What does the stock market know?

What was that sound? Did you feel a little bump?

Nah… don’t worry about it. Go back to your cabin and have a good sleep.

Just when things were going so well! With all that GDP growth! All those new jobs! We were all set to believe that the US economy really had recovered from the shock of ’08-’09.

What does the stock market know that these happy numbers aren’t telling us?

Yesterday, the Dow dropped more than 300 points. Gold fell $14. There may be nothing more to this than a case of the jitters. Or, could it be something more?

Remember, if we could just avoid our worst days, the ensemble of our lives would be much, much better. Think how nice Julius Caesar’s life might have been if he had just stayed home on the Ides of March, as his wife, Calpurnia, advised.

Think how much better the passengers would have enjoyed their cruise if they could just forget the night the Titanic hit an iceberg.

As for investors, had they just stayed in cash for the ten worst days in the last 25 years, their annual rate of return would have been about 60% higher.

Don’t worry. Yesterday was hardly one of the ten worst days. It wasn’t a good day. But it wasn’t terrible. Just a bump. Which makes us wonder. Are our worst days behind us, like icebergs astern? Or ahead? If so, where?

The news this morning mentions two proximate causes of the sell-off. The sanctions on Russia and the default by Argentina.

As to the default by Argentina, anyone who claims surprise must not be paying attention. Argentina has always been a poor credit risk. The gauchos have a whole different attitude towards paying their bills.

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Down on the Pampas, when you stiff your creditors, you don’t hide your head in shame and look for a loaded revolver. No, you go on TV and explain why you are a national hero. That’s what Axel Kicillof did. He’s the economy minister. And he’s angling to become the next president of Argentina.

Cristina Fernandez de Kirchner, the present office-holder, is desperate to help him. Because if she can get Mr Kicillof to fill her shoes, she can retain a bit of power herself. Maybe enough to keep herself out of jail.

The story is complicated by a report that suggests the default was more a result of incompetence than of political posturing. Mr Kicillof said he made the payment, as required. The transfer, however, was not received by the deadline, and has been blocked in the custodian bank, New York Mellon.

All of which makes us wonder if a single investor was really surprised by the default, and whether it really had anything to do with yesterday’s stock market sell-off.

The same thing could be said for sanctions against Russia. Who didn’t see that iceberg? Who thinks his US stock – IBM, GE, AMZN, whatever – is worth less today than it was yesterday, because Russian firms now face a less friendly world?

Our guess is that these news items have little effect on the real value of US stocks. Instead, investors are worried about something else.

Perhaps they fear that the outlook for the economy is not as bright as they had believed. Maybe they ask themselves why they pay so much money for companies whose profits must already be peaking out and whose growth is in doubt.

After all, even with ZIRP, TALF, the Twist, and every other stimulus measure the feds could think of, the real growth of the US economy has been only 0.9% per year for the last seven years.

What will happen when it is ‘normalised?’ And isn’t normalisation on the way?

“If the labour market continues to improve more quickly than anticipated,” says Ms Yellen, “then increases in the federal funds rate likely would occur sooner and be more rapid than currently envisioned.”

In the White Sea? The South Atlantic? We don’t know where the iceberg is, but we have no doubt that this market will find it.

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