Market Talk

US stocks fall amid the continuing Japanese crisis, but the indexes come far off the morning’s steep plunge after the stream of dire headlines eases off, and the FOMC holds its hand steady on the tiller. That seemed to calm some folks.

The unfolding horrors in Japan send investors across the globe scrambling, although as always there are others investors looking to profit from the race for the exits. Without a stream of dire headlines in the afternoon, those investors came back to the market.

DJIA loses 138 (1.2%) to 11855, after falling nearly 300 points in the first five minutes of trading; Dow’s now down about 4% from February highs. S&P 500 drops 15 (1.1%) to 1282, Nasdaq Comp loses 34 (1.3%) to 2667. Commodities sell-off sharply across the board, while Treasurys rise.

The last time the Dow dropped that sharply at the open was Oct. 24, 2008, when it lost 504 points in the first five minutes. The index finished that day down 3.6%, losing 312 points.

Look, the Japanese are still just trying to figure out just how bad things really are, forget about planning for a rebuilding effort, and the fallacy of expecting that to be a good thing was exposed by George Melloan on the op-ed page of today’s Journal:

As the great 19th-century economist Frederic Bastiat taught in the “fallacy of the broken window,” the GDP growth that comes from reconstruction brings no net gain in society’s wealth. It just replaces, over time, what was lost. “Destruction is not profitable,” he wrote.

It’s going to take a long time, a very long time, for the Japanese just to get back to where they were last Thursday.

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I don’t know if I have or even need to comment on this story about the Fed and “core” inflation in today’s Wall Street Journal, but I have to at least point to it. It amplifies a point we made last week as well.

From the Journal:

As gasoline prices surge, Federal Reserve Chairman Ben Bernanke is changing his tune when discussing inflation in public—in part to avert criticism that central bankers are out of touch with consumers.

Fed officials have for years cited “core inflation,” a measure that excludes food and energy prices. That is because core inflation tends to be a useful predictor of inflation over a couple of years, which they call the medium term, a period that is key to monetary-policy decisions. But this focus has drawn criticism that Fed officials aren’t facing economic reality, as if they don’t eat or drive.

Now, Mr. Bernanke is taking another tack in his public communications. In two days of testimony on Capitol Hill earlier this month, the Fed chairman never uttered the words “core inflation” while explaining the central bank’s aims and policies. Instead of citing a specific measure, he emphasized the Fed’s time frame.

This follows up William Dudley’s iPad line in Queens, N.Y., last week, when he tried to explain away inflation by point to iPad prices. The crowd wasn’t buying it. People don’t think the Fed has any real clue about actual, real-world inflation. The Fed feels this stinging criticism, so it addresses that criticism by…altering its language.

Unless the Fed’s utilization of time frames can bring down gas and food prices — and who knows, maybe it can — this linguistic tack isn’t going to change many people’s minds.

You can’t eat an iPad, no matter how long you own it.

In case you missed it, here’s the late morning News Hub extra from WSJ.com, featuring an interview with nuclear physicist Kirby Kemper, and a break-down of the pressures on the market as Japan’s nuclear crisis grows.

Just a programming note, Kristina Peterson and I will be joining Simon Constable and Dave Kansas at 11 a.m. at WSJ.com for what I’m being told is a live video to discuss the markets today. We’re scrapping the usual Markets Hub to do this show, focusing obviously on the disaster in Japan and how the markets are selling off because of it.

I wonder how many more times in my life I’m going to have to say, “that’s the worst thing I’ve ever seen.”

“The time to look for the emergency aisles and where the exits are located is before takeoff, not after the wings fall off the plane,” Barry Ritholtz writes this morning at The Big Picture. He points to a Doug Kass list of calamities over just the past ten years, like the Sept. 11 attacks, Katrina, Haiti’s earthquake, and notes that these so-called “black swan” events occur much more often than we think, and it’s only common sense to be prepared for them.

But have we ever had so many all at once? The Japanese are suffering through three distinct disasters at the same time, the earthquake, tsunami and nuclear crisis. It is going to take them God only knows how long to get back to where they were Thursday, and anybody who blithely suggests the rebuilding will be a good thing because it will spur economic activity isn’t really watching what’s going on, and has a poor grasp of economics.

I don’t know about you, but to me, it feels like the world’s on fire these days.

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Equities are careening around the world after yet another explosion at the troubled Fukushima Daiichi nuclear-power complex and spikes in radiation levels.

The Nikkei tumbled 11% and most other markets in Asia and Europe are down at least 2%. Dow futures slide 245 points and the S&P 500 is off 32.

The sell-off is also occurring in other assets, with Nymex crude down 3% and gold falling 1%. But the dollar, lower against the yen, is surging versus the euro, British pound and Canadian dollar. The euro has dropped nearly 1% to below $1.39 after briefly getting back to $1.40 yesterday.

A flight-to-safety bid is also being seen in US Treasurys, with the 10-year yield falling to 3.26%.