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Archive for Monday, August 8, 2011

Economy, not debt rating, will send markets lower

August 8, 2011

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— U.S. investors will have their first chance today to react to Standard & Poor’s decision to strip the U.S. government of its top credit rating. But the bigger issues facing Wall Street and stock markets worldwide remain debt-ridden countries in Europe and concerns that the global economy is weakening.

Friday’s first-ever downgrade of U.S. long-term debt from AAA to AA+ wasn’t unexpected and may have little impact on interest rates. But it’s the kind of news that stock markets don’t need when investors are already nervous.

Even before the downgrade, the Dow Jones industrial average last week fell nearly 700 points, or 6 percent. Investors were worried because economic signals in the U.S. and overseas were pointing toward trouble:

• On July 29, the government dramatically lowered its estimate of how much the economy grew during the first quarter. It had said the economy grew at an annual rate of 1.3 percent, but revised that number down to 0.4 percent. Second-quarter growth was also weak, a 1.3 percent rate.

• European officials are trying to help Italy — the world’s eighth-largest economy — avoid the kind of bailouts that Greece, Portugal and Spain were forced to accept to prevent them from defaulting on their debt. And those bailouts haven’t solved all the problems in those countries.

• The first reports on the economy during the third quarter have been mixed. Manufacturing, which helped pull the economy out of the recession, fell to its weakest level since July 2009 — the month after the recession officially ended. The Labor Department said 117,000 jobs were created last month. But that came after 99,000 jobs were created in May and June combined — and 250,000 new jobs are needed each month to reduce unemployment.

As a result, financial analysts interviewed Sunday said they expect markets to be volatile this week — and beyond.

“We are in unchartered territory and, therefore, should all brace for volatility over a number of days if not weeks,” said Mohamed El-Erian, CEO and co-chief investment officer of the bond mutual fund company PIMCO.

Mark Zandi, chief economist at Moody’s Analytics, said he expected the downgrade to cause a selloff today. “There’s a lot of fear and misunderstanding and confusion, and that all could come out in the stock and bond markets. I don’t think it takes much to unnerve investors given the current environment. I think anything could drive investors to sell given how fragile sentiment is,” he said.

Former Federal Reserve Chairman Alan Greenspan, who appeared on NBC’s “Meet the Press” Sunday, expects the selling to last for some time. “It is very unlikely that (this) isn’t going to take a while to bottom out,” he said.

The reason: “It depends on Europe, not the United States,” Greenspan said. “The United States was actually doing relatively well, sluggish but going forward until Italy ran into trouble.” He said that half of U.S. corporations operate in Europe, and that the region “has been a very important driving force in the overall earnings of U.S. corporations.”

The Dow fell 513 points Thursday alone after concerns about Italy’s were compounded by anxiety ahead of Friday’s jobs report from the Labor Department. That report came in better than expected; the economy got 117,000 new jobs in July. But it wasn’t enough to calm investors. The Dow has fallen nearly 10 percent in two weeks — a period that included the budget debate that averted a default on U.S. debt.

Comments

KUinAussie 3 years, 4 months ago

seriously?

no one is interested in where their 401K money is going to go?

this is some scary stuffs people.

i would have commented sooner,

had i known fewer americans cared so little for their own personal investments.

tbaker 3 years, 4 months ago

Can any of this be credited to the democrats / presidents failed big spending policies?

jafs 3 years, 4 months ago

The problems with our economy have a diverse group of causes.

They have to do with a history of deficit spending that has been going on for 40 years or so at least, broken for only a few years (remember Clinton?).

They have to do with the recent financial meltdown, and the results of that.

They have to do with the fact that companies are laying people off in droves in order to maintain record high profits.

And, yes, some of it may be due to the recent spending, which was an attempt to stimulate the economy, but doesn't seem to be working as well as hoped.

The real problem, though, is that unless companies start hiring, and we get more people employed, and spending money, and our gdp grows, we're not going to find a way out of this mess.

rockchalker52 3 years, 4 months ago

Warren Buffet goes all ninja on the S&P. He walks the walk, too. Bets his dough on our own prosperity.

http://www.cnbc.com/id/44056326

tbaker 3 years, 4 months ago

The President either just doesn't get it, or his "spread the wealth around" socialism blinds him. He could institute pro-business reforms and grow our economy by 5 percent per year for 10 years and generate $1.7 trillion in tax revenue without raising taxes. Instead, he carps about closing so-called loopholes and raising the taxes on those earning more than $250,000 a year - which over ten years would only raise an extra $700 billion, and that assumes those tax increases don’t wreck our economy even more like many experts believe they would.

The problem here is pretty obvious. Tens of trillions of dollars are on the side lines OUT of our economy right now. The money is idle, investors are waiting. They are not creating new business and jobs because the president is anti-business. Its real hard to grow the private sector economy with a president who is openly hostile toward it. After all, he did refer to it as "the enemy" once. We should all read Robert Lucas Jr., a University of Chicago 1995 Nobel laureate in economics. He does a great job of explaining how FDR's policies severely prolonged our recovery from the Great Depression. He was another president who loved to demonize business.

just_another_bozo_on_this_bus 3 years, 4 months ago

Trickle-down economics have been all the rage for thirty years running. It's allowed the top 1% to devour nearly all economic gains in that time, and they ain't trickling down in any significant way.

But you seem to believe that doing more of the same will have a different result. There's a word for that--- insane.

KUinAussie 3 years, 4 months ago

down 600 plus points.

what ya wanna bet the little man absorbs over 90% of those points.

the market loves to play with money that isnt theirs.

just_another_bozo_on_this_bus 3 years, 4 months ago

And if the economy totally collapses around us, what are you going to do with all that gold when there's nothing to buy?

just_another_bozo_on_this_bus 3 years, 4 months ago

This aint zimbabwe. And if it ever truly resembles that country, even though you might have a better chance at buying what little there is to buy because you have gold, you're still screwed.

But keep on hoping for magic answers, if it makes you feel better.

Jimo 3 years, 4 months ago

A. People weren't interested in accepting gold in Zimbabwe (too heavy among other things). They wanted U.S. dollars.

B. Gold is what the incompetent government there wants to convert to! It's a sure sign of economic collapse when governments seek out witch doctors and magic beans. http://www.goldalert.com/2011/05/zimbabwe-seeks-gold-standard-says-u-s-dollars-days-are-numbered/

And there you have it - Libs just been appointed Minister Advisor of Finance in Zimbabwe!!! At last, he got a job and can move out of his mother's basement!

Jimo 3 years, 4 months ago

Uh...the nation isn't turning to it. The people would gladly just have a regular dependable government currency. Rather the same incompetent klepocrats who hate the discipline real money requires want to use it as a scheme to squeeze the last bit of wealth out of the people. It's a variation of the same scam Glenn Beck peddles.

Jimo 3 years, 4 months ago

Gold ain't money.

Neither are cows, or seashells, or wampum, or collectible tschotskies.

But you can sometimes get people to trade them for money.

Jimo 3 years, 4 months ago

Gold is a metal, as any small child can tell you. It, like cows, can be an accounting asset.

It ain't money and regardless of how often fools and con-men state otherwise, doing so doesn't make it into money.

tbaker 3 years, 4 months ago

Gold is money: The US 1oz, 1/2oz, 1/4oz, and 1/10oz gold coins are legal tender, aka: money, with a face value of $50, $20, $10, and $5 respectively.

jafs 3 years, 4 months ago

That's correct.

So, people are paying over $1700 for an oz. of gold with a legal tender value of $50.

Hmm.

tbaker 3 years, 4 months ago

Now Jafs, Jimo said "Gold ain't money." He was wrong. On a related point, there isn't any constitutional authority for paper money / money not based on precious metal. The bills in your wallet are fiat money, aka: IOUs. (since they stopped using gold and silver certificates, and completely left the gold standard)

Jimo 3 years, 4 months ago

Been watching Fox here at the airport.

Amazingly, the whole downgrade is Obama's fault!

This despite S&P direct attribution of their decision to fact that “the majority of Republicans in Congress continue to resist any measure that would raise revenues.”

Jimo 3 years, 4 months ago

What the won't tell you on the Propaganda Channel --

The only nation with an AAA rating that isn't a socialist economy (with national health care, Keynesian economics, and progressive taxation) is the city-state of Singapore!

But of course, you'll never hear that on Fox -- socialism is the path to poverty! Every...body knows that!

Flap Doodle 3 years, 4 months ago

Coming soon to misguided yutes near you. “…"We ain't got no jobs, no money. We heard that other people were getting things for free, so why not us?" asked E.Nan, a young man in a baseball cap in Hackney, a multi-ethnic area in east London and one of the worst-hit areas….” http://www.chicagotribune.com/news/sns-rt-us-britain-riottre7760g8-20110807,0,3645792.story

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