A Sign of Health in the U.S. Stock Market

TIM PARADIS notes:

With Friday's decline, the market might well be following the pattern of past corrections, when huge gains were often followed by some retrenchment. Many market watchers consider such backing and filling a sign of health. However, with much economic uncertainty ahead, investors may need months before they can decide whether to take the market solidly higher.

"Whiplash Wednesday" On the US Stock Market

A day after the Federal Reserve slashed interest rates, averting a nasty nosedive in the market, Wall Street watched as the Dow Jones industrial average oscillated like a yo-yo, diving nearly 250 points in the opening minutes, spending the day in a series of rallies and swoons, and then closing up — way up — with a gain of nearly 300 points, snapping a five-day losing streak.

Market volatility reached its highest level in nearly five years. In a three-hour span in the afternoon, the blue-chip index ricocheted from a 326-point hole to a 275-point gain.

“The market has this out-of-control feeling, and until the market sees some semblance of stability, it’s going to continue to be very volatile,” said Richard Sparks, senior equities analyst at Schaffer’s Investment Research.

You can probably guess who profited from the last few days' erratic behavior in the stock market. As I posted previously, fear begets panic in ordinary people but experienced stock traders understand that right now is the best time to buy and hold stock for the long term. If I had any cash, I would have put it into the stock market this morning right after that big downward plunge!

Reasons Bush's Relief Plan Is Too Little and Too Late

Jon Markman writes:

Now, the problem for most people reading this...online is that the fattest rebate checks probably wouldn't go to you. Sorry, but you probably have a job and a higher-than-average income. The government fears you might do something stupid with the rebate check, like save it.

But, before he writes this, he says,

That rumbling sound you hear coming from Washington, D.C.? It's Treasury Department helicopters packed with bags full of cash about to be dropped on voters, as the federal government prepares to launch a brazen, desperate election-year effort to rescue the economy.

If you thought the government's delayed response to Hurricane Katrina was a study in out-of-control largesse -- replete with no-strings-attached debit cards handed to anyone with a Cajun accent and a damp shirt -- wait until you see what the government has in mind for the rest of us this year.

The latest is President Bush's just-announced call for $145 billion in tax relief aimed at preventing a recession that is actually already here. The intent of the plan is simple: "Letting Americans keep more of their money should increase consumer spending," the president said. Bush said Congress should take steps to implement a stimulus plan as soon as possible.

As you can see from the stock market's response, the plan suffers from being too little, too late.

Tyler Cowen's "The New Invisible Competitors"

In THE WILSON QUARTERLY, Autumn 2007 issue, Tyler Cowen writes of "The New Invisible Competitors." Cowen starts by giving us an example of 'romantic competition' as it existed in the 1930s, telling us that "most romantic competition occurred within small groups of people who knew one another." Because of this closeness, "romance was full of heartbreak and anxiety" but the upside was "you knew who your rivals were and who was beating you."

Now, however, "romantic competition has radically changed." Competitors are no longer the neighbors but remain "invisible, the rivals faceless." The romantic competitors are invisible because they are often rivals via internet dating services. And this sort of competition is now true in the marketplace as well as the bedroom.

The invisibility of the competitor makes us anxious, contends Cowen, and this anxiety "feeds the backlash against international trade" (despite economists assuring Americans that the "benefits of trade outweigh the costs.")

Cowen says, "Let's look at individuals." The most likely individual to gain "in this new world" of invisible competition is the person who is a planner "far in advance" and who is also a self-starter, not needing others to prod him or her into action. The planner's "underlying psychology" is not to "trounce the competition," but to order his or her "own reality."

"Early risers will also be favored." This is the person who is "first to use a new idea" and is often a "farsighted innovator."

"Nervous personality types...may also catch a break," writes Cowen. "As more and more people find themselves able to minimize personal contact by working via the Internet, the smart but anxious set will move to a more level playing field."

But, the person with imagination will gain the most in this new world of invisible competition. This person is "blessed with the ability to imagine a new way..."

Finally, the person who can reinvent him or herself due to understanding the "popular culture" of the time and how it is changing will do well in this new world of invisible competition.

Cowen states that "the rise of invisible competition has implications for nations," too. "The rest of the world often sees the United States as the deadliest source of invisible competition." This is due to Americans having a competitive spirit, a strong Protestant work-ethic, and a pioneering mindset.

Chris Buck (photo credit)