Interpreting a market plunge
economist.com
economist.com
Or maybe "Recessions are an outbreak of collective sanity."
>The immediate catalyst was the jobs report, which showed the strong United States economy might finally be translating into rising wages for American workers.
We even punish individual companies for this: https://www.vox.com/new-money/2017/4/29/15471634/american-ai...
>American Airlines agreed this week to do something nice for its employees and arguably foresighted for its business by giving flight attendants and pilots a preemptive raise, in order to close a gap that had opened up between their compensation and the compensation paid by rival airlines Delta and United.
>Wall Street freaked out, sending American shares plummeting. After all, this is capitalism and the capital owners are supposed to reap the rewards of business success.
>“This is frustrating. Labor is being paid first again,” wrote Citi analyst Kevin Crissey in a widely circulated note. “Shareholders get leftovers.”
Too fast increase in interest rates will cause their debt obligations to balloon and lower profitability. Though this will take couple of quarters to fully manifest. So, this is just a reaction in line with Amara's law applied to stock markets- We tend to overestimate the effect of a news item (technology) in the short run and underestimate the effect in the long run. I expect media to be soon cheering another round of upward zag.
The things you describe explain why people keep their finger hovering over the "sell" button, they don't explain why precisely today they decided to press it.
As to what triggers the move itself - my feeling is that some kind of crowd effect occurs, i.e. once we get over some resistance level, then the movement implied in the imbalances described by the context takes over; the crowd creates its own impetus. But it is very difficult or even impossible to determine ahead of time what minor movement will become the catalyst, in much the same way that determining which butterfly flap vortex will become a hurricane.
https://www.cnbc.com/2018/02/02/best-wage-growth-since-2009-...
Second, it seems you think these decisions are binary - to be or not to be or rather sell or not sell. It's not that simple. Lower markets doesn't mean everyone has sold off all their shares. They just reduce probabilities of their losses by reducing exposure. Then people go back to their drawing boards and see if the hypothesis holds up. If not, they come back and market moves higher.
No. Obviously when I say "everyone decided to sell" I'm speaking figuratively.
In any case, thanks a lot for that link. Cool stuff, I didn't know about the NFP. So if it was released Friday in the morning, how come the plunge happened only happened Monday? I still prefer my view that a tiny bit of data cause people to expect a drop and get edgy, and at some point they all start selling. ("all start selling", again figuratively.)
This is opposed to a bunch of people having done some ahead of time calculations like "if the NFP comes out about X we sell, if it comes out below X we buy. Oops it's about X, lets sell". I suspect very few market participants behave like this. (Agains, below/above X is figurative. I do understand what a probability distribution function is, what an expected value is, etc.)
So here's one for you. If your reasoning is correct I would've expected to see treasuries down (which indeed was the case Friday). Instead they went up. How do you explain that?
It started on Friday and accelerated on Monday. Adjust the chart to 5 days. Note the significant dip down right at the beginning of Friday 2nd followed by an all-day slide.
https://www.google.co.uk/search?q=dow+jones+chart&oq=dow+jon...
In the current NFP consensus on this one was 181k while the report was 200k which is nearly 10% variation from the expected value.
As for treasuries, the upward movement is expected. It is considered to be a safe asset in the sense that there is a fixed return. Equities on the other hand are considered risky assets. So, for the most part they are negatively correlated. Markets are down, then bonds should go up.
That said, markets and crowd wisdom are not perfect and don't always reflect all the information correctly all the time.
Will check out older NFP, thanks.
> Tiny bit of data?
I phrased it all wrong. What I wanted to convey is a lot of data points slightly pointing in one direction, none of which move anything individually, but at some point people realize that everything in pointing in a downwards direction, and get scared.
Anyway, thanks for the chat.
Of course, real decisions are made on figures. The actual way of making this decision would be to compare the bond yield with the expected inflation. If expected inflation is higher than the bonds yields I'm going to sell my bonds for cash and so will a lot of people, so the bonds price will drop and the yields will raise until a point where they're attractive again.
But yes, it is hard.
Treasuries become risk aversion vehicles during large equity sell-offs. Whatever downward pressure was put on them for a hypothetical rate raise was dwarfed by the fear driven movement from stocks into bonds.
Why into US treasuries you might ask. It's because they are a nearly risk-free way of parking money at a better rate than the money market while maintaining good enough liquidity to easy sell back out of the position.
The stock market works on supply and demand. For every seller, there needs to be a buyer. Let's assume that TSLA stock changes hands at a rate of 10k shares per day on average. The NFP report could cause a number of potential buyers to decide to hold off on buying. Assuming the sell interest is constant, this would likely result in a price drop. So no one has to actively buy/sell on the data in the NFP report (although some people might do that). If the NFP report causes buyers to stay home, prices will go down, and if it causes sellers to sit on their stock, prices can go up.
And of course this greatly oversimplifies reality. In any given day there are probably a number of different factors influencing sellers and buyers. Some people might be selling/buying to rebalance a portfolio. Some might be buying for their 401k. Some might be selling to cash out employee stock options. Some might be daytrading on the NFP report. And the movement in price is largely just a result of any aggregate imbalance between supply and demand. For me personally, I have stopped buying stock because I think the market is too overvalued right now. I know a few others how have stopped as well. As more people do this, the 'buy side' gets thinner increasing the odds of a drop.
How much was fingers on buttons, and how much was just automated trading algorithms?
Algorithms were definitely a contributing factor to the 1987 Black Monday crash (in that case, "portfolio insurance", basically implementing a simple stop loss policy by going short (through direct sales, or purchases of puts)).
https://assets.bwbx.io/images/users/iqjWHBFdfxIU/i9Zchv.nY_N...
The treasury move since September is one of the most aggressive of the last five years.
What happened is simply an inflection point. Markets operate heavily by trigger points. Those are getting taken out, sparking reactions (selling, asset allocation adjustments). The Dow went up three thousand points in two months, after the market was already at bubble price levels on multiples.
Shiller PE:
http://www.multpl.com/shiller-pe/
These valuation levels are batshit crazy. It doesn't take much to crash something that over-extended.
Let's be realistic here. Where was this market going from there? Dow 36,000 by 2019? A 45 PE for the S&P 500? It'll already take ten years of 3% US GDP expansion and higher global growth to bring the S&P's earnings multiple back to being close to reasonable.
A lot of the run up since the end of last year was based on Trump's new tax plans, which the left were very much against, so it makes sense that measures would be taken to roll that back were they to be in a position to do so - and I'd expect that people are nervous because (unpopular as Trump is in polls) no-one knows how that's going to go.
It seems (like here in the UK to be fair) that it's going to be a toss of a coin as to which extreme your economy is swung towards in the next election.
Also, new money is entering the financial markets all the time that doesn't have the past experience of the ups-and-downs. People can be well read on the topic and still not have a steady hand when it comes to the first turbulence event they experience with their savings, so there will always be (or at least, has always been) a proportion of panic sellers in the market at any one time.
(edit: This reads like I'm very right-wing. I'm really not, all I mean is that the market has gone up because of the big giveaway that might be snatched back again soon.)
No chance of that happening until 2021 at the earliest, thanks to the presidential veto. The Democrats have zero chance of obtaining a veto-proof majority in the in the Senate.
"blah blah hindsight bias blah blah rationalization blah blah"
At the end of the day, the only useful theories for the stock market are the ones that have predictive power. I'd be interested in reading articles by people who are consistently willing to put their money where their mouths are and consistently make money on their theories' predictions, but anyone who can do that of course tend to know better and tend to keep their mouths shut.
There is clearly some causality in the economy. There is also a causal relationship between the economy and the stock market.
It's just that identifying a correct causal relationship or correlation and even making a correct prediction doesn't make you any money if everyone else is making the same correct prediction.
It takes very few people to move the market. To dramatically oversimplify, if there are 1 million buyers and 1 million and 1 sellers, the market goes down until the number of buyers and sellers are equal again.
We can argue over whose dramatic oversimplification is worse, but do you disagree with the basic point that a small number of people can dramatically move a large market?
When things avalanche like this, the size of the response is determined by the size of the instability, not the size of the triggering event. Consequently, you cannot understand the event by looking at its trigger, but if you would like to know what sort of considerations the trigger was comprised of, the fact that the new Federal Reserve chairman is avowedly more determined to raise interest rates than his predecessor is as good as any.
Someone found out they had cancer, sold their shares, their broker thought they were acting on a tip-off because the women with cancer mentioned they play tennis with some CEO. The broker, goes short for all they're worth thinking it's their big opportunity, and recommends to others to sell (to guarantee the fall!), stock starts to fall, trips an algorithm that's looking for a particular gradient on index Y, ... meanwhile a rookie at a trading firm sells 1000 something instead of buying ... people who lost on Bitcoin recently are on edge and feeling cautious, a little blip and they want to end their position ... and on and on the snowball rolls.
Someone sneezed in Mogadishu seems just as likely to be the "reason".
Its not so bad for companies that export with a weaker dollar. Also for primarily domestic businesses where higher inflation correlates to a higher top line. In fact is advantageous to be in such a situation.
Yes, and the economy is at record size, nothing surprising here.
Go and look it up yourself if you are so excited about it, that has nothing to do with the vagueness of the original statement which was what I was highlighting.
You're confusing the sales pitch used to justify low interest rates with what they were expected to do. They were expected to bail out insolvent banks and save them from the consequences of their collective bad decisions. Not raise wages. Not kickstart the economy. Fiscal stimulus is how you do that and they knew that.
Had politicians instead gone to unions and asked "what the fuck should we do now?" the answer likely would have been "let those fuckers go under, fire/lock up all management that had fraud going on underneath them, nationalise the systemically important institutions and counteract the economic contraction brought on by a wave of banrkuptices with fiscal stimulus."
That's no good though because reliable political donors like Jamie Dimon would be in an orange jumpsuit and wages might actually go up (bad for profits). So we got the band aid that was zero interest rates that kept the current lot on Wall Street who blew up the economy and encouraged fraud in a position where they still get to direct it.
They were also expected to - and did - bail out homeowners, having taken the hit of losing ten plus trillion dollars in fake housing value. The Fed also took trillions of dollars worth of junk mortgages off the market, dramatically accelerating value recovery for home owners.
US home owners received the largest bailout in world history by a factor of 10. The Fed successfully fully reinflated the housing bubble.
The four giant US banks are making ~$90 billion a year in profit. US home owners gained $20 trillion in fake housing wealth from the bottom, courtesy of the Fed's zero rate asset reinflation party with record low mortgage rates. It's obvious who got the sweetest bailout there.
The big banks love higher interest rates. Their profits go up substantially as rates go up. If they had their way, rates would be a lot higher. Rates have been kept so artificially low, for the benefit of the housing market and the stock market (ie ~100 million of the wealthiest people on earth that reside in the top 1/2 income bracket and own everything in the US).
A lot of homeowners did well out of low interest rates, but that was incidental. A lot also lost their homes and were rendered homeless. Under HAMP some home owners had their homes stolen from them - they were directed to go in to arrears in order to qualify for HAMP and after the bait and switch they were foreclosed upon.
In other countries fraud like that gets you sent to prison.
Not America.
How about you tell me who you think is the gold standard for economic advice?
I know, they make mistakes. So do physicists. But if I need physics advice, I don't go to plumbers.
Economists are rational economic agents similar to the people that they study. They make mistakes, but more importantly - like us - they also respond to incentives.
There's an interesting set of incentives in economics departments that the physics department simply doesn't have.
I might go to a physicist to fix my boiler if all the plumbers in my area were shysters.
Neither economists nor the people they study are rational economic agents, as the economists that use empiricism rather than trying to bash the observations to fit neat preconceived theoretical frameworks would probably recognize.
I don't see any reason why economists wouldn't respond to incentives too. They're people just like us, no? Perhaps not always 100% rational, but a close enough approximation.
That people are “rational actors” is, indeed, a central tenet of neoclassical economics, but it is more “people respond to incentives”; it specifies exactly how people respond to incentives; the rational actor model holds that people behave so as to optimize the output of their own utility function as if they had perfect knowledge of the available options and the net utility of each.
Of course, that idea is at best a very loose approximation and, at worst — as behavioral economists tend to see it — a dogma that tends to lead people away from analysis and application of the available information on how people actually behave, which is very consistently at odds with the rational actor model.
The controversy surrounds what those incentives actually are.
Other people (e.g. gamblers) perhaps not so much.
Oddly, I more or less trust the Congressional Budget Office. I kind of trust the Fed. (They have their own lens, which you can call bias, but they have more and better data than anyone else, and they are a lot more aware of second- and third-order effects than almost anyone else.)
I read your original comment as saying that we should have gone to the unions as our sole source of economic advice. I think that's a terrible idea. If you meant that we should listen to them as well as others, sure, I actually agree with that.
(https://www.nakedcapitalism.com/2014/07/cbo-still-pushing-de...)
Oh look. They "forgot" not net out financial assets in a way that conveniently providid deficit hawks more 'useful' data. That's A) deceptive? or B) not deceptive? You tell me.
For the Fed their strong objections to the audit and the long series of absolutely bullshit reasons they gave in an attempt to prevent it and the data that was subsequently revealed when those objections failed paint a pretty clear picture of whose side they were really on. It was the banks that wanted that audit prevented and the data was embarrassing for them because it revealed the true extent of their bailouts.
So yeah, both institutions align ideologically with those big bank economists whom you just told me you don't trust. You're familiar with the idea of "regulatory capture" I presume? Well, dig slightly below the surface of the output of these two institutions and it gets revealed in all of its nasty glory.
I have no doubt that their ideological bias could be shifted if the center of power in Washington moved, however. The CBO and Fed could be made impartial and objective, but the idea that they are right now is laughable.
>I read your original comment as saying that we should have gone to the unions as our sole source of economic advice. I think that's a terrible idea.
I've no doubt a lot of people think that. People who would see their power diminished and those who consume their tasty kool aid alike. The fact remains that the economy is built upon people who work - rather than own - for a living and that is who unions represent. Banks represent the opposite.
When this used to be more predominant (e.g. the 1950s), the economy was performing considerably better than it is now, and if you think that the actual policy reaction to the 2008 crisis was in any way appropriate you are either smoking some heavy shit or a beneficiary.
I think people are going to be surprised about the coming global growth, just like they said the Fed moves would cause massive inflation, or that interest rates would never go beyond zero.
By itself, this state is meaningless. This is exactly what investment kickstarting the economy looks like, as well as wasted investment on useless garbage.
I am, anyway. The standard advice ("Buy low-cost index funds with dividends reinvested, keep buying on a regular basis, let it ride and don't worry about the plunges and the peaks") told us this would happen, and here we are.
How to interpret it? I'd go so far as to ask should we interpret it? They get paid for coming up with reasons why things happened (after the fact, I note, although the Economist has hardened up and just said "nobody knows"). We [1] get paid for leaving our pennies in low-cost index funds with dividends reinvested for a decade.
[1] Apologies for the generalisation; I needed a bigger word than "I"
Can't comment on that, but for stocks, definitely yes. Historically, the market has always recovered from slumps. I know this does not mean it always will, but lots of people dropped out of the stock market after the crashes in 2001 or 2008 - for them, it would have been wiser to hodl.
What's the expected recovery time? (Say average for a randomly selected 10 indexed stocks).
FWIW this is an academic enquiry, I'm too poor to gamble.
I'd find it instructive to know the answers. I can't imagine no indexed stock has ever failed, nor that the indexes are a perfect insulation - you wouldn't need FTSE250 if the 100 was perfect, they do moderately different things.
Indexes are picked by "stock pickers" they're just picking conservative long, wide spreads AFAIK.
Yes, no index is perfect. But most of them provide more diversification than the average person would be able to achieve by manually managing a portfolio.
Historically, this isn't even a slump (yet). The dow can drop another 3,000 points and still be up 1,000 points from what it was this time last year.
As to why it is different now, this article [1] contains some answers (anyone can decide whether they agree or not).
[0] https://en.wikipedia.org/wiki/Comparisons_between_the_Great_...
[1] http://cepr.net/blogs/beat-the-press/it-actually-doesn-t-fee...
In fact I've heard a hell of a lot of "CDOs are back and as interwoven as ever!" things. Though in theory we've learned a lot, who knows what will happen
From my understanding, American student loans can't be defaulted upon? They might be a bit too particular to hit the issues that happened with mortgages
You can think of this as a system with gain. As time passes, people are willing to take more risks, which corresponds to the gain going up. That's fine... until the gain exceeds unity. Then there's a catastrophe. Then everyone gets very averse to risk, so the gain goes way down. But as time passes, it creeps up again...
It's reasonable to call 2008 a "once in a lifetime" event, because there hasn't been anything like it since the Great Depression. This gives some idea of the time constants involved. (One of the virtues of our regulatory regime is that they have managed to increase the time constants. Before the Great Depression, we used to have events like this every decade or two.)
Sometimes I suspect it's all rotten.
The companies that will do well in the future are those that cater to a low-income demographic. I hear Dollar General is doing very well.
Nicholas Nassim Taleb, as much as people here seem to dislike his personal style, has written extensively on these types of events. He calls them Black Swans, and says while we may not have predicted the 2008 crash, we would be wise to assume there exist unforeseeable/non-modeled events that would have non-linear impact on the system.
I think of it this way: future events* will occur that will invalidate our models and have outsized/nonlinear impact on the KPI we care about. Our blindness is because there are so many baked-in assumptions and possible futures we can't mentally model for them. Any single "Black Swan" event has a vanishingly small probability of coming true, but the sum of the Black Swan probabilities is the important metric, not any given one.
Taleb's thinking is filled with judgement of his peers, and his egotistical writing style is bombastic. His themes, however, from his trilogy of books, marries human psychology with rare outcome events to form an interesting contrarian take on the world.
* 1987 crash, dot-com crash, the Great Recession, etc.
We have had an asset bubble due to low interest rates. Because people don't want to keep money in banks. So we have had a bubble in crypto and stocks etc.
As interest rates rise - and they will, because the government will need to reload for the next QA or whatever - asset markets will keep taking hits.
The question is - why does the central bank really need to raise interest rates? Why not just keep things as they are and not load up on QA ammo?
That depends - are you an Austrian economist? :)
What's the reality? Beats me!
If your $10 today is the value of $1 yesterday, it's very hard to store wealth in such a currency. So people move their assets to a less volatile currency.
Inflation guarantees that your salary is worth less when you spend it than when it was paid to you.
If inflation is high enough for you to worry about it, the solution would indeed be to convert it as quickly as possibly to something that is better at storing value.
At some point, people might start trading the thing that stores value really well and just retire that constantly depreciating currency.
>Austrian economics relies heavily on praxeology in the development of its economic theories. Austrian School economists continue to use praxeology and deduction, rather than empirical studies, to determine economic principles.
>"The Austrian school believes any increase in money supply not supported by an increase in the production of goods and services leads to an increase in prices, but the prices of all goods do not increase simultaneously." //
https://www.federalreserve.gov/monetarypolicy/bst_recenttren...
And the problem is: either they aggressively retire QE and the combination of withdrawal of liquidity and rising interest rate is going to create an enormous pressure on stocks, either they keep the balance sheet as it is and we enter into the next recession with the monetary tools already at 11, with very little room for the Fed to react without resulting in massive inflation.
I think the current asset bubble has to burst, it's going to be painful for investors but this is the only responsible thing to do.
The markets drop to the point where the majority of investors agrees that the current valuation matches the expected ROI again and therefore stop further selling. After a couple years of conservative trading the markets return to become slightly more optimistic again and the game starts from scratch again.
It is a natural cycle and nothing we can do to change, just embrace a crash every 10-20 years or so...
http://macromarkets.ie/wp-content/uploads/2016/09/Asset-Pric...
stock markets are dominated by greed
What we probably can agree on is that the stock market is driven by the actions of many actors who try to maximise the utility value of the assets under their control.
an increasing over valuation of assets
Even if we apply some 'simple' mathematical definition like the NPV of future returns, we could not say if an asset is overvalued in regards to that. Because the future returns are unkown. And we cannot say in hindsight either. Because the value of an asset is a statistical function of possible future outcomes. So the actual outcome does not tell us what the statistical function looked like.
The truth is that investors will always pump as much money into a stock as long as there is still a logical explanation for a positive ROI. However at some point the stock becomes so hot that the general public will also start pumping money into it (with the simple hope of making some quick and easy $), at which point the value will skyrocket even further until there is no logic explanation anymore and it becomes very difficult to justify the value in any logical way... and that's when it bursts.
Just look at Bitcoin and tell me I'm wrong...
I never said that we can show that an asset
is overvalued, I simply described what actually
has happened in the past
Apple was worth $500B in 2012 and $300B in 2013. Does that mean it was overvalued in 2012? Or was it undervalued in 2012 because it is worth $600B in 2014?
As a counter-example, an example of "extremely overvalued" in my mind would be Enron before the fall.
* https://en.wikipedia.org/wiki/Sorites_paradox
EDIT: not so much "determining", but "defining" - you can only know it ex-post...
There's been a huge amount of negative sentiment on it's flattening, and more talk about the bonds being overbought...
China's sell off [0] was interesting and generated a lot of chatter about the value of the bonds, but it was to serve their interest (S&P lowered their ratings[0]), rather than them acting on some information.
But now, the yield curve has risen even if it's overbought?
[0] https://www.ft.com/content/a1ad3848-ba05-11e7-8c12-5661783e5...
Interest rates are going to be increasing, always dings the market and debt.
A re-trench helps the stock buy backs coming from the tax cuts, hedge funds probably helping engineer that volatility.
Fast-growing companies which are investing aggressively today and whose profits lie far in the future, in particular, are exposed to rising interest rates, due to the higher duration of such companies' cash flows. Duration, for those here who don't know, is a measure of the sensitivity of present value to interest rates.[a] Duration rises with the amount of time an investor must wait for cash flows, and vice versa.
For example, the present value of $100,000 of cash flow to be generated in 10 years, if the 10-year rate is 2%, is equal to $100,000/(1.02^10) = $82,000; if the 10-year rate rises, say, from 2% to 3%, the present value declines to $100,000/(1.03^10) = $74,000, or a -10% decline. However, if the $100,000 in cash flow is to be generated in 30 years, and the 30-year rate rises from 2% to 3%, the present value declines from $100,000/(1.02^30) = $55,000 to $100/(1.03^30) = $41,000, or a -25% decline. In this example, an increase in duration from 10 to 30 years changes the sensitivity of present value to a 1 percentage-point rise in interest rates from a -10% decline to a -25% decline. The longer an investor has to wait for cash flows, the greater the sensitivity of present value to changes in interest rates.
The same ruthless logic applies to companies. The present value of companies whose profitability is in a distant future declines much faster when interest rates rise than the present value of companies certain to generate cash flows in the near future. Until recently, due to historically low interest rates and no prospects for inflation, the stock market has been rewarding high-investment companies that are sacrificing current profits for growth. If interest rates continue to rise (along with inflation expectations), I would expect this pleasant state of affairs to change abruptly -- in which case, strap on your seat belts!
I cannot decide if I should hope for the stock market to go up or down. What do the wise people of HN think?
My question is what is better for me. If stocks go up or if stocks go down.
If this was 2007, you would be screwed for the short term. Like 5-10 years screwed if you are retirement aged. If not, you're brilliant.
I don't get why the advice to not go 50% stock, 50% money market because it's too coarse is bad though. It's like betting half/half on black/red in roulette, depending on the specific timeframe. They usually have opposite (or close to that) outcomes, except that the stock losses/gains are far more wild than the money market losses/gains. You're hedging a wild swing with a mild swing.
Tyinguq gave you a good answer already, but to add to what s/he said: anything kept in cash will almost certainly earn less than inflation, meaning that with cash you’re losing, even if the numbers appear to go slightly up.
There are plenty of times when it’s worth taking this hit for the benefits of cash. Maybe you want the cash as an energy fund to cover ‘x’ months of living costs should you lose a job, maybe you’re planning a big purchase in the near future, maybe you think the stock market is about to crash and want to invest when it’s at or near its next major low point, maybe you’re about to retire and want some of your wealth extremely low risk, I’m sure there’s plenty of other reasons. (If you’re trying to time the market and buy more when it’s cheap, you might do much better than investing it now, or you might do much worse, but that’s a whole new topic).
Unless a specific reason, in the context of however big or small your wealth is, means that you specifically need exactly 50% in cash, you might consider investing more in something that can give better returns than cash. If you’re trying to hedge against a stock market crash but think historical patterns in the finance world will continue, maybe bonds are a good option. If you’re worried that there’ll be a wider downtown then you might consider precious metals or even cryptocurrency. And maybe cash should be a part of the hedge, but maybe not all.
Disclaimer: I’m an amateur not a professional adviser, and I’m not advising you to do anything other than to consider why you think 50/50 is the best choice and whether it actually is or not.
But this short snippet by the BBC explains that the market anticipates that interest rates will rise as wages rise faster than expected - http://www.bbc.com/news/av/world-us-canada-42955578/us-marke...
>The swoon set tongues to wagging, about its cause and likely effect. There can be no knowing about the former. Markets may have worried that rising wages would crimp profits or trigger a faster pace of growth-squelching interest-rate increases, but a butterfly flapping its wings in Indonesia might just as well be to blame.
The reason the credit rate might be increased (my guessing) is because lending money creates vritual money and thus inflation. The other reason is because it would allow banks to profit from the european economy recovery. America has currently enough growth to absorb the negative effect of a credit rate increase.