Seriously, What Is The Deal With the Stock Market

The last time the market had violent convolutions like this was right before the Great Depression. It’s not anything new, and you’ll see just how violent things will get over the next twelve months.

Well, the trouble with the market earlier (Thursday) is that nobody really knows why the Dow dropped so much. Typically, despite the volatility, somebody somewhere have some kind of reasonable explanation for it. But not today!

It could be unemployment, but we’ve heard of that before, and the market didn’t drop quite like this. So, I’m not entirely convinced….

Still, that’s actually kind of a good thing because market sentiment is often reflected by certain economic news or events, and therefore, tends to even itself out. This time around, there isn’t one, so it’s likely to correct itself in the near future. In other words, this is a better time than others in the year to buy into it before the market corrects itself.

And you don’t have be a stock trader either. If you’re wondering when to put in your contribution money in your Roth, for example, days like these are better than others.

Some people may think that there is no clear explanation for drops like today, but they are just uninformed. To find the answer you just have to know where to look and understand the macroeconomic picture. Allow me

what is currently happening is being caused by the rally in the dollar. The dollar is rallying b/c a number of things: the slowing global growth story AND concerns about inflation in europe and other places. This causes foriegn money to seek refuge and rush back into the US.

A strong dollar is very bad for several reasons: US based global companies, which were relying on global growth, were profititing heavily from selling more abroad due to the weak dollar. No longer the case. A strong dollare has led to the selloff in commodities b/c that is no longer a place of refuge, so for the 1st time we are seeing both OIL and the stock market tanking at the same time. People have been ingrained with the idea that high oil = low stock, and viceversa, but this is simply NOT the case. Currently, oil headed lower is a result of the slowing global growth story. This is ultimately VERY, VERY bad for the US stock market. Slow growth benefits nobody and the current market is pricing this in.

In addition, with foreign money seeking refuge the price of treasury notes is going up, decreasing the yield. Technically, the yield has just broken the 3.8 level, which is bad for the stock market. (that old inverse relationship treasuries up = stock market down). To follow this level, pull up a chart of the $TNX yield. Also feel free to pull up any of the curriencies and notice how historic the past 2-3 week rally in the dollar has been. All the foreign currencies have broken down from technically signficant trends.

This fall in the market is not over by a long shot, given that our decline yesterday was a technical breakdown. We will atleast test the lows of this year, but no telling if we are going to stop there. I would be hesitant to place any long term money into the market right now. There is NO sign of a bottom technically, or otherwise. I figure this is also the place to mention that there are huge blowouts in the credit spreads and economic data is confirming everything discussed here, i.e. the weak global + US economy.

Feel free to email me if you’d like to talk about this more in depth.

Really, in the several month I’ve read this blog, I found you to be a poster boy for the emotional reactions to personal finance issues that cause so many people to make serious money mistakes.

Between the misguided rants on the total-evil of credit cards, to the concerns about the short term vagarities of the stock market, to the conspiracy theory comment rant on the political tax plan comparisons …

I think your bottom line would do much better if you would stop spending so much time blogging, and spending MUCH more time reading.

I disagree with J. As an average American, with average intelligence, I have found moneycrashers to be very helpful and easy for me to understand. The issues are relevant to my life.

I appreciate that the author is genuine in his emotions. It makes him more relatable, and it helps remind me that I am not the only one who gets emotional about financial issues. I really like how he is very real about the issues.

Several times this past year, I have asked the author various financial questions that I was trying to sort out, and the author gave me very helpful advice! I believe I have made some great financial decisions this past year, and it is partly due to the answers I have gotten from moneycrashers.

Moneycrashers – Thanks for the great advice these past years! Thanks for always keeping it real!

@ B-rad, that’s a really sophisticated answer. if you ever want to do a guest post about macro-econ, let me know!

@ J – look man, you’re still reading my blog, so there must be something that you like about the stuff that I write. It’s okay for you to disagree with me about the use of credit cards, politics, and the economy. I don’t mind when people disagree with me. Casey sees my effort that I try to bring out the every-day real issues that go on in personal finance. I don’t ever try to act like I know it all, and that is why I write posts like this, because I truly want the opinion of you all. I know there are people smarter than me about certain subjects out there, and I know that the readers and I will benefit from your comments. But, I hope that you keep reading, because I enjoy the challenge and you sharpen me to be a better writer and to continue my constant pursuit of knowledge.

@ Casey – thanks for the encouragement! I’m glad that my two-cents has aided you in a small way to make better financial decisions.

Investing in stocks is a lot like baseball. Homeruns get instant glory, but keeping the bases loaded and driving in singles scores more runs overall.

While the macroeconomic explanation isn’t necessarily wrong, it doesn’t always explain day-to-day volatilities. I’ve tried to provide a link to a news article on that date and over why that particular day was perplexing, but for some reason, it wouldn’t let me post. Unfortunately, I’ve lost the link by now.