> Enrique Diaz-Alvarez wrote:
>
> > > But if you're right, why do you conclude that 5 interest rate hikes
> >> had nothing to do with the decline in retail sales?
> >>
> >
> >Because sales, consumer borrowing, inflows into stock funds, all continued
> >to skyrocket on the face of the interest rates increases. The first signs of
> >a slowdown didn't come until after the market unpleasantness. Of course,
> >post hoc not necessarily ergo propter hoc and all that, but the evidence is
> >pretty compelling.
>
> But if the market reacted first to the interest rate hikes, and the
> real sector a bit later, then the interest rate hikes are the cause
> of both, and the only difference is in the timing.
So what's the mechanism by which the market reacted first to interest rates? Margin debt exploded throughout the rate increases. So did inflows into mutual (particularly tech) funds. Demand for stocks (so far as I can see) seems to have done nothing but increase. The only possible exception would be cash takeovers, which did slump this year. However, so far it seems that the cause of the decline was a dramatic increase in insider selling and IPOs. The basic function of the US stock market in the late 90s, the redistribution of wealth toward corporate insiders and financial intermediaries, does not appear to have been affected in the least by the interest rate increases.
Of course, the FoF data should have the final word in all this.
>
> Doug
-- Enrique Diaz-Alvarez Office # (607) 255 5034 Electrical Engineering Home # (607) 272 4808 112 Phillips Hall Fax # (607) 255 4565 Cornell University mailto:enrique at ee.cornell.edu Ithaca, NY 14853 http://peta.ee.cornell.edu/~enrique