1dayatatime

Are there any stock market watchers out here that can give me a dummy down version of whats going on with the dow? It seem like it keeps closing lower and lower and I dont remember ever seeing anything like this.

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Common sense is not so common. -Voltaire
If you tell the truth, you don't have to remember anthing.

Kaytee

no idea, sorry

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Ari2

Here's my guesstimate:

The failure of the subprime housing market has had some real and some psychological effects on the market. Among the real effects are an increase in foreclosures, a decrease in value in some markets, and many homeowners with less equity and more debt. And this comes at a time when fuel and food prices are creating greater stress on many American's finances.

But more than just homeowners are effected because of the huge amount of trading in mortgage-backed securities. So companies like Bear Stearns, which has never posted a quarterly loss in its 80+ years of existence, announced it lost $1.2 Billion in the fourth quarter and 2 of its hedge funds declared bankruptcy. Countrywide Financial, which was the biggest US mortgage lender, looked like it was teetering on the edge of bankruptcy and was recently taken over by Bank of America. UBS lost nearly $14 Billion in the second half of the year and recently selling a 10% stake in its business to foreign investors. Merrill Lynch announced the worst quarter in its history: nearly $10 Billion lost last quarter. These are the giants, but many smaller companies and investors have been severely hurt as well, and this extends to many industries, given the wide reach of the housing market (e.g., durable goods).

There's also worries that some of the bigger companies that provide insurance for bonds to banks and large investors might go under. If this happens, it will remove another layer of protection against rough waters.

All of this creates psychological and more tangible effects on the markets and companies- people get skittish so they hire less, buy less, and tighten their criteria for lending. Investors sell to cut losses as a bit of panic sets in.

The biggest worry is that consumer spending has dropped so low that it will or already has slowed corporate profits and economic growth to the point of triggering a recession. Many economists think the US is already in a recession, even though the White House hasn't used the word yet. But facts like the 13% annual rise in unemployment from this December to the last makes a lot of people worried that a recession has started.

But in every market there's money to be made. I'm sure some short sellers raked in it when Sprint dropped by 25%. There are still some bulls out there who predict that things will turn around before the end of the year. I hope they are right.

JMO. HTH.

Kaytee

What they said

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If you can't stand behind our troops, feel free to stand in front of them!
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1dayatatime

Thanks Ari2. The last recession in the 80's put my dad out of business. He had a small steel contracting company. My parents also had a varible intrest rate on their home and their payment went from 7 something to 13 something. That is super scary. Thanks again for the info.

__________________
Common sense is not so common. -Voltaire
If you tell the truth, you don't have to remember anthing.

Ari2

YW.

That is scary. A very good friend of mine has an ARM and now is taking money out of her retirement to pay her mortgage. She's 57 and figures she will probably have to work until she dies.

I used to work in the securities area, and I imagine the wild times will continue for quite a while. In the meantime, a lot of people are really struggling.

1dayatatime

I noticed today that the dow was down again. How low can/will it get before we should all worry about serious reprecussions?

__________________
Common sense is not so common. -Voltaire
If you tell the truth, you don't have to remember anthing.

Ari2

Sorry for the delay. I'm sick with some never-ending virus crud.

For most Americans, economic problems have less to do with the Dow and the markets than they do with more immediate concerns. Most people who do own stock do not trade on a moment-by-moment, day-by-day, or week-by-week strategy. They are in for the long term and realize that the losses they may be seeing now have little effect on how much much money or liquidity they have now. Hopefully, they are working with competent brokers and fund managers and the day-to-day work mostly falls on these professionals.

Instead, the problems for most Americans is more practical. Rising gas prices cut into budgets, diminishing spending in others areas (and thus depriving the economy of its main propulsion) and making it more difficult to pay other bills. Some folks are losing their homes, which is a financial crisis. Others are watching the worth of the house - the biggest potential source of long-term economic stability for many - decrease. If companies start getting nervous about consumer spending, lay-offs may occur, pushing many people to look for new careers.

To pull back, I don't think the market is going to "crash" or bottom out. By this I mean I don't think the markets are going to fall so far that the economy is wiped out. There are automated "brakes" on the major markets: computer problems that stop trading when things start to go down too fast. So the market would stop before it went into major freefall.

It's still possible for the NYSE, Nasdaq, and other markets and the major indicies like the Dow to drop significantly, companies to see their stock prices drop, the economy to slow, big lay-offs in the financial sector and elsewhere to occur. I don't know how much more rocky things will get. It seems Bernanke for all his amazing academic experience is still figuring out the public role to play with regard to market jitters. But if the US economy does enter a full recession please remember that most recessions (with only a very few major exceptions) are short-lived (i.e., less than a year). (A period of inflation is also possible as we're seeing some signs already, but at this point it seems like the major concern in recession.)

Hopefully, we'll find the bottom, some commonsense reforms - including those that recouple risk to reward - will be put in place, and things will pick up by the end of summer.

1dayatatime

Sorry Sirk for hitting my old thread but I do think its relavent.

Ari what do you think about what has happened in the last week? Or anybody else that has thoughts on the subject.

__________________
Common sense is not so common. -Voltaire
If you tell the truth, you don't have to remember anthing.