"It's the economy, stupid"

While taking macro-economics during my senior fall, my professor made sure to end the class with some real examples, such as how the economy as a whole was responding to what was at the time "the subprime mortgage crisis." It didn't take a genius to realize that the economy had been digging itself deeper and deeper into a hole and that the credit crisis would soon spiral out of control if the economic outlook turned grim. To remember that the stock market is all about risk and outlook is essential in understanding how it operates. In his column today, David Brooks had a great paragraph about what his perception of the global market is, and how few shape the fortunes of many:

"This money was entrusted to a few thousand traders who sloshed it around the world in search of the highest returns. These traders live in a high-tech version of Plato's cave. They do not see reality directly. Instead they see the shadow of reality as it dances around in numbers on their computer screens. They form perceptions about other people's perceptions of where the smart money is going next, so they're three or four psychological levels removed from normal economic activity ...

It all feels great until it doesn't. Then when things go bad, the social contagion sweeps the other way ... One minute there's an ocean of credit, the next minute there's barely a drop. Once ebullient traders become paranoid, realizing how little they know about their trading partners. They refuse to acknowledge the true value of their portfolios. Everything stops."

Just something to muse over. But don't worry, John McCain's got this one covered:

"The issue of economics is not something I've understood as well as I should ... [but] I've got Greenspan's book."