The Stock Market

The other day, a BBC producer from London called me up and asked me if I would care to comment on the recent big sell-off in the Indian stock markets. I confessed that I am not fully qualified to do so but added that in all honesty that my guess would be as good as any one else’s. Still I declined. The best we can do is pull out Keynes’s “animal spirits,” which unfortunately is not amenable to rigorous scientific or economic analysis. The essential story of the stock market is well told in this cartoon.

That pretty much sums up how the stock market swings between fear and greed, the abrupt change from panic to irrational exuberance. And here are The Long Johns (John Bird and John Fortune) on turbulence in the financial markets. As one of the Johns so astutely observes, “You have to remember two things about the markets. One is, they are made up of very sharp and sophisticated people. These are the greatest brains in the world. The second thing you have to remember is that financial markets — to use the common word — are driven by sentiment.” I won’t spoil the fun for you. Just watch the video and fall off the chair laughing.

That’s why I don’t mess around in the stock market. 🙂

Author: Atanu Dey

Economist.

6 thoughts on “The Stock Market”

  1. It’s tempting to call that a game of Chinese Whispers; but that would be profiling. In addition, it would be incorrect, for the Chinese believe in State Capitalism – and they do not have cartoons because they seem to lack a sense of humor 🙂

    Markets aside, I am interested in knowing your opinion on how one person can cost a bank 3.7 billion euros . Also – do you agree with Soros when he says that the current crisis is not a ‘normal crisis’ (whatever that means), but a ‘systemic failure’

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  2. Atanu,
    You are possibly one of the widely read economic commentors in India. IMHO you cannot ignore these issues that affect a wide number of Indians.

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  3. Ghostwriter:

    I don’t have the foggiest idea how one person can lose a bank 3.7 billion euros. Don’t know these sorts of things. I am willing to go along with Soros that it has something to do with systemic failures. Causes are usually embedded in the system and the symptoms are what we normally see. A deep understanding of the system is required before one can figure out the solutions.

    Gaddeswarup:

    Oh come on! You cannot seriously believe that I am “widely read.” My view is very unpopular in the sense that it is not shared by the masses. Indeed, I would seriously re-examine my position if I ever felt that my position coincided with the view of the majority.

    I am definitely interested in issues that affect the majority, however. But the stock market is not one of them. The stock market is of direct interest to only the top of the heap and very indirectly affects the rest of the heap. The gyrations of the stock market makes for good TV just like cricket. The trend matters to me, not the sudden panics and manias.

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  4. good one… I have been listening about this securitisation thing and something about financial engineering a lot since the subprime crisis… Please write about that a bit so lemons (layman 🙂 ) like us in financial markets can understand…

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  5. The Long Johns are funny, but not as funny as Jon Stewart on The Daily Show: while the US had everyone distracted with the Iraq war, it was up to no good in the financial sector as well. We can have a war with tax cuts, and expect to borrow $150 billion more for an “economic stimulus package” when there is a recession too.

    There is likely going to be some inflation, I think its just a matter of how bad and how fast. The chain reaction is going to start with energy prices, which aren’t helping (again our fault).

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