Guido asks a very silly question:
FTSE 100 is down 10% this month and big UK mortgage lender Northern Rock has halved in price since the beginning of the year. What are the political ramifications for Gordon? Well didn't he tell us he had abolished boom to bust?
The political ramifications are approximately zero. For one thing, Gordon never promised to abolish boom and bust in financial markets; not even he is that stupid or arrogant. And for another, we learned in the tech bust (and indeed in the aftermath of the 1987 crash) that big falls in share prices can have remarkably little impact upon the wider economy.
More importantly, a 10 per cent fall in the market is just no big deal.
Let's assume market volatility is 20% a year, its long-term average; yes, the market was less volatile than this between 2004 and June 2007, but few expected that stability to last.
20% annual volatility implies monthly volatility of 5.8%, assuming zero serial correlation. So, a 10% fall in a month is a 1.7 standard deviation event. Even if we ignore fat tails and assume a normal distribution, this is the sort of thing we'd expect to see 4.5% of the time - one month every two years. Allowing for fat tails implies a higher probability.
This is a pretty ordinary event. It might excite the chuntering class, but not serious people.
The comments on Guido's site are a world unto themeselves, aren't they. Apparently Gordon Brown is responsible for the Dow Jones falling.
I posted something about this a few weeks ago - I imagine an economic downturn (though I take on board your points) won't harm Brown that much, as in troubled times you really don't want George Osborne in charge, do you?
Posted by: Matthew | August 17, 2007 at 01:17 PM
My point is actually that he claimed the credit for the good times, he will reap the blame for bad times.
Fair? No. That's the way it is though.
Oh and bullshit, a 10% fall in a month is a big event, as a lot of quant funds have just found out.
Posted by: Guido Fawkes | August 17, 2007 at 01:31 PM
What the quant funds have found out is that they don't understand risk.
Posted by: chris | August 17, 2007 at 02:03 PM
The Fed has just made an emergency cut of 50 basis points.
Are they "not serious people"? Is "this is a pretty ordinary event"?
Here *** take this cloth *** wipe the egg off your face.
Don't tell an old bond trader about standard deviations.
Posted by: Guido Fawkes | August 17, 2007 at 02:21 PM
The Fed has just made an emergency cut of 50 basis points.
Are they "not serious people"? Is "this is a pretty ordinary event"?
Here *** take this cloth *** wipe the egg off your face.
Don't tell an old bond trader about standard deviations.
Posted by: Guido Fawkes | August 17, 2007 at 02:23 PM
Guido, kindly cite Brown ever promising to "end boom and bust" in the stock market. Whilst you're at it, can you explain what role he has in NR's lending practices?
Posted by: Alex | August 17, 2007 at 03:09 PM
“The impact on the broader economy and financial markets of the problems in the sub-prime market seems likely to be contained” - Ben Bernanke, March 28.
He needs the cloth more than me.
The fact the market's up so much today could, of course, corroborate my view that the fall is/was indeed "no big deal."
Posted by: chris | August 17, 2007 at 03:25 PM
The Fed has just made an emergency cut of 50 basis points.
Are they "not serious people"? Is "this is a pretty ordinary event"?
Here *** take this cloth *** wipe the egg off your face.
Don't tell an old bond trader about standard deviations.
Posted by: Guido Fawkes | August 17, 2007 at 06:04 PM
Don't spam a better blogger. Cunt.
Posted by: Alex | August 18, 2007 at 12:02 PM
Have no idea what happened there - particularly the 6pm repeat.
Posted by: Guido Fawkes | August 21, 2007 at 06:24 PM