I’m now experienced enough that when I hear “It’s different this time!” I start getting out, getting short or getting hedged.
The problem with Joe Six Pack is that he doesn’t know jack about what really goes on in the financial markets. For example, how many people here think that today’s Fed cut will directly translate into a lowering of mortgage rates? How many people know that the Funds rate is a “target” by the Fed and the market can (and has recently) had funds rates that were at variance with what the Fed wanted?
On and on and on. The public, as a whole, is stunningly misinformed about how the markets and economy actually works.
You’re right about the liquidity crisis: and the people who keep pointing at some stupid economic numbers are the most clueless about it. Liquidity issues have nothing to do with last month’s economic numbers. Zippo, nada, zilch. I don’t care if last month’s GDP shows an annualized GDP growth of 5%. Doesn’t mean jack if banks are vapor-locked and not lending.
Liquidity problems can have a big impact on next month’s economic numbers tho. And these liquidity problems are having an impact on the economy, starting in the housing sector, then the finance sector, and now we’re starting to see the blow-up in bond insurers and CDS’s have a much wider effect.
People who think that banking system problems are just going to “hit the fat cats” haven’t read the detailed history of the Depression. The stock market largely recovered in less than a year — then the liquidity crisis started and *then* the Depression started.
We are on the same page. I am sure the emergency panic rate cut will do some short-term good to stabilize a market crash, but they will have no effect staving off a recession that will come from the liquidity crisis and the loss of consumption by indebted consumers following the bursting of the housing bubble.