Ask The Readers: What’s Going On With The Stock Market and the Economy?

I’m not very good at keeping up with market fluctuations in general, but Bernanke cutting the Fed Funds Rate by 0.75% got my attention. I’ll be honest – I was totally distracted this weekend by other things, and I barely noticed the drop in stock prices over the last week. The S&P 500 is down nearly 3% right now from Friday. The new headline for CNN is “Recession Watch 2008″. What did I miss?

Comments

  1. Siggyboss says:

    I concur with ken (above), and would only add fear of global stagflation. Also, major mortgage insurers (MBIA, PMI, etc) are on the verge of going bust. Commodities (esp. gold), food, and oil have been making all-time records.

  2. How can you have a fincancial blog and be ignroant of these issues?!?!

  3. For what it’s worth, British comedians Bird and Fortune covered the mortgage mess and following credit crunch:

    “Subprime”
    http://youtube.com/watch?v=SJ_qK4g6ntM

    “It’s Credit and It’s Crunchy”
    http://youtube.com/watch?v=br8mOmH9frE

    For the more serious-minded, I think the Calculated Risk blog has good information, too.
    http://calculatedrisk.blogspot.com/

  4. Talk about excitement, I have seen multiple people at the workplace in dire need of counsel simply because of the news reports. It seems that overnight people when from contentment to fear striken simply because of a wif of a fowl smell in the economy. I do know of a few individual however, who are planning on using this to their advantage. So really it is up in the air a this point as to what will occur in the months to come. Although smart well thought out decisions seem to be the best option for us all. No Fear.

  5. Nothing more than reality striking the media. Based on the sinusoidal curve you presented a while back, i’d say the media has firmly grasped the “Fear” stage and with this Fed’s 3/4 point rate cut, the market is creeping into the “Desparation” phase, with “Panic” looming not too far away. Might be time to revisit that blog.

    The problem this time around though, concerning the Fed’s rate cuts, is that the globalization of the (world) economy combined with the global inflation make for an ugly effect on US inflation and the weakening dollar.

    Not to incite political discussion, but i wouldn’t be surprised if one of the major political issues in the presidential election four years from now will be foreign ownership of the US.

  6. The fed is acting as expected to prop up the markets, particularly amazing since last week they said they didn’t expect a recession and were monitoring inflation. If this is the case, why are they putting forward one of the largest rate cuts ever, with much speculation that we will have yet another cut in a week? Not to mention that it is not the fed’s role to prop up equity markets, as evidenced by the Bank of Japan and European banks leaving rates unchanged to protect their currencies. BTW, the .75 was no “surprise,” this was easily predicted but not publicized in the MSM until it happened this morning for the shock effect. Headlines like “Recession Watch 2008″ clearly allude to this point. Most people don’t pay attention to this stuff, so they need their good headline grabber!

    Some of the above posts are contradictory… commodities making records is not a recipe for rate cuts, and yet here we are. Is inflation or deflation in our future? The gov’t is scared that we will have a deflationary recession and want to do whatever they can to prevent it. If Ambac goes under, who knows what might happen. The dominoes that would fall from ABK failing could have significant effects. I would not be the least bit surprised to see the gov’t to step in and back the bonds if such an event took place, but who knows what will happen.

    All of the uncertainty is the reason for the market action of late.
    So, basically, fear is rampant and the world markets showed this over the past couple weeks.

  7. Well i’m a new graduate just stepping into the US corporate ladder with my first job.. And the scenario seems so scary esp. with regards to investing.. I’m not even sure if i should money in my 401k if all its gonna do is lose money! Any investing advice?

  8. I’m scared to look at my 403b now. I know its going to be down at least another $5K and it already was down $8K by Friday. Then it will recover, I think, but it kind of scares me to death in the meantime. I had approximately $220K at the beginning of the year (or around then). It actually functions as both my retirement and my general security blanket. The housing market, the price of oil, I believe are the main culprits. It’s funny, but in retrospect I thoroughly believe that rising home prices are the worst thing for the economy. It was just a false feeling of wealth, that makes the people who own homes spend more than they should — and people who don’t own homes feel like they lost out on something and that they won’t be able to catch up. It also makes people feel more married to their jobs because now you’ve got an enormous mortgage and taxes to match. It would be much better to have cheap, affordable housing, even if you couldn’t count on it being a nest egg.

  9. Now’s the time to start entering into the market if you have a long-term horizon of at least 20-30 years. Stocks generally rise about 10% on average in the long term. But if you buy stocks with equal amounts of money once or twice a month every month, you could gain even if the market is flat. Over the past 100 years the absolutely worst time to be in stocks was for about 15-20 years after the 1929 crash. Even if you bought at the top in 1929, it took you just 15 years to breakeven (if you add reinvested dividends). So in case you think that a new depression is coming I strongly feel that now is the time to start accumulating stocks..

  10. Fears of global recession.

    Basically housing bubble bust -> credit bust -> bank bust -> slower spending, cause people can’t borrow for free -> worse earnings for companies -> lower GDP coming ->recession.

    Basically 2008 the marker is going to stink, there will still be for down i bet. I think we will see 10somethingk this year. Hopefully not below 10k.

  11. the entire global economy hasn’t liked what its been seeing with our market, and it triggered an initially slow, but eventually large global selloff over the long weekend, while our market was closed.

    the fed cut rates to try and prevent our market from dropping like a brick when it opened this morning in response to the other selloffs.

  12. Vivek, stocks are on sale, start buying as much as you can through your 401k. This is great news for us youngins – give we stay employed.

  13. The Fed freaked out, then Congress / Bush freaked out, then international markets freaked out, and Wall Street threatened to freak out if the Fed doesn’t cut rates before its official meeting at the end of the month. Fed obliged, but Wall Street decided it didn’t like what it asked for and the cut is a sign of the impending apocalypse, so Wall Street freaks out after all.

  14. We need a post to explain your new mid-term goal– travel on the horizon?

  15. bob,
    ignore the analysts, they are usually behind the curve, like most ‘experts’.

    the market will act on expectations when it sees stuff such as bank of america profit down 95% and yet the biggest mortgage lender almost being bought out by them, bush proposing dropping $ from helicopters to spend more cause that is all our economy can do, MSM using the R word, the PPT manipulation, etc

  16. Fears that Mortgage bond insurers are overexposed and are unlikely to have enough money to cover defaulted bonds has led to pressure on their credit ratings. This is a great opportunity to buy (non-financial )long term stocks !

  17. Everyone is predicting recession or not, no one thinks we are close to a depression. Imagine your stock will be completely wiped out…

    I wonder how many people kept their GE stocks in 1928 till date. Those people ought to write some books about it.

  18. Best answer here is KD’s – time to buy!

    I’m adding more to my existing accounts and scooping up additional stocks and mutual funds.

  19. I consider myself somewhat of a noob in understanding market dynamics, so someone more knowledgeable please enlighten me. This has bothered me for years but I come to realize that the movement of a stock or index up or down is ultimately determined by the market expectations, not fundamentals.

    All the books I have read says that no one can predict the market but no one has mentioned that we humans, esp institutional traders, pundits, and analysts, are the reason for the unpredictability. Does anyone seriously think that the economy is that much worse now than 3 weeks ago to warrant this kind of sell-off? Short answer is no, so it’s the wanton fear that is driving the market down.

    My other question is how a market expectation consensus is developed in the first place? Seriously, I hardly ever see 2 analysts agree with each other on a company analysis, so how is it possible that a market consensus can develop? Is there a collusion that I am not aware of?

  20. The short answer: The emergency rate cut is a reaction to trading in yesterday’s foreign markets. The fed was attempting to stop the bleeding with this morning’s cut.

  21. @Vivek: As a recent college graduate with your first job, you have probably a good 45 years before you’d need the money. Granted whatever you invest now will decrease in value in the short term, but in the long term it will appreciate in value. Setting aside advice about setting money aside as an emergency fund and paying down debts, if your employer matches your contribution to your 401K, then definitely contribute at least up to that level — that’s free money.

  22. @gt, so please define for me who “the market” is then? Does a number of financial institutions get together every morning and says hey this is our consensus, we are selling today? Or is it more like 1 financial institution starting selling and others follow? And where does the whisper number comes from? Who comes up with it in the first place? If one analyst comes up with a whisper number, why do other analysts / financial institutions go with it? Given that most analysts do not agree with each other for the most part, I find it remarkable that a market consensus can even develop in the first place unless there is collusion.

    My theory still stands though, “we” are the cause for the market unpredictability, not fundamentals. The irony of us bemoaning the unpredictability of the market and yet “we” are the cause of it.

  23. I am just wondering… Rate cuts –> ppl can afford their houses again, ppl spend money around, have stupid credit card debts with high APR, ppl bankrupt –> more serious credit crisis… plus inflation will worsen… Are they really sure what they are doing? There are just too many no-brainers who buy stuffs without thinking twice… Why should the whole economy bail those ppl out while benefitting those evil subprime loan company bosses get away with a bunch of dirty money…

  24. PANIC

  25. Bob – the market today is driven in large part by heavily quantitative / largely automated program trading. There’s little that can be done when the same / similar decisions are being made en masse based on the same data.

  26. Susan, panic all you want… the more people that panic, the more people that will be selling (to me!) at a discount. I have always doubled my rate of investment in the broad market during times of crisis… 1987, dotcom bomb, post-9/11… by my calculations I am ahead thricefold using that strategy as opposed to straight dollar cost averaging over time.

  27. I think “Economy” is twisting hand of the “politics & government”. Or in other words probing to see how much more they can go away with. Or in other words, screw the little guy by scaring the politicians. Get the money run and leave the government to find a solution.

    Lowering rate doesn’t mean the commercial fanatical system would do it as well. Why lower the rates? Losers won’t learn when there is always someone to bail them out. They will still be losers. In nature the smart, fast & best survives. We creating absurd situation in which losers can flourish, and get transferred from one position to other. Former CEO ruined corporation get new CEO positions and do it ones again. Manufacturing have been exported, middle class have been driven broke. Society has been turned in an absurd flock of sheep’s. If the system is not straightened up, we will not going to have emigration problem no more, as people will emigrate from US not to US, and then we’ll have problems.

    I’m curious how much is your net-worth at this moment.

  28. I agree that this will be a great time to prepare for significant growth in my 401k by max’ing it out as much as I can.

    I do have a question about Mortgage RATES.. With the Fed salshing rates, will the time to refinance come again? I missed out on the ridiculously low rates in the past (I have a 6.5 and 6.75 30 yr fixed) while my father snagged a 4.5% 30 yr rate.

    Thanks
    CARLO

  29. I think the Fed is reacting by loosing its money belt – extending credit to prevent the subprime and the sordid SIVs (junk bond-type) investments that too many large financial institutions offered or bought to take out a major player. Although several appear on the ropes….WaMu, Wachovia so further consolidation may be around corner. Countrywide was a bargain buy.

    It is an election year and we’ve heard some pretty strong sound bits: housing bubble, tax cut, rate cut, recession, inflation,….

    Personally I’m refinancing and getting a cash cushion together to weather the storm. Sustainable cash flow is important to avoid dipping into investments at the wrong time. Check your liquidity.

  30. Fed and government bailing out investors and banks at the expense of damaging the buying power of the American consumer. Effectively the subprime mortgage mess which has been drummed up the media enough to cause panic in the American consumer and led the American consumer to tighten their purse strings (and save more) has led the Fed to lower the value of their savings to encourage them to spend.

    Bad monetary policy all around. What happened to laisse fare? I do agree with some oof the others above… stocks are on sale, so now is a great time to put extra dough into retirement accounts.

  31. Ted Valentine says:

    Vivek trust me here. Pour all you can into that 401k in a well balanced allocation. If you’re scared, start with 60% stocks and 40% bonds. If you’re aggressive pick a target date retirement fund. For you, stocks are on sale. Don’t look at the balance but once a year. In 8-10 years you will be very happy if you follow this advice.

  32. http://bigpicture.typepad.com/.....-pani.html

    interesting comments from a Wall St. analyst… take it as you would

  33. Does anyone have any advice for investing outside of the 401k? I was thinking a mutual fund or ETF? Any suggestions? Ive got plenty of time for long term growth 30+ years, but Im just jnot sure where to start.

  34. Too much d$#@ funny money in the system created by the Fed along with a spendthrift Congress.

    Time to abolish the Federal Reserve and return to a precious metals backed monetary system as called for by the US Constitution. Okay, not perfect, but a money system backed by nothing has never lasted, at least not without much suffering of the poor and middle classes.

    Peter Schiff, Ron Paul, Jim Puplava, and many others have commented on this for years now. Yes, it is appalling that most Americans are ignorant of monetary issues.

  35. I lost about $2k out of 30k total this past quarter in my 403b, and I’m anticipating another drop.

    But I have another 30k total that I was going to dump into some ETFs. But seeing how the market is still on a downturn and hasn’t bottomed out yet, I think I may just hold off until I see some signs of change in the positive direction before investing. I know I know, don’t time the market, but I’m just holding off on putting more money in until the market bottoms out. Would I be a fool to do this for those of you with more experience?

    I am however going to max out again my 403B this year. However instead of evenly distributing my contributions, I was thinking of backloading them in the latter half of the year to also wait out storm. Any suggestions/comments on my plan would be greatly appreciated.

  36. @Ryan – I have read that Index Funds are great for Long term investing since they usually don’t have many fees associated with them that might otherwise eat up profits like some Mutual Funds.

    CARLO.

  37. I still don’t understand why this has happened so suddenly, though. Was there a one major event last week that I missed? Why is the government now wanting to send $500 checks out to everyone.

  38. Y’all, the rate cuts have no direct impact on mortgages, and especially not subprime mortgages. The rate cuts will not make long-term mortgages more affordable. People will not be able to avoid foreclosure. The rates don’t directly bail out banks who are in trouble solely due to the subprime debacle.

    Rate cuts will alleviate the tight credit which resulted from subprime. After subprime crashed, lenders wouldn’t lend any more, even for AAA-rated issuances. This made it difficult for businesses to get funding and partly contributed to a rocky fixed income market. Rate cuts should alleviate the credit tightness.

    But rate cuts won’t fix subprime! Rate cuts won’t make mortgages affordable! Rate cuts aren’t a subprime bailout!

    I think a lot of bad things are happening in the economy at once, and most people are confusing a bunch of different causes with a bunch of different effects. I’m not saying rate cuts are good; I’m just saying that don’t blame the Fed because you think they’re bailing out subprime lenders. This is something completely different.

  39. I agree with John – panic all you want Susan!

    It is a narrow vision to think that you “are losing money.”

    It is a buying opportunity when the market plummets. It means quality stocks and mutual funds are on sale.

    As for Ryan’s question, I would recommend dollar cost averaging now whether it is blue chip financial stocks or T Rowe Price stock mutual funds.

  40. “I’ll be honest – I was totally distracted this weekend by other things, and I barely noticed the drop in stock prices over the last week.”

    According to your previous posts, I believe that you are a passive “investor”. You’re well-diversified, and invested in index funds that track the markets.

    So, this make you a very smart investor. Your returns will ebb and flow as the markets ebb and flow, but in the long term, you’ll come out ahead.

    So, unless you’re a short-term trader, you didn’t miss anything. Keepp up the good work!

    Mike

  41. It was a looong way to the bottom after 9/11. All those pundits telling people to not panic, not sell their stocks, that it was “un-American” did a huge disservice to the general investing public.

  42. Going back to the “paying off your house is a dumb idea” blog?

  43. They aren’t going to send out checks because its not going to make a difference.

  44. I am definitely a passive investor, and I’m not making any moves (changes in my investments) regardless. Things are supposed to go up and down. I just feel like there is so much fear for no specific reason.

  45. eh?

  46. Johnathan,

    The Fed is accommodating the markets by dropping the rates, they will probably drop by 50bp again next week. The consensus is they should have done it a week or two ago, and they finally did. They’re simply trying to reverse the market decline and shock people back into reality. The economy is no where near as bad as people think. Real GDP will come out as 1.5% in Q4 2007, this is after two quarters of 3.5-4% Real GDP growth, so it’s really pay back for those gang buster quarters. GDP should grow by 3% for all of 2008 (so it will be another really good year). Anyone who’s bearish will be surprised.

    As far as the government giving money to people: Keynesian economics says that the government should give short term stimulus to smooth out the drops in the economy. Most people believe giving money to the poor and middle class will trigger them to spend it immediately. The problem is that in the past this hasn’t been the case. When someone gets unexpected income, they tend to save it or use it to pay off debt (equivalent to saving). So it doesn’t have the desired effect. Of course, it’s great politics, so politicians are always for it. (I think Bush is trying to leave office on a more popular note, so he is reverting to his “compassionate conservative” ways) The markets know that refunds and bailouts are not good for the economy, so these proposals have contributed to the market decline.

    To really help the economy we need permanent tax decreases. People won’t respond unless they can plan for the long term future. And people respond to the incentives of lower tax rates.

    Hope this helped clear up what’s been going on a little.

  47. I’ll take a shot at explaining why this all exploded this past week.
    First, Ken’s post above is a good starting point.

    “bubble bust -> credit bust -> bank bust -> slower spending, cause people can’t borrow for free -> worse earnings for companies -> lower GDP coming ->recession”

    Add to that bubble bust -> lots of people ( many undocumented ) lost their jobs. -> decreased spending. The job report in January was low but if you think about it even its poor numbers were probably much higher than reality

    Add to that credit bust -> bank bust -> A whole lot of people are about to lose their jobs -> expected massive decrease in spending.

    And manufacturing has not increased with the drop in the dollar as it should.

    Now put the stuff above together and you have a couple major sectors of the economy laying off or about to lay off a lot of people and you will understand why washington is worried.

    As to why this blew up these past two weeks, I think it is a combination of two things:
    1) Americans have started worrying about the economy for a few months now, but the polls just recently showed they are now more interested in it than in the war. As a result of the polls the hopeful presidential candidates are talking about the economy and thus the Press is jumping on it and talking it up.
    2) Big banks are really really close to going under. It would be huge if a company the size of Citi declared bankruptcy — almost unthinkable. But consider the facts..two months ago Citi sold its future earnings in return for $7.5 billion. Then this past week they went and did it again for $15.4 billion. That is real money. What’s worse is they are getting these loans ( they act like a interest only loan that never expires and can’t be paid off ) for 11% interest. How can a bank make money in a slowing economy when it is paying out 11% in return for its capital??? And this year will see even more mortgages default. Look at the news and you’ll see that this is happening to more than just Countrywide and Citi. So the big suits are worried, they are pressuring anyone and everyone to do something and that generates news coverage.

  48. this was a pretty genius post. act like you have no clue whats going on so that readers will get all excited that they get to inform YOU for a change and come back to see how people responded to their input. i like it.

  49. SavingEverything says:

    Basically, it was a dark week and past several days. 1/22/08 may be coined “Black Tuesday”, where if you were a new investor in the global markets’ indices, such as the Hang Seng, Nikkei, Straits Times, Sensex, Bombay Stock Exchange, Australian ASX200, DAX, KOSPI, DFMGI, London’s FTSE, France’s CAC, and others, you’d noticed the big drops. Also, if you were to check your portfolios of mutual funds and stocks and ETFs, you’d notice some nice numbers and comparisons to levels of around 2006 to 2007. You will also notice that since you purchased $10k of FSTMX in September 2007 at ~41.61, for some reason it’s now at $36.42 for a ~10% drop. Your Washington Mutual Bank is getting plunged by its contributions to the credit crisis and bad collateral debts and those horrible ARM mortgages. (at least WaMu’s CD’s and savings still look nice; though any day that too will drop.)

  50. SavingEverything says:

    An idea to think about for the long term investor; say s/he bought the major indexes (ie. Dow, SP500, Russell, MCSI efa, total international stock market) at high prices (or peaks) immediately before the big drops and bear markets in the indexes, would this investor still be ashamed for “buying high”, or will s/he still be in positive return rates in 20-40 years?

  51. Bryan: …

    Jonathan: Ken’s summary is basically it, but see below.

    Bob: a stock’s value is influenced by a few things. At one level, there is some fundamental value based on the known information (i.e.: balance sheets), but there’s also a speculative value based on future predictions of the value.

    This speculative portion tends to vary wildly but it’s anchored around that fundamental value. This is not always true, but it’s “true enough”. Check out Burton Malkiel’s A Random Walk Down Wall Street for a more in-depth explanation.

    So when the markets take these giant swings, it’s often a re-evaluation of the speculative value. (and sometimes the fundamental value)

    Right now, lots of the US debt is foreign held. (fundamentally, every USD is a debt). But internationally, nobody really thinks that the USD is worth very much. So nobody wants to trade for USD, they don’t want to take the risk, they don’t figure they’ll get “paid back”. All of these banking crises are just aggravating the situation. So US stocks are going to take a hit.

    It’s been coming for a long time, but this stuff tends to be like an elastic band. It happens in jumps and starts. It’s like the big internet boom, sometimes price takes a long time to catch up with reality.

  52. Jonathen, be a passive investor doesn’t mean to be ignorant about the world affair – a problem for many Americans. Their (and perhaps yours) view of the world is essentially everything happened in America. I am just a bit of surprised that you have nearly half of your funds allocated to international stock and yet you pay no attention to the world market.

    Basically, over the course of Sunday and Monday, most world stock indexes fell sharply showing a major ripple effect and a panic sell off of stocks. For some markets, the down turn are as much as 5.5%, many had one day record in 20 years. This global panic is causing major concerns to the Feds officials. Apparently, when they had a meeting Monday night, they believe if they don’t do something drastic, the world market and US market will keep on sliding in a vicious cycle which in somewhere resemble a mini-depression.

    The consequences of that is unknown, but they are scared. So they did whatever they did.

    So my suggestion to you is please read some newspaper that’s not made in USA.

  53. Don’t panic. Just continue to dollar cost average into your funds. Heck the market is on sale right now. The market is up 7 out of 10 years, and that is why your money needs to be invested properly (with diversification).

  54. Its all mental me thinks :). This is what happens when you lend money to people with poor credit (Bernake resp. for letting banks lend freely?)

    It’s all personal responsibility as well. Don’t use your HELOC like an ATM and buy cars, expensive furniture, if you can’t afford to pay it back!

  55. Wall street propaganda machine is so efficient. No one seems to know that that the Japanese Nikkei went down 90% twenty years ago and is still down over 75% from that high 20 years LATER. Stocks don’t always go up. The US markets have been in a 75 year bull run, makes me wonder what a 75 year bear market would do to everyone that has this blind faith that all markets must raise over time.

  56. Why should someone even care what is going on? There are only two reasons you should even bother to check on what the market is doing: (1) rebalancing, and (2) tax loss harvesting. The rest is merely a waste of your time, or worse, a cause for you to engage in foolish market timing behavior.

  57. I think what Jonathan was asking for was what happened on Mon/Tues, not the underlying economic conditions.

    1. Bush proposed a stimulus package (tax cuts) –> debate ensues (what about people who don’t pay tax? will a boost in consumer spending help?) –> 2. World Markets freak out while US markets on vacation Mon –> 3. US markets freak out Tues; Fed cuts rates, US markets partially recover.

    I’m not saying that I believe that causation, but that sums up what’s in the press.

  58. I remember posting on this blog about three-to four months ago and then way earlier about a year ago that the United States will economically explode.

    The current events in the market would be round 1. The worst is yet to come and I strongly believe that this and possibly the next economic turmoil will be extremely hard-hitting.

    I personally have very little confidence in the U.S. economy for the following reasons:

    - Over $9 trillion budget deficit;
    - Declining dollar. It is in America’s greater interest that the dollar is strong.
    - The real effects of the sub-prime mortgage will be felt in the next six quarters;
    - Cuts in short-term interest rates by the Fed. This will cause inflation to sky-rocket. The recent cuts will hurt the U.S. economy in the long run.
    - Foreign investor confidence in U.S. markets is increasingly diminishing;
    - Unemployment will rise;
    - Too late for a useless stimulus package. This economic stimulus package is a joke.

    I do not agree with Jonathan’s statement that the world is imploding and instead view that the U.S. is on the brink of imploding. The global markets are reacting to the financial crisis occurring in America.

    I have an outsider’s and insider’s perspective on the American economy and I am not impressed with the the current situation. Americans should really fix your humongous budget deficit to allay the situation.

    Good luck to all, the train wreck begins.

  59. Global market is imploding simple because American is the world’s largest consuming market. We import more than export. The world saves – we spend. Do you think US invests in China more or China in US more? China in US more of course, because China can make cheap products that the US population will buy.

    Our habits cant be changed overnight so, something we all have to live with. But of course, the people who read this blog, save right? ;)

  60. Joby,

    The world saves in US dollar denominated bonds, which sponsor US’s consumer spending . The good thing for the US is that the dollar is depreciatiing; the bad news for the borrowers is that the dollar is depreciating. The US is so powerful, that they can simply make their currency decline even more and the world will be the one who will be wiped out :-). I am not saying that’s going to happen though:-)
    In reality China can make cheap products as of now. That’s what china is – just a factory which relies on US spending. If Us spending falls, guess what would happen in China – civil unrest, higher than average unemployment etc.. I don;t know if China will be the next big thing really. If you look at Chinese history over the past you can definitely see that it is cyclical- highs and lows, highs and lows. Everyone things that China is the next big thing at the top, and everyone despises china at the bottom. 100- 150 years ago china was touted as a big player as well. Did it happen? What is the probability of it happening?

  61. As far as making changes in your investments based on stocks going down, I thing that this is a bad move. If you are a passive investor, you should continue following this plan. If you are an active investor, keep acting :-)

  62. No one has really answered what actually triggered the sell offs on Monday of the foreign markets.

    The Bush stimulus package wasn’t talked about until Monday, U.S. time. The Fed rate cut happened on Tuesday morning.

    What cause Monday mornings sell offs?

  63. Wes, the stimulus package was talked about on Friday. SayingEverything, the US does not have a $9 trillion budget deficit (fortunately!), you probably meant debt.

  64. The problem with this round of rate cuts by the Fed is that they don’t address the credit problem at all.

    One of the primary issues is the credit freeze that is going on. Currently it is far more difficult for credit worthy businesses to acquire cash. Lenders simply don’t want to lend right now which is why the rate cuts mean far less this time around than in the past. In short, the rates don’t matter if institutions won’t lend.

    And even if they begin to loosen up they have found and will continue to find the market for bundled debt that they have been dumping on to others for a while now won’t be as easy to sell. Investors and foreign banks aren’t going to buy these packages with the same kind of volume they had in the past because they’ve been burned badly.

    The only beneficiary of these current rate cuts are the equity markets. If holding cash becomes so completely worthless because you can’t make 2 cents in interest due to low rates then they are likely to reinvest in stocks, especially high dividend paying stocks that are offering attractive yields.

    I will echo one sentiment that has appeared in this thread several times and it is this: if you are an investor with a long term out look you have probably been presented with an unusually good buying opportunity. Even if you jump in here and the markets move lower over the short term in time you will probably find the return funds invested today to be quite handsome down the road.

  65. Well, now you guys know why I was distracted (buying a house) and also why I was worried (buying a house). But I’ll take the 5% mortgage rates and run with it :D

  66. Spotted 4.625% 15-year fixed, no closing costs. I think I am in for refinancing :)

  67. I think that sometimes the basics get over looked amongst all the data. I am referring to the difference between Realized and unrealized. I am young and have many years of investing in front of me, so this is my silver lining. I save on a monthly basis and invest quarterly and right now I am buying some great ETF’s on sale. For those of you out there that are not adding any money or taking any money out with enough time to ride out, then good for you, you haven’t lost because it’s an unrealized loss. The people that have a problem are those that are with drawling from their account to supplement current income. I hope you or your adviser has placed enough in cash to hold you over till the rebound happens. The people that really loose in a pull back are those that have to sell low because life requires the proceeds from that sale. For the comment about starting her 401(k) and being scared this is your silver lining as well. Take your contribution and your employer’s contribution to the market for a good time. It might not happen overnight, but when has buying low and selling high ever been a bad idea.

  68. NP, who is giving the 4.625% 15 yr fixed, no closing cost loan?

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