This Time Around, the Market Is Playing a Whole New, Unpredictable Ball Game

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Modern stock markets have been experiencing the often-dramatic effects of the roller coaster business cycle -- booms and busts -- for over a hundred years now. So, how does this recent market crash compare to past meltdowns, particularly the most recent ones (2000-2002 and 2007-2009)?

Henry Blodget, head of Business Insider, believes we could be dealing with a completely different type of market crash now, most especially from a policy standpoint.

For starters, the Fed's principal policy tool, its Federal Funds Rate, has practically been at the zero lower bound (as low as it could possibly go) since 2009. According to annual data from the Federal Reserve dating back to 1955, the average rate is 5.47%, a level last seen in 2007. This means the Fed has no wiggle room for further monetary expansion, except through more exotic programs like asset-buying programs like "quantitative easing" and easing lending restrictions to banks.

Given the fact that the Fed is hamstrung, one might hope that the Federal government would take initiative and prop up the economy with expansionary fiscal policy -- there are generally two methods: tax cuts and spending increases. Unfortunately, it looks like the exact opposite is happening -- taxes are untouched while government spending is being cut dramatically.

Partisan brinkmanship has provided neither near-term stimulus nor long-term financial responsibility. The debt ceiling deal is so disagreeable that Representative Emanuel Cleaver of Missouri called it "a sugar-coated satan sandwich."

Of course, the ballooning Federal debt is an important consideration, and austerity measures will be necessary.

"And you also need only note that, when the 2000 crash began, the U.S. federal budget was running a surplus, and when the 2007 crash began, the deficit was only $200 billion. Now, the deficit's about $1.4 trillion," writes Mr. Blodget.

But that does not excuse Congress for completely missing the boat.

"[Obama] lost because he was not willing to be as reckless as the Republicans. Increasing the debt ceiling is a routine operation that allows the government to pay the bills Congress has already run up. By refusing to raise it unless they got their spending cuts, the Republicans in effect pointed a pistol at the economy and threatened to pull the trigger if they were denied. An alarming number of them sounded crazy enough to carry out this threat," wrote Lexington of the Economist.

The outlook is grim. And markets continue to be uneasy, at best. To help give you some perspective on the negative market sentiment, here is a list of the S&P 500 companies that have seen the biggest increase in shares shorted in the most recent month. Is this irrational market fear? Or are these companies in real trouble?

List sorted by change in short float as a percentage of the share float. (Click here to access free, interactive tools to analyze these companies.)

1. Advanced Micro Devices (NYS: AMD) : Broad Line Semiconductor industry with a market cap of $4.02B. Shares shorted have increased from 83.57M shares to 103.44M shares month-over-month, a change representing 3.26% of the 610.27M share float. Share prices are down 9.02% over the past month.

2. Accenture (NYS: ACN) : Management Services industry with a market cap of $36.66B. Shares shorted have increased from 5.56M shares to 19.80M shares month-over-month, a change representing 2.22% of the 641.50M share float. Share prices are down 15.17% over the past month.

3. Goodyear Tire & Rubber (NYS: GT) : Rubber & Plastics industry with a market cap of $2.9B. Shares shorted have increased from 12.01M shares to 16.88M shares month-over-month, a change representing 2.12% of the 229.44M share float. Share prices are down 30.85% over the past month.

4. Diamond Offshore Drilling (NYS: DO) : Oil & Gas Drilling & Exploration industry with a market cap of $8.15B. Shares shorted have increased from 10.94M shares to 12.22M shares month-over-month, a change representing 1.86% of the 68.90M share float. Share prices are down 13.87% over the past month.

5. Novellus Systems (NAS: NVLS) : Semiconductor Equipment & Materials industry with a market cap of $2.54B. Shares shorted have increased from 9.63M shares to 10.74M shares month-over-month, a change representing 1.75% of the 63.53M share float. Share prices are down 11.18% over the past month.

6. Motorola Mobility Holdings (NYS: MMI) : Diversified Communication Services industry with a market cap of $6.81B. Shares shorted have increased from 21.17M shares to 25.15M shares month-over-month, a change representing 1.52% of the 262.11M share float. Share prices are up 9.74% over the past month.

7. Harris (NYS: HRS) : Communication Equipment industry with a market cap of $4.39B. Shares shorted have increased from 11.76M shares to 13.42M shares month-over-month, a change representing 1.35% of the 122.97M share float. Share prices are down 19.74% over the past month.

8. Apollo Group (NAS: APOL) : Education & Training Services industry with a market cap of $5.98B. Shares shorted have increased from 7.64M shares to 9.10M shares month-over-month, a change representing 1.23% of the 118.96M share float. Share prices are down 12.67% over the past month.

9. Darden Restaurants (NYS: DRI) : Restaurants industry with a market cap of $6.07B. Shares shorted have increased from 5.03M shares to 6.48M shares month-over-month, a change representing 1.08% of the 133.71M share float. Share prices are down 14.24% over the past month.

10. Campbell Soup (NYSE: CPB): Processed & Packaged Goods industry with a market cap of $9.56B. Shares shorted have increased from 17.18M shares to 18.82M shares month-over-month, a change representing 1.05% of the 156.28M share float. Share prices are down 13.93% over the past month.

Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.


Kapitall's Andrew Dominguez does not own any of the shares mentioned above. Data sourced from Finviz and Yahoo! Finance.

At the time this article was published The Motley Fool owns shares of Diamond Offshore Drilling. Motley Fool newsletter services have recommended buying shares of Accenture. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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