Prominently referenced two days in a row! Yesterday by Michael Barone of U.S. News and World Report in And now, the good news and today by Larry Kudlow in Israel Advances, Stock Markets Rally?. Thanks to James Miller for sending this in.
Tom's paragraphs:
Think of it: On the world stage, there is more capitalism, free trade, and economic interconnectiveness (to use defense analyst Thomas Barnett's term for bringing the worse-off countries online with the best-off nations) than ever before. Because of this, literally hundreds of millions of share-owning investors are voting daily on the great issues of war, peace, prosperity, and hope for the future. And their vote is optimistic...Update: Tom's comment:
Along with lower tax rates, strong profits, and ample bank credit, the entrepreneurial-driven growth model of the eminent classical economist Joseph Schumpeter is alive and well. Wall Street economist Michael Darda calls this "The wellspring of entrepreneurial capitalism, innovation, and wealth creation in the dynamic capitalist system." It's also what Tom Barnett means when he talks about global interconnectivity. Economic freedom both inside and outside the U.S. remains a critical (though much underestimated) factor in the world economic outlook.
Larry's citing a basic reality most people forget: stock markets react to current events--six months into the future. How people vote with money today reflects how today's events make them feel about the world six months hence.
I know everyone--imcluding me--wants to shrink the Gap like we shrunk the Soviet empire--without a shot being fired. But reality is often far crueler.
And so we wish Israel well in its quest, even as we know the ultimate solution sets involve far more Old Core and New Core direct involvement in the Middle East--not less as was recently suggested by Haas in his op-ed.
Update 2: Townhall.com picked up Larry's column, too.
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Comments (6)
While I agree with the logic and the correlation between economics (stock market as one of the indicators) and size/growth of the core, plus the whole logic of Kudlow and Tom's line of thought, Kudlow made one crucial mistake.
Because, contrary to what Kudlow claimed, the stock market reacted negatively to Israel's action. However, this does not mean the market would not react positively had Israel been able to end the conflict quickly. But Kudlow's premise and conclusion are totally wrong, at least by looking at the data up to this moment.
I have a chart to support this.
http://sun-bin.blogspot.com/2006/08/had-israels-assault-on-lebanon-closed.html
Posted by sun bin | August 1, 2006 10:20 PM
sun bin - It's possible that Larry Kudlow just decided to throw his long and storied career into the tank just because he wanted to blow kisses to TPMB but I don't think so. He might be wrong but the world is not just the DJIA.
Posted by TM Lutas | August 1, 2006 11:05 PM
Looking at the chart of the Dow, Larry’s ascertains are supported. The market reacted to the start of hostilities by pricing in the risk of the conflagration turning into a wider war. The market then corrected itself with an upward move, once the general outline of how this battle was going to play out; Israel degrading Hizballah’s forces to the point where an international SysAdmin force could take control of southern Lebanon along with the Lebanese army.
Posted by James Miller | August 2, 2006 12:25 AM
TM, you can look at all other stock market and pull up a similar chart. (they are 50% correlated with DJIA, and they react to oil price, oil price rose whenever there is a war, good or bad war) see Nikkei and LSE link below, or any other market.
http://finance.yahoo.com/q/bc?s=%5EN225&t=3m&l=on&z=m&q=l&c=
http://finance.yahoo.com/q/bc?t=3m&s=%5EN225&l=on&z=m&q=l&c=%5ELSE
james, if you look at the daily markets comment of WSJ, you will see DJIA is also affected by a number of other factors, such as employment stats and corporate profits. that explained the rebound later.
all i am saying, is that, none of this supports kudlow's dubious claim. in fact, WSJ said, stock was at the lowest point of 2006 2 days after israel attacked. kudlow mistakenly attributed the rally from 2003 to 7/11/2006 to israel's war on 7/12. it is just counter-intuitive that stock market will rise on war. it will rise on expectation that a war will end. kudlow may be right a few months later, but it is really too early for any prophet to predict that. certainly i wouldn't believe the financial market already sees the end of the tunnel.
instead of reaching such quick conclusion, i think tom put it quite nicely, "But reality is often far crueler."
Posted by sun bin | August 2, 2006 10:42 AM
So grateful to Tom for perspective. Connectivity and resilience, and given Tom's broad ranging skill sets and global view, I can find my way through the sheer volume of opinion.
Posted by Mary | August 2, 2006 10:43 AM
Sun, I would also add in the speculation that the FED will end rate hikes during its next meeting as another factor.
I think your point that the market "will rise on expectation that a war will end" is valid and reinforces my opinion that once the market saw that this fight would be a limited war, it again had upward pressure on it.
Certainly the market reacts to all these forces. And as you said, the market is not 'certain' there is a light at the end of the tunnel, but that is what the market is for; to speculate on possible futures. And the market is speculating that the future (6 mo from now) will be better.
Posted by James Miller | August 2, 2006 4:49 PM