Friday, October 31, 2008

Economic EKG

During this election the economy has been a big issue.  So what is the real state of the economy?  If you listen to the media it is the worst that it has ever been since the great depression.  Similarly the Democrat and Republican presidential candidates suggest the same thing.
 The U.S. consumer sentiment index has fallen to 57.6 in late October.  The index was 70.3 in late September.  What made the index drop some much so quickly?  At first I thought it was due to the bailouts by the federal government of mortgage giants Fannie Mae and Freddie Mac on 9/7/2008.  This couldn’t be the reason because the bailouts happened in early September when the U.S. consumer sentiment index was 70.3 in late September.  It wasn’t the $85 billion bailout for the insurer AIG in mid September because again the rate in late September was still 70.3.  Was it the $700 billion bailout in late September? It doesn't seem likely because again the rate was 70.3 then.  Just like an EKG the stock market radically changed each time the government stepped in.

Was it the election that impacted the study?  Maybe considering that on September 26 the first presidential debate took place at the University of Mississippi.  The vice-presidential debate was hosted October 2 at Washington University in St. Louis.  The second presidential debate took place October 7 at Belmont University.  The third and final presidential debate was hosted at Hofstra University on October 15.  In each debate the economy was discussed.  The second Presidential debate was to focus on the economy.  During the debate season the NYSE DJIA dropped 2,500 points.

During each debate the economy was beaten and battered by the candidates.  Americans were also bombarded with 30 second spots telling us how bad the economy is.  The hearing of the same thing over and over again is a form of propaganda.  Of course the mind is susceptible to being influenced by others.  This is why we have slogans such as the don’t drink and drive or don’t do drugs.  When we hear that the economy is bad we tend to believe it.

Now that the debates are over the same stock market has climbed nearly 1,000 points.  Maybe the economy isn’t as bad as everyone tells us it is.  


MDSF said...

The DJIA was oversold, but it's a poor indication of the overall health of the economy.

The VIX is pretty high, but it's down from its peak.

Jacob said...

I don't believe that the stock market is a very good indicator of the real economy. It's impossible to know why investors are buying stocks, whether it's because of rumors, inside information, co-ordinated efforts or whatever else. If macro-economic analysis were enough to know where the market is going, getting rich would be easy.