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Archive for Tuesday, August 9, 2011

Stocks plunge on 1st day since credit lowering

August 9, 2011

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The stock market buckled Monday under the weight of a crisis in Europe and danger of recession at home. Reeling from a downgrade of American debt, the Dow Jones industrials plunged 634 points.

It was the worst day for the market since the financial crisis in the fall of 2008 and extended Wall Street’s sudden, sharp decline. Stocks have lost 15 percent of their value in just two and a half weeks.

Monday was the first trading day since Standard and Poor’s downgraded the United States’ risk-free credit rating, and the selling started at the opening bell. The Dow dropped 250 points in minutes. For the rest of the day, investors looked for safer places for their money. With few buyers left for stocks, the market could only drift lower.

The Dow finished the day down 5.5 percent. The point decline was the worst since Dec. 1, 2008, and the sixth-steepest ever. The average ended at 10,809.85, its first close under 11,000 since November.

In a bit of irony following the S&P downgrade, investors decided U.S. debt was one of the safest places to be. They also sought refuge in gold, which set a record price.

“The S&P downgrade of U.S. government debt is the least of our problems,” said economist Scott Brown at Raymond James & Associates. “The bigger worry is subpar economic growth and the threat of a new recession.”

Economists at Goldman Sachs peg the chances of another recession at one in three, most likely in the next six to nine months. The threat was barely talked about earlier this summer.

The U.S. economy grew at a feeble 0.8 percent annual pace the first half of 2011, its slowest since the end of the Great Recession in June 2009. Manufacturing and consumer spending have slowed dramatically.

Oil prices plunged 6 percent to the lowest price of the year Monday — $81.31 a barrel. Investors predict a weakening economy means that consumers and businesses will buy less gasoline.

The turmoil in the U.S. markets was the end of a daylong rout that swept the world. Stocks lost 4 percent in South Korea and 2 percent in Japan, then 5 percent in Germany and 4 percent in France.

In the U.S., stocks fell even though Moody’s, another major credit rating agency, stood by its top rating of Aaa for the United States. It said it could downgrade the U.S. if it did not cut its deficit, “but it is early to conclude that such measures will not be forthcoming.”

Financial markets were not comforted by an afternoon statement by President Barack Obama, who said Washington needs more “common sense and compromise” to tame its debt.

“Markets will rise and fall,” he said. “But this is the United States of America. No matter what some agency may say, we’ve always been and always will be a triple-A country.”

Across the Atlantic, policymakers struggled to contain a debt crisis of their own. The threat of default has spread from relatively small countries like Greece and Portugal to bigger ones — Italy and Spain.

If those countries failed to meet their debt payments, Italian and Spanish banks would absorb losses on their holdings of their countries’ government bonds.

Then the pain could spread outward — to foreign banks that made loans to Spanish or Italian banks and beyond.

The European Central Bank stepped in Monday, buying billions of euros’ worth of Italian and Spanish bonds to drive down dangerously high interest rates. But the move does nothing to address the underlying problem: huge Italian and Spanish debts that could require a bailout and strain the resources of the European Union.

Comments

Richard Heckler 3 years, 4 months ago

Wall Street is only for those who can afford to lose money. This should never be a measure of our economy.

Investors did not die are run off. They were selling for sure. Investing in gold and treasury bonds were the hot items and smart thinking.

Investing with small local credit union could also be a safe bet. Remember large banks and Wall Street is where some of the boldest white collar criminals operate and get away with being criminals.

pinecreek 3 years, 4 months ago

Get a job with a 401(k) as your primary retirment tool, then you'd understand that Wall Street is not just 'for those who can afford to lose money'. It's a major impact to those with 401(k)'s and we're not happy about what this government is doing to us trying to get by in today's economic client.

gr 3 years, 4 months ago

If you are retired, I can understand.

If you are not, or not near, then why the worry?

gr 3 years, 4 months ago

"But the move does nothing to address the underlying problem:"

Let's see. If the underlying problem was spending more than you have, then what would be the solution? Hmmmm...... I know, let's spend more and go deeper in debt!

If the Federal Reserve can print the money, and if, under special circumstances, they actually create the money and are "owed" the money, can they invest the interest and the money they are paid back in the stock market, actually determining/directing the future of certain sectors?

Who are the Federal Reserve, anyway?

Fossick 3 years, 4 months ago

"Who are the Federal Reserve, anyway?"

Oh, you mean that federally-chartered stock corporation owned by member banks that creates money from nothing to lend to the Federal Government at interest?

They're just people like you and me who have the best interests of the nation at heart, I'm pretty sure.

Richard Heckler 3 years, 4 months ago

Every sale of stock on the stock market includes the disclaimer: “the return on this investment is not guaranteed and may be negative” for good reason. During the 20th century, there were several periods lasting more than ten years when the return on stocks was negative.

After the Dow Jones stock index went down by over 75% between 1929 and 1933, the Dow did not return to its 1929 level until 1953 can we say 24 years. In claiming that the rate of return on a stock investment is guaranteed to be greater than the return on any other asset would be lying.

Perhaps 401k's should find a less risky endeavor than one controlled by the wealthy. When retirement comes around there may not enough money to meet your demands. Therefore one may be forced to wait.

Stock market investments can never contend with politicians reckless behavior:

  1. The Reagan/Bush Savings and Loan Heist(Cost taxpayers $1.4 trillion) http://rationalrevolution0.tripod.com/war/bush_family_and_the_s.htm

  2. Wall Street Bank Fraud on Consumers under Bush/Cheney sent the economy out the window costing taxpayers many many trillions. http://www.dollarsandsense.org/archives/2009/0709macewan.html

  3. 3 financial institutions were at risk why $700 billion of bail out money? http://www.democracynow.org/2009/9/10/good_billions_after_bad_one_year

Flap Doodle 3 years, 4 months ago

Where have we seen those links before? Oh, wait, right here on this award-winning website. Dozens and dozens of times.

Richard Heckler 3 years, 4 months ago

"There is a commonly accepted myth that buying stock in the stock market provides funds directly to businesses that they can use for new investment. This is completely incorrect. Only when someone buys stock that is part of an initial public offering (IPO) does the money go directly to the firm.

If you were to buy a share of Microsoft stock tomorrow, the money you pay would go to the owner of that stock and not to Microsoft.

If a large number of people were to suddenly enter the stock market, it would drive up the selling price of stock and create a windfall for those who currently own stock, but it would not provide a penny to the firms whose stock is traded.

Economists Dean Baker and Bob Pollin did a study a decade ago during the IPO boom that illustrates this distinction. They found that for every $113 in stocks traded, less than one dollar actually went to businesses to finance real investment. "

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