I'm busy getting dizzy
I'm busy getting dizzy
I'm busy getting dizzy
So said the Nothing-At-All puppy in the classic children's book by Wanda Ga'g, as he tried to whirl himself into visible corporeality. And so says anyone who has been attempting to find meaning or order in the frantic lurching of the U.S. stock market over the past week.
On Monday, the Dow Jones Industrial Average made up almost exactly what it lost on Friday, rising 287 points after a decline of 281. This continued its recent pattern of spastic plunges and breathtaking spurts. In the financial press, where every stock market action must be attributed to some discernible event, consensus settled around two potential triggers: a rumor that the government-sponsored mortgage companies Fannie Mae and Freddie Mac were requesting that the cap on how many and what kind of mortgages they could hold in their overall portfolios be raised -- thus adding liquidity to a frozen market; and the seemingly unrealistic hope that in a meeting tomorrow, the Board of Governors of the Federal Reserve will hint by some minuscule change of wording that maybe, possibly, if everyone closes their eyes, thinks pretty thoughts, and hopes really really hard, an interest rate cut will materialize before Christmas.
The Financial Times and the Wall Street Journal both theorized thusly, so it must be true. Certainly there was little indication that the credit crunch that has been terrorizing investors is alleviating. Nor was there any straightforwardly positive news about the general state of the economy.
In fact, the only thing that can be said with certainty about the stock market is that it is extremely volatile. But market volatility is its own significant indicator. As measured by the Chicago Board of Exchange's Volatility Index, volatility levels hit multi-year highs last week.
But what does that mean, exactly? One theory holds that high market volatility tells us that traders are beginning to panic. They don't know what's going to happen and so they're nervous and trigger-happy. After years of steadily rising share prices, that fear could be signaling a "market top." But another theory holds that low market volatility is equally significant: It tells us that traders are complacent, which can also be taken as a prediction of a market top.
There's a lesson here somewhere, I think. It's not uncommon, in my experience, to oscillate personally between extremes of complacency and panic -- finding the middle ground is hard. It's almost reassuring to see Wall Street behaving the same way. All that wealth and power and accumulated expertise, and yet the future of the U.S. economy is still one huge guessing game. The only certainty is uncertainty.
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