A near government shut-down caused stocks to fall. They fell again after Standard and Poor’s announced a 33% possibility that it might downgrade U.S. debt within the next two years.
Call me crazy, but I think there just might be something to this regime uncertainty theory.
So presumably, stocks should go down prior to a major election and up once the results are in.
It would depend on what investors expect from the candidates. If both are basically middle of the road, business-as-usual, in regards to economic matters I don’t think investors would have much reason to take note. And it would depend also on what the polling numbers look like. And if prospects look fairly positive, investors might try to get in early. In other words, it depends on what kind of uncertainty, and how much, is created by uncertain electoral prospects.
I know squat about regime uncertainty theory but didn’t the Dow reach a three year high yesterday? And so far is up today.
I know squat about regime uncertainty theory but didn’t the Dow reach a three year high yesterday?
Reading the Dow is like reading tea leaves: the result is never, “Damn! That blows my whole theory!”
The regime uncertainty theory sounds more or less convincing to me, but is it really provable/disprovable? If stocks had risen or held steady, couldn’t one say “well, they would have risen even more if there hadn’t been a threat of a government shutdown” or “even though there was a thread of a government shutdown, the belief in the stability of the regulatory regime remained strong”?
I guess no theory, or few theories, are really that disprovable. It relies more on what their explanatory power is. An example I read–perhaps it was something you linked to on this blog–about the second New Deal creating regime uncertainty and thus retarding recovery made a lot of sense, for instance.
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