Extreme market downturn, confidence in question

There was a commentary here yesterday that discussed the perceived vulnerability of small cap stocks to "extreme volatility" in recent weeks. Unfortunately that insight was a tad narrow. Today global equity markets, equities large and small, declined dramatically. There were two most cited reasons for this. First, initial jobless claims in the U.S. came in at 480,000 versus a market consensus of 460,000, up yes but is 20,000 above consensus for the entire U.S. economy a disaster, isn't there some margin of error here, and aren't these numbers revised up or down by amounts this large routinely in successive months. At the same time business productivity growth was reported at 6.2%, above the consensus of 6.0%. A bad news seeking market paid no attention to that. The second explanation was heightened fear of sovereign debt problems in Mediterranean Europe, with Greece in the vanguard. Is this news. What happened today that pushed this story over the edge as Greece seems to be making some progress, however tenuous, with the Eurozone leaders. Nevertheless, what had been a visible market problem turned into a market crisis.

There was some bad news today, but the worst news by far was that the markets sold off so dramatically and in such lockstep globally. The real bad news is the fraying of confidence.

Could it be that there is a sense that there is no leadership in sight in the global economy so when disappointing news appears the trapdoor pops open. The U.S., the world's largest economy, seems directionless. One could look at U.S. economic actions and say that the country is pursuing both deflationary and devaluation policies at the same time, approaches which in the history of global economic policy have been opposites when countries decide on how to address outsized budget deficits and significant unemployment. Have the deep divisions within and among the various political factions made the country barely governable, and certainly not capable of having a coherent approach to significant economic imbalances.

Should that vague supposition be tackled in more depth here tomorrow or just be left to breathe with the hope that it gains more substance and character on its own.

Here's to a calming Friday before the snowfall.