NEW YORK ( TheStreet) -- Doug Kass of Seabreeze Partners is known for his accurate stock market calls and keen insights into the economy, which he shares with RealMoney Pro readers in his daily trading diary.Among the posts this past week were entries about stock market crashes and the Fed's Beige Book. Please click here for information about subscribing to RealMoney Pro.
Putting Crashes Into Perspective
Originally published on Friday, Oct. 18 at 5:58 p.m. EDT. One retest of the opening lows one hour into the day, and that was about all the threat bears could muster. I still get the feeling that too many people operate with a bomb-shelter mentality -- the fear of getting hit by a "crash." Could it happen? Absolutely, but in my trading, the "flash crash" was as close as I'm come to experiencing a crash. It is interesting though to look at the single worst days in the history of the Dow Jones, courtesy of The Wall Street Journal. Since the crash of 1987, in which the Dow dropped more than 22% in a single day, there has not been a single-day drop exceeding 8%. In fact, there have been five down days of 7%-8% since 2000, which means there is about a 0.15% chance it will happen. Since 1987, a drop of 7% or more has occurred seven times, or about a 0.10% it will happen.
Parsing the Beige Book
Originally published on Wednesday, Oct. 16 at 2:29 p.m. EDT. In the Fed's Beige Book, the economy was described as expanding "at a modest to moderate pace," which covered the period of September through early October, thus capturing a few weeks of the partial government shutdown. Here are some relevant comments from the release:
- Consumer spending continued to increase and activity in the travel and tourism sector expanded in most Districts.
- Business spending grew modestly in most districts.
- Employment growth remained modest in September. Several Districts reported that contacts were cautious to expand payrolls, citing uncertainty surrounding the implementation of the Affordable Care Act (Obama care) and fiscal policy more generally.
- Demand for nonfinancial services rose and manufacturing activity also expanded modestly.
- Residential construction continued to increase at a moderate pace. By comparison, non-residential construction again expanded at a slower rate.
- Residential and CRE activity varied across districts, but largely continued to improve.
- Financial conditions were little changed on balance, with lending activity remaining modest in most Districts.
- Price and wage pressures were again limited.