Stocks: Look Out Below!

At last! A stock market I can like!

There’s no shortage of opinions on why the market is suddenly swooning—take a sampling of the commentary over at RealClearMarkets if you’d like to take in the waterfront—but of most immediate interest is what the political impact might be if the market continues to fall, or even crash, before election day in three weeks. One more thing Obama doesn’t need right now. Which is why I think the Federal Reserve, led by party hearty Janet, will quietly step in to prop up the market through direct purchases of stocks. Which is also a really really bad idea.

Charles Hugh Smith of the OfTwoMinds blog observes:

Long-time readers know that I see the Federal Reserve as an intrinsically political entity. Though it casts itself as an independent institution that’s above the political fray, this is simply good PR: the Fed is as political as any other institution of the central state.

What would happen to incumbents in the election a few weeks from now if the stock market crashes? The happy story–that all is well and you would be wise to re-elect the incumbents responsible for the economic good news–would be reduced to rubble.

One can only imagine the phone calls being made to Fed governors by politicos of both parties suggesting that it would be a terrible shame if all the hard work of those in power was destroyed by a needlessly destructive market crash.

We can also imagine similar calls being made to officials in the Bank of Japan, the European Central Bank, etc.

We know central banks are openly buying bonds and stocks, either directly or through proxies. What possible reason would the central banks have to suddenly reverse their interventions and stand aside right when the global markets are in meltdown?

Thus we can also imagine some conference calls being made this weekend to coordinate intervention on whatever scale is necessary.

I repair to Milton Friedman’s old advice—“Markets will fluctuate”—and plan to ride out the storm serenely. Though if things really crash, I’ll enjoy buying up the cheap rubble Obama will have left behind. As for helping with midweek serenity, there was some huge surf crashing in on Sunday, so I got out my video camera for some slow-motion action. May it calm your nerves while we see if this morning’s further 180-point drop at the open changes course for the better or worse:

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