The Ralph Kiner Correction

August 25, 2015 at 9:16 am 1 comment

The late Met announcer Ralph Kiner used to say that a team is never as good as it looks when it’s winning and is never as bad as it looks when it’s losing.  The same could be said of a stock market.

With apologies for those of you recalibrating your retirement plans with every 100 point drop in the market, this rout is not as bad as it looks.

What does the investing class know today that it didn’t know yesterday morning?  We already knew that the economies of developing countries were weakening.  Brazil is in the midst of a major government corruption scandal, Russia is busy trying to restart the Cold War, India needs to further decentralize its economy and the Chinese economic engine had to slow down at some point.  All of this has been going on for months.  Since March 2014 an estimated $1 trillion has been pulled out of emerging markets by investors. (

Was there surprising news about the state of the Western economies?  No.  In July, the Word Bank downgraded its economic growth forecast in response to an “unexpected output contraction in the United States, with attendant spillovers to Canada and Mexico.”  As for Europe, growth in the EU declined from 0.4 to 0.3% in the second quarter.


What we also knew yesterday morning was that the world economy could only take off if the American consumer started spending again.  As explained in that same IMF forecast, ”[t]he underlying drivers for acceleration in consumption and investment in the United States—wage growth, labor market conditions, easy financial conditions, lower fuel prices, and a strengthening housing market—remain intact.”  I could take issue with each one of these conclusions, but I’ll just point out that anyone who thinks the American consumer is feeling flush with higher wages is wrong.  Wages are barely budging and took a beating over the last five years,

So what really happened yesterday?  Nothing more or less than an overdue correction to an overheated market.  The best piece of analysis I have read comes from Mohamed El-Erian, the chief economic adviser at Allianz SE and a columnist for Bloomberg News who writes:  “Some commentators have rushed to describe the recent global stock market turmoil as “historic” and “unprecedented,” yet its evolution has been quite traditional so far.”  The markets are adjusting to the reality that central banks can’t quickly stabilize asset prices.  Quantitative easing is over.

What all this means is that markets are trending towards reality, which is exactly what markets should do.  Expect bond yields to remain low and the Fed to put off raising short-term rates especially now that China has moved to cut its own rates.   The economy has never been as strong as some people thought it was.  Wall Street is just waking up to this reality.

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1 Comment Add your own

  • 1. Richard Wagner  |  August 26, 2015 at 1:02 pm

    My personal opinion is that this latest gyration of the stock market was caused by computer trading. What else could cause a thousand point drop so quickly? Summer is a dangerous time, all the “pros ” are at the beach. Richard Wagner


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Authored By:

Henry Meier, Esq., General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association.

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