For those who say the stock market sell-off was a wake-up call, I have to agree. I woke up, turned on the iPhone and saw this headline fairly shouting at me from The New York Times website: “Dow down 1,000 points!!! End Times Near!!!”
OK, that wasn’t the exact headline. The Times rarely uses exclamation points. But you get the idea.
The Dow was, in fact, down 1,000 points minutes after the opening bell. China’s stock market was continuing its slide/crash — they’re calling it the Great Fall of China on CNBC — and was off another 8 percent. Oil was trading briefly at $40 (wait, shouldn’t that be good news for consumers?). Donald Trump was saying this proves he should be the president because … China. Oh, and he’s really, really rich.
It was definitely a shock. It was so bad, in fact, that Starbucks CEO Howard Schultz sent an email to employees asking them to be “sensitive” to customers who might be under stress, although it’s unclear how a heavy dose of caffeine would help. You can see why Schultz might be sensitive. Starbucks stock went down 5 percent, and according to Fortune, that meant Schultz lost something like $86 million.
But the really peculiar thing about the Wall Street sell-off — in which the Dow rallied to regain 800 points by the early afternoon and then plummeted again to finish more than 500 points down for the second consecutive session — is the advice we were given in how to deal with a volatile market that had lost 9.5 percent of its value in a week:
I know that sounds like something you would hear from Congress, but that was the exact advice in the Times. Take Some Deep Breaths, and Don’t Do a Thing.
Nate Silver, who is always right (or used to be), tweeted this link to his FiveThirtyEight site: Whatever you do, don’t sell.
The venerable Atlantic offered this advice: How to Deal With Market Instability: Don’t Watch.
(This advice was certainly followed by some readers. By midday the most popular story on The Washington Post website was about salad being overrated. Clearly people could not stand to even look at the front page.)
Do you find any of this remotely comforting? Of course you don’t. We’re told that the market was due a correction, which is a technical term for “dropping like the Rockies in the NL West.” We were told about Tobin’s Q ratio and we already knew about China and about the worries over how high and how quickly the Fed might raise interest rates. So, sure this correction had to happen, although I don’t remember my broker mentioning it to me, say, last week.
Panic is the big worry on Wall Street, which is why all the wise heads offered charts and history to prove their point about doing nothing, and noted, wisely enough, that trying to outguess the market is a fool’s game. The killer point was that if you hadn’t sold off your 401(k) in 2008, as the Great Recession began, you’d have made your money back in only a few years.
But there’s a hitch in counting on historical models. They didn’t have Twitter in 2008. Well, technically they did, but just barely. In 2008, there were 300 million tweets per quarter, which sounds like a lot except that, seven years later, there are now 500 million per day. In 2008, if you wanted to spread panic, you had to rely on the Drudge Report. Today you have tens of millions of Tweeters who don’t need anyone’s help. Global markets lost something like $3 trillion in three days. How many times can you Tweet that before breaking out in a sweat?
And, of course, there’s the presidential race, and with 17 Republicans trying to get noticed, some of them had to take a shot and get out there early on disaster alert, even if none of them — not even the billionaire – knows what comes next. But, with luck, it could be something really, really bad. Yahoo had a nice roundup of GOP reaction, any part of which you could have predicted.
Chris Christie, who is apparently still in the race, blamed Obama’s China policy and that Obama “doesn’t know how to say no to spending, doesn’t know how to say no to a bigger and more intrusive government.” Of course, the market has had one of its all-time great runs while Obama’s government was intruding, but it’s a thought.
Scott Walker, meanwhile, was saying that it’s time for Obama to develop some “backbone” and cancel the state visit scheduled next month by Chinese President Xi Jinping. Because that would certainly calm the markets.
And the Donald, who has no trouble getting noticed, was up early Tweeting that the “markets are crashing” and that “This could get very messy!” He ended with this advice: “Vote Trump.” But he wasn’t quite done. Later he would go on O’Reilly to out-Walker Walker, saying how he would deal with the Chinese president:
“I would not be throwing a dinner. I would get him a McDonald’s hamburger and say we’ve got to get down to work.”
I don’t know what a President Trump (did I really write those words?) would do for the suddenly-struggling Chinese economy and its impact on the U.S. economy. But he’d probably have some great ideas on what they could do with their wall.
Photo credit: Johan Larsson, Creative Commons, Flickr.