Wall street

The stock market, traditionally a leading indicator, entered correction territory last week. But does that indicate that a recession is coming? Well, it’s an old saying on Wall Street that the market has predicted ten of the last three recessions. Markets hate uncertainty, and no one knows how President Trump’s efforts to use American tariffs to force our trading partners to lower theirs will turn out. But foreign trade is increasingly important to all countries, so it’s likely that, after some political Sturm und Drang, deals will be struck and international trade will continue the strongly upward path it has been on since the end of World War Two. By definition, a recession is two consecutive quarters of contraction.

It’s not often that anyone — much less an academic — writes a book that launches a revolution, but that’s exactly what Burton Malkiel did in 1973 when the Princeton economist published a short, potent book called A Random Walk Down Wall Street. As of 2023, the book is in its thirteenth edition. Malkiel famously insisted that “a blindfolded monkey throwing darts at the stock listings could select a portfolio that would do just as well as one selected by the experts,” and then he spent his entire career doing his best to prove that hypothesis.

For more than thirty years, Scott Adams has captured the absurdity and humor of office life in his popular syndicated newspaper cartoon strip “Dilbert.” The title character, an oblong-headed, cubicle-dwelling everyman, is one of the most familiar cartoon characters in America, but last September he vanished from more than seventy newspapers. Shortly before Dilbert’s partial disappearance, his opinionated creator had set his sights on ESG. Adams’s views on the vogue for “Ethical, Social and Corporate Governance” investment strategies weren’t exactly difficult to discern. In one strip, for example, Dilbert asks, “What is this ‘ESG’ thing I keep hearing about?

Many are familiar with the old aphorism that in real estate the three most important determinants of value are location, location, location. Things are a bit different in making economic forecasts and predictions, where two variables matter most: accuracy, of course, but also timing. Regarding accuracy: a lengthy list of economists — some quite eminent — have ended up with egg on their faces because of inaccurate predictions and forecasts. In this regard, there’s the observation by the distinguished economist Irving Fisher, 92 years ago today on October 16, 1929, that stock prices had reached 'what looks like a permanently high plateau’. Since the Great Crash occurred two weeks later, Fisher’s timing wasn’t so great either.

COVID-19 is still raging, with little sign of coming under control. The economy is already a tenth smaller than it was at the start of the year. Joblessness is soaring. And the budget deficit? Don’t even ask. But, hey, perhaps we shouldn’t worry about any of that. As the President of the United States keeps pointing out, the stock market is doing great, and, in his opinion, anyway, that means America, to borrow the kind of slogan that fits neatly onto a baseball cap, is great again as well. There is a problem, however, with Trump’s breezy 21-character analysis. It is not really true. The main equity indices reflect many different things, and the health of the economy is not always one of them. https://twitter.

The first victim of war, they say, is truth. The first victim of coronavirus, by contrast, is fiscal discipline. Yesterday, President Trump started negotiating with the Senate over a proposal to suspend payroll taxes, possibly until the end of the year. Wall Street certainly liked it: markets shot up by five percent. Whether future Americans will enjoy paying the bill is another matter. The government’s proposal is not just targeted help for a few industries like travel and tourism, which stand to lose out heavily as people stay at home. It is not a modest tax cut to encourage Americans to go out and spend a little more. Even to call it a 'stimulus package' — as these things are pat to be called — seems pathetically inadequate.

Is this really about a virus? Oil has plunged 30 percent, the S&P Index seven percent. What is happening on the markets today has less the feel of a rational reaction to world events than one of the periodic panics which grips world markets — with coronavirus a mere excuse for a sell-off which was perhaps coming anyway. The deadliest words for world markets are not ‘coronavirus’ and ‘Covid-19’ but ‘decade-long bull market’. The latter idea has planted in many investors’ heads that the good times could not have gone on much longer — there had to be a correction or crash. It is true, as well, that the US, in common with many developed countries, has not suffered a recession for over 10 years. That, too, feels unnatural.

Amid the slew of articles commemorating the 10th anniversary of the financial crisis there has been a curious silence about the role played by the Occupy movement. And Occupy did play a key role in developments, though not at all in the way its leaders intended. For a few months in 2011-12, Occupy had the attention of the world.