The Ratchet Effect

After a terrible Memorial Day in bourses abroad, markets here have been veering back and forth in the rough territory of zero.  There's been good news from construction and manufacturing fronts.  But there are still storm clouds on the horizon; even if we don't get a double-dip recession, market participants probably want to figure out what effect events in Europe are going to have before they make a lot of big commitments.  And right now, I don't think there's any way to tell; too much depends on policymakers and private actors whose actions are not particularly predictable.

What you see in the markets since the Greek crisis came to a head is a downward ratchet--there are good days and bad days, but the bad days are more dramatic, so that they never make up the lost territory.  Beware of any talk of a turnaround until that pattern has been decisively broken.

When will that be?  Um, well, financial crises do end, eventually.  But there's no particular pattern to when they end, or how.  And the last global crisis in the rich world lasted a hell of a long time.