Tuesday, October 08, 2013

Stock Market Chicken

The Dow has now lost about 800 points from it's pre-shutdown peak. This is a hint that it's starting to feel the icy breath of default on it's neck. But why so little? Mostly, I think, because it still believes that this is going to be settled peaceably, and everybody anticipates that when that happens, the market will make a big jump, which nobody wants to miss.

The future dynamics can be guessed, up to a huge "if." If this goes down to the wire, the slow leakage will become a flood, and finally a panic. If default is averted, there will be a big but probably only partial recovery with a trillion or three transferred from the fearful to the brave. If default happens, everybody is probably screwed anyway.