Economic Crisis : Why the Stock Market Keeps Plummeting

[DerekLeung]

Why the Stock Market Keeps Plummeting
By John Curran Tuesday, Feb. 17, 2009
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<h1>Why the Stock Market Keeps Plummeting</h1>

<div class="byline">By <span class="name"><a href="javascript:void(0)" onClick="javascript:window.open('/time/letters/email_letter.html','letter','width=400,height=420,status=no,scrollbars=yes')">John Curran</a></span> <span class="date">Tuesday, Feb. 17, 2009</span></div>
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<div class="imgcont"><img src="http://img.timeinc.net/time/daily/2009/0902/nyse_0217.jpg" alt="Traders work on the floor of the New York Stock Exchange during afternoon trading February 17, 2009 in New York City. The Dow closed at 7,552, down 297 points, after President Barack Obama" title="Traders work on the floor of the New York Stock Exchange during afternoon trading February 17, 2009 in New York City. The Dow closed at 7,552, down 297 points, after President Barack Obama" height="294" width="525" /></div>
<div class="caption">Traders work on the floor of the New York Stock Exchange during afternoon trading February 17, 2009 in New York City. The Dow closed at 7,552, down 297 points, after President Barack Obama signed a massive economic stimulus bill in Denver. </div>
<div class="credit">Mario Tama / Getty</div>
Faced with ubiquitous signs of global economic meltdown, investors sold stocks in force on Tuesday, dragging the broad market indexes down near the lows reached last November. The Standard & Poor's 500 index, weighed down by financials, fell 4.56%, while the Dow Industrials sank 3.8%, falling to within a fraction of its November 2008 low. Among the hardest hit sectors were bank stocks, down 10%, oil service stocks, down 8.2%, and semiconductor stocks, which fell 6.7%. Gold Mining was among the rare winners Tuesday, with the industry group rising 2.5%. (<A HREF='http://www.time.com/time/photogallery/0,29307,1849374_1779304,00.html' TARGET='_new'>See pictures of the top 10 scared traders.</A>)</p>

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<p>Dragging the stock market down is a near universal acceptance that this recession is going to be longer and deeper than the consensus thought just three months ago. Late last week, for example, investment firm Credit Suisse lowered the projected operating earnings for S&P 500 companies to $58. It had been expecting $70 per share. The firm now expects overall operating earnings for the S&P 500 to fall 34% in 2009. In lowering its estimate, Credit Suisse analysts added a note of caution to the grim forecast: "We worry that while financial earnings have already seen considerable weakness, non-financial earnings have further to fall." Faced with such pessimism, the S&P finished Tuesday's session at 789, below the 800 'technical support" level that analysts feel was critical to maintaining investor confidence. </p>
<p>Investor sentiment was shaken over the holiday weekend by news that Japan's economy shrank at an annualized rate of almost 13% in the latest quarter. Economic news from virtually every corner of the world is reinforcing the notion that this economic storm knows no bounds, and may be gaining fury. </p>
<p>That perception is leading investors to take cover, even in the face of hopeful news. Indeed, as the market sank on Tuesday, President Obama not only signed the $787 billion stimulus into law, but added that there could be yet another stimulus package if needed. Moreover, recent reports from the credit markets indicate that the great credit freeze may finally be starting to thaw. Morgan Stanley says that its analysts are seeing an improved credit landscape in most of the industries they track. "With the exception of utilities, a clear majority of firms in every other sector reported that credit availability had either remained the same or become easier over the past three months," Morgan Stanley's February 17 report notes. </p>
<p>It is likely that investors will be reluctant to bet on nascent signs of improving credit so long as the housing market remains in turmoil. On Wednesday morning President Obama and Treasury Secretary Timothy Geithner will appear at a high school in Arizona to unveil their new plan to stem the tide of housing foreclosures. The financial community's response to that plan will likely be writ large in the stock market averages by late morning. </p>
<p> <A HREF='http://www.time.com/time/photogallery/0,29307,1845923_1774401,00.html' TARGET='_new'>See pictures of the global financial crisis.</A> </p>
<p> <A HREF='http://www.time.com/time/specials/packages/article/0,28804,1869041_1869040,00.html' TARGET='_new'>See who's to blame for the current financial crisis.</A> </p> </div><!-- /div.artTxt -->
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[Lestat]

Too much money is flowing out, nothing is flowing in, you cannot print money to make up for the shortfall. That's why the stock market keeps dropping.

However, if you were to think in another way: Since all money is uniform, what's lost in the market SHOULD BE in someone else's pocket.

The question is, where did it go?

 

[Meltdown]

<<The question is, where did it go?>>

It goes to Bernie Madoff & other criminals secretly ripping off honest investors in the financial market!

 

[The_Latest_H]

The stimulus package was never designed to be an miracle, over-night pill. The banking reform package announced last week by the US Treasury department are not detailed enough, and only given broad sketches by Geithner.

That's why its only the beginning. The stimulus package is to put in some money into the money cycle, so that it can reduce the impact of the recession, and help stem unemployment and wage droppage. The real deal is to reform the investments and normal banks- and that takes time and even more detailing by the Treasury department.

And it has to go deeper than the current measures announced by Secy Geithner. Until they realise that some of these banks have to be nationalised- that's not an option, but a must in some cases- as proven in the Japanese and Swedish banking crises, the banking confidence will not be fully restored. And if very little people trust the bank with confidence, its likely this crisis would be prolonged. Up to this stage, we simply cannot rule out anything, even bank nationalisation(but the govts should appoint experienced, clean, reform-minded professional bank managers, and not old time civil servants).

 

[johnny333]

That's why its only the beginning. The stimulus package is to put in some money into the money cycle, so that it can reduce the impact of the recession, and help stem unemployment and wage droppage. The real deal is to reform the investments and normal banks- and that takes time and even more detailing by the Treasury department.

And it has to go deeper than the current measures announced by Secy Geithner. Until they realise that some of these banks have to be nationalised- that's not an option, but a must in some cases- as proven in the Japanese and Swedish banking crises, ....

There's alot of fear & uncertainty in the market :(

Its not being helped by the news of fat cats giving themselves big fat bonuses. Reminds me of the PAP business as usual atitude

Complicated by the US gov't being split along idealogical grounds. Many Republican still pushing their tax cut solution, let the market mechanism take care, etc.

Some say market may drop to 6,000.

I'm surprised that the PAP hasn't announced early elections. If they wait its going to get worse & there will be many upset Sporeans ready to punish them for LKYs broken promise of a "golden era"

 

[chewed]

there's another reason, which is only my speculation:

the banks are pissed over Obama & the Senate/Congress with the executives pay limitation & names calling. So they are selling to give Obama an black-eye.

 

[johnny333]

there's another reason, which is only my speculation:

the banks are pissed over Obama & the Senate/Congress with the executives pay limitation & names calling. So they are selling to give Obama an black-eye.

Interesting theory but the banks were in trouble even before Obama got into office.

Many people are damn angry with the heads of these banks. They messed up & its causing alot of grief. Stock holders will take care of some of them, look at whats going on in Bank of America

 

[pia]

Interesting theory but the banks were in trouble even before Obama got into office.

Many people are damn angry with the heads of these banks. They messed up & its causing alot of grief. Stock holders will take care of some of them, look at whats going on in Bank of America

What chewed speculated is quite true. The guys in Wall Street are doing their best in bringing down the stock market everytime an Obama initiative is announced to send the message that the "market reaction" is negative. He's definitely not popular with them.

They want instant gratification.. more bail outs, but he's not granting their wish.. easily.

 

[The_Latest_H]

there's another reason, which is only my speculation:

the banks are pissed over Obama & the Senate/Congress with the executives pay limitation & names calling. So they are selling to give Obama an black-eye.

They won't get anywhere; their credibility are already shot in pieces, and its unlikely that their reputations will get better if the main street suspects and are sure that Wall Street is punishing President Obama, just because he was elected by the people to wash up Wall Street.

Wall Street has to be reformed, whether those whom are rich, cocky, and responsible for the debacle like it or not. Let's hope Secy Geithner does find a balance in addressing the issue, and ensuring that the many Board of Directors in these banks do ensure that these CEOs and the banks themselves adhere to the new rules. If the CEOs refuse or lobby the government not to, then if it comes down to the worst, these boards should consider replacing these stubborn CEOs, with new chaps who believes reforms are good for the long term future of their banks.

 

[chewed]

They won't get anywhere; their credibility are already shot in pieces, and its unlikely that their reputations will get better if the main street suspects and are sure that Wall Street is punishing President Obama, just because he was elected by the people to wash up Wall Street.

Wall Street has to be reformed, whether those whom are rich, cocky, and responsible for the debacle like it or not. Let's hope Secy Geithner does find a balance in addressing the issue, and ensuring that the many Board of Directors in these banks do ensure that these CEOs and the banks themselves adhere to the new rules. If the CEOs refuse or lobby the government not to, then if it comes down to the worst, these boards should consider replacing these stubborn CEOs, with new chaps who believes reforms are good for the long term future of their banks.

problem is, we, the rest of the world , end up as collateral damage.

these pricks think of themselves as god-like, with their irresponsibility & arraogance. It's time to get rid of them, or send them to prison, for failure of fudiciary duties...

 

[DerekLeung]

However, if you were to think in another way: Since all money is uniform, what's lost in the market SHOULD BE in someone else's pocket.

The question is, where did it go?

That's the interesting part !

 

[johnny333]

What chewed speculated is quite true. The guys in Wall Street are doing their best in bringing down the stock market everytime an Obama initiative is announced to send the message that the "market reaction" is negative. He's definitely not popular with them.

They want instant gratification.. more bail outs, but he's not granting their wish.. easily.

Maybe Chewed is right about some people expecting more from gov't handout, but I don't know about them trying to cause Obama's fall. He's the people's president & not like Bush who represented the special interest groups

Almost 2 trillion spent in the 2 stimulus package. Even Madam Ho would have trouble burning through that