Brad DeLong — Note to Self: America's Equities Are Worth 20% Less than They Were Worth Three Months Ago...

Brad DeLong notes that fundamentals are the same now as three months ago. Arguably, the fundamentals have improved.

So, what's up with the market correction and seemingly near-panic behavior? 

Changing expectations, involving apparently irrational discounting, owing to factors other than the fundamentals of the American economy. Is there anything that accounts for this based on changed conditions internationally or domestically? 

Of course, various cases can be made for big changes in the works or at least in the offing, but markets have ignored similarly threatening conditions in the recent past. 

If the fundamentals remain essentially the same or are improving, the conclusion suggested is psychological rather than real. When the trend changes, uncertainty increases and with uncertainty, fear.

Grasping Reality
Note to Self: America's Equities Are Worth 20% Less than They Were Worth Three Months Ago...
Brad DeLong | Professor of Economics, UCAL Berkeley

A break of the 1491 level on the S&P 500 would indicate that a market correction is starting

Matt Franko and I have been detailing the last two months' net spending by the Treasury while under the debt ceiling constraint and the numbers haven't been good. A total of only $9 bln of $NFA's have been created where the normal "need" to ensure system stability is around $90 bln.

Sharp reductions in $NFA creation in the past have led to "liquidation events" like we saw in July-August 2011. I believe another one could occur soon. A technician friend of mine told me to watch the 1491 level on the S&P 500 Index. A break below that would be the first sign that the market is turning on its heels.