pushed into ‘correction’ territory – defined as a 10% drop from their highs earlier this year. Over the past 10 days alone, the Dow, S&P 500 and Nasdaq have dropped about 8%.

Debt-ceiling discontents claim the sell-off this week is a backlash to the feebleness of the deal in addressing America’s long-term debt problem. I don’t buy it. The market’s known for weeks that the deal wasn’t going to touch entitlements or lock in major spending cuts. Once Obama demanded an extra $400 billion in new revenue and Boehner walked away, the grand bargain was dead. If, as Erin Burnett speculated, shares were pricing in an elevated risk of a credit downgrade, that should have happened Monday or last week. I think J Pod’s right that what we’re seeing here is markets pricing in something else — namely, the growing risk of a double dip:

In fact, the debt deal came to fruition at exactly the same time as a series of devastating economic reports that indicate we will be lucky if the current moment is only a “slowdown” and not the beginning of—maybe even the middle of—a double-dip recession. You don’t need an economics degree to see the disaster in these numbers. Lower consumer confidence means less consumer spending, which means less demand, which means less economic activity, which means no improvement in employment figures and very possibly a worsening of unemployment. What we are seeing on Wall Street this week is that a coming recession is being “priced in.”

By “devastating economic reports,” he means this, this, and this, all of which are being served with a garnish of a new debt crisis in Europe. Follow the link above to Podhoretz’s post and read his account of chats with investors. They can’t make a move because they’re paralyzed with uncertainty over government policy, and since the Super Committee may or may not produce tax reform four months from now, that’s bound to continue until Thanksgiving at least. That’s a more trenchant criticism of the debt deal vis-a-vis the stock sell-off, I think, than knocking it because it took only a few pebbles off of America’s mountain of debt. It did nothing much to encourage job creation and it prolonged regulatory uncertainty, and now the market’s reacting accordingly. Bad days ahead — starting tomorrow, when the July unemployment numbers come out. Exit quotation:

Economists at Bank of America’s Merrill Lynch said Thursday that the economy is just one shock away from a recession. They put the probability of a recession in the next 12 months at 35%. However, they said the likelihood that the economy is currently in a recession was just 10%.

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suckers…

equanimous on August 4, 2011 at 7:43 PM

It’s now clear that without stimulus, the economy would have experienced a major fall over the last two quarters.

bayam on August 4, 2011 at 4:18 PM

It’s also clear that if Carthage had beaten Rome we would have world peace now. See how easy vain and idle speculation is.

chemman on August 4, 2011 at 7:58 PM

You mean how is default worse than this. Well, default would have turned off the tap on 40% of federal spending instantly, at least for a few days. You may have seen a thousand-point drop instead of this.

Allahpundit on August 4, 2011 at 4:13 PM

Conjecture.
Quit spinning.

True_King on August 4, 2011 at 8:07 PM

The crash of the financial market and the financing structure in this country have long been expected based on the actions made by the Obama Administration since 2009.

The need for “MORE DEBT” to support the wanton expansion of the Federal Government is just the aftermath of Obama Policy.

The Tea Party people have long expected this aftermath … when the Business Sector loses confidence to the American financial system.

SO, I SAY …. OBAMA AND DEMS … EAT YOUR CRAP!

TheAlamos on August 4, 2011 at 8:25 PM

Obama is going to pay my capital loss !

bayview on August 4, 2011 at 8:40 PM

Oh, and “Happy Birthday, Mr. President”.

Putz.

Midas on August 4, 2011 at 9:32 PM

You mean how is default worse than this. Well, default would have turned off the tap on 40% of federal spending instantly, at least for a few days. You may have seen a thousand-point drop instead of this.

Allahpundit on August 4, 2011 at 4:13 PM

Why, that sounds kind of like Bayam.

You know, if we had not increased the debt, not allowed spending to continue to increase (remember, there are *no* cuts occurring), didn’t almost guarantee that the Bush tax cuts will expire – you know, all of the crap that this ‘deal’ really means – and “turned off the tap”, the market may have actually rallied like mad, encouraged that maybe at last Washington DC had pulled its head out of its a##.

See, I can guess too and given the fact that the market *did* in fact react negatively to the deal, at least my guess has some basis in reality.

Midas on August 4, 2011 at 9:35 PM

3 Times that are MUST WATCH

5:00 AM – Italy markets open. Watch for runs on the banks which may have started earlier today

6:50 AM – LIBOR brings out their rates. If Italy bonds hit 7%…it’s going to be a BLOODBATH!!

8:30 AM – New Unemployment numbers. Expected = 85,000. TERRIBLE! My guess = 9.3%

LordMaximus on August 4, 2011 at 9:49 PM

the sell off is continuing in Asia. The outback down almost 5%, Hong Kong down almost 5%

Tawain down 5% china down 3% japan down 3.5%

It will be an ugly day on Wall street esp if the unemployment numbers are bad.

I’m hoping for a bounce from the sell off but with all the bad economic and geopolitcal news out there I don’t expect it to hold.

unseen on August 4, 2011 at 9:59 PM

There will be an uptick before closing time tomorrow.

Place your bets.

hillbillyjim on August 4, 2011 at 10:07 PM

during the great depression the charts of the dow look familiar by the end of the depression the DOw lost more than 80% of its vaule at its peak. since Bush responded responded to the debt recession the same way Hoover did and Obama copied FDR I don’t expect too much different of an outcome. The DOW started all this around 15,000 It could hit 3,000 before all is said and done.

unseen on August 4, 2011 at 10:22 PM

blink on August 4, 2011 at 10:32 PM

plus a country that can print their own money would never default, they will debase their currency first.

default was never in the cards.

unseen on August 4, 2011 at 10:50 PM

The Republicans’ debt capitulation solved all of our problems!!!

Boehner and McConnell are geniuses!!!

steebo77 on August 4, 2011 at 11:31 PM

growing risk of a double dip

Nah! Ya think? All the bad economic index numbers the last couple of months – with none showing any indication of upward movement?

So will Barry be blamed for the new recession? I say “new” because I’ve been told that Barry ended the last one.

GarandFan on August 5, 2011 at 12:37 AM

buy! buy! buy!

equanimous on August 5, 2011 at 12:59 AM

Vote for Progressive Republicans. Because it’s all about fiscal responsibility.

Nothing…

Else…

Matters…

/

hawkdriver on August 5, 2011 at 3:24 AM

You mean how is default worse than this. Well, default would have turned off the tap on 40% of federal spending instantly, at least for a few days. You may have seen a thousand-point drop instead of this.

Allahpundit on August 4, 2011 at 4:13 PM

Wait until tomorrow.

Still cannot, for the life of me, figure out how you chose your ‘nic’ for a supposedly conservative web site.

What the h e double l l does your name mean??

Opinionator on August 5, 2011 at 4:08 AM

Comment pages: 1 2 3 4