The Dow is off 395 points as I type this. There will be some short covering shortly, and a rally attempt. But what I want to address is the change that has taken place:
What has changed? What is different today than yesterday? Are the prospects of the economy and/or corporate profits so different today than they were merely a week ago?
What has changed is Credit: Risk appetite for anything less than AAA — and that includes the ABX stretched definition of AAA (see WTF is going on in the ABX Markets?) — has waned considerably.
My favorite market metaphor is the multi-engined plane. Each propeller-driven engine represents a different source of power, and each works to propel the markets higher and higher. Over the past few years, this plane has climbed on a variety of sources of "elevation."
What have been the engines?
High Corporate Profits
How are these factors working at present?
-Valuation: We have been more or less fairly valued for some time now.
-M&A activity will likely soften, due to both psychology and unavailability of leverage for cash.
-Corporate profits are still expanding, albeit at a much slower rate
-Consumer spending has been pinched, and retail sales are slowing
Two of the biggest drivers — Share Buybacks and LBOs — are now kaput. What is occurring today is a full blown repricing of the liquidity spigot slowly turning off.
Back to work.
Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.