Is Today's Equity Sell Off for all the Wrong Reasons?

By definition any attempt to predict the market has to be done with caution and humility-I say this as a guy who has certainly lost money by trying to time the market in this way or that before. 

Sumner has been talking about how you can't forecast the market in his debate with Bob Murphy over Rational Expectations:

" Bob’s frustrated that I’m not making market forecasts that can be refuted, but that’s because I don’t think it’s possible to forecast the market."

http://www.themoneyillusion.com/?p=30337

I'm never sure just where the RE theory starts and ends. I get Sumner's point though I wonder if he's construing the theory so broadly it's impossible to  be anything but a truism. 

I mean if it simply means that you can't forecast the market you have to wonder why you need an economic theory for that. 

Don't get me wrong, I don't buy Murphy's arguments at all here. His Austrian Business Cycle Theory (ABCT) seems to leave him a permabear who as Sumner says is almost always wrong-since 2003, the S&P has been down one year. 

For Bob to grab on one strange day last week when the Dow is down 1000 points in the morning and declare himself the winner after the market has been up for six straight years is a bit meager. 

But in any case I am willing to go on something of a limb on today's market action. The futures were down as much as 200 last night and in today's action the Dow was down as much as $150. What seems to be driving it is-as usual these days-China. 

However, what makes me think the market may be mistaken today is the China news is the government there isn't going to try to prop up stocks by buying lots of them anymore. 

http://realmoney.thestreet.com/articles/08/31/2015/china-government-reportedly-stops-buying-stocks-asian-markets-fall

I mean shouldn't that be a good thing? The consensus of all the analysts I've heard is that buying stocks is not exactly a great way to stabilize the economy-or even the stock market at least long term. 

It might work for a little while but once you stop then all the stocks that weren't allowed to fall, crash twice as fast. 

So if China is going from buying stocks to easing its central bank isn't this a good thing? And the market has mitigated it's losses down not to just 50 points. 

Meanwhile the one stock I have bet on again-BAC -it did get three upgrades last week and the huge fines are finally behind it-is now just $.03 cents down. We'll see. 

P.S. As usual Sumner is defending China-it's numbers aren't cooked. 

http://www.themoneyillusion.com/?p=30395

There is something rather touching though in Sumner's China fetish however when you realize his wife is Chinese.