The stock meltdown of the last eight days, from an S&P500 index high of 1538.7 on 6/15 to a low of 1484.2 on 6/28, is highly similar in magnitude and duration to the 2/27 decline on subprime worries, the declines in May and June 2006 on inflation fears, and the decline in September 2005 with the major commodities firm. Apparently these 50 point selloffs are occurring with more frequency. The current decline started with fears of rising yields and presumably will end when the 10-year bond yield falls below 5% (and then some other bearish factor will have to be bruited about).

I watched CNBC this week and found it enlightening. My impression on Monday and Tuesday was that the only time the market went up was during the advertisements — except when it was the advertiser who was interviewed on the program for his bearish views on Dow 5000 and long term yields and the economy, since his mere presence on the screen was good for an immediate 50 point drop in the Dow, and then when he gave his interview the market dropped a quick 100 points as he expressed his views on contagion, disaster, and why bonds are a better investment than stocks (in this he is apparently supported by his former disciple in Cambridge and, qualitatively, with his emphasis on the advisability of buying profitable disaster insurance, by the great coffeehouse philosopher and the Sage from Nebraska).

Listening to CNBC one couldn't but fear for the country. Apparently everyone is in hot water. The Fed is in hot water because it has to show Washington it's tough on mortgages. The SEC is in hot water because it is seen as pro-business and hasn't cracked down enough on hedge funds. The hedge funds are in hot water because they're earning too much in fees. With so much hot water to fall into, it's amazing the market can do its job and maintain its normal drift during years when the yield differential is so much in its favor. If you can get 6% on stocks and profits are growing by 10% a year, that's 16%, and it compares favorably to 5% to most people, and the empirical facts that Tom Downing, Laurel and I report to support this must overcome.

Andrea Ravano comments:

I think CNBC needs labeling like cigarette packs :"Watching CNBC can be dangerous to your wealth". 


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