Thursday, 11 Aug 2011 11:23 AM
It’s said that the stock market climbs a “wall of worry.” Because the stock market is trying to predict the future success or failures of various companies, it sometimes gets things wrong. Horribly, terribly wrong.
With the Dow Jones Industrial Average falling like a rock, with wild swings not seen since the stock market crash of 2008, many investors are on the verge of panic. It’s easy to see why. The Federal Reserve is committed to keeping interest rates near zero until mid-2013 at the earliest. Those low interest rates penalize investors on a fixed income who don’t want the risk of the stock market.
Publisher’s Note: In an exclusive interview presentation, Aftershock 2012, Robert Wiedemer outlines a dire financial warning along with a comprehensive blueprint for economic survival. Over one million Americans have seen the evidence and learned how to weather the stock market, secure interest rates, and save their financial future. Watch the video now.
But investors who understand the reasons behind the latest decline in the stock market have little to fear. Below are five reasons why the stock market is crashing right now:
1) Current Debt Crisis in Europe and the United States
Between record high bond rates in Greece, Spain, Portugal and Ireland, the eurozone has its hands full in dealing with too much debt relative to the size of its various economies. As a result of the poor bond performance from these countries, Europe is on the cusp of plunging into a banking crisis. Such a crisis could send interest rates soaring for “prime” countries like France and Germany, not to mention throw the continent into a recession.
Across the Atlantic, the United States isn’t faring much better. The recent debt ceiling drama concluded at the 11th hour, with very little in the way of true cuts. Instead, the government has promised to cut future growth, which may or may not even occur. No wonder S&P downgraded U.S. debt!
Ultimately, it isn’t risky assets like stocks that cause economic problems. Markets sell off when seemingly safe assets are suddenly recognized as significantly riskier than they were once perceived.
2) United States Government Is at an Impasse
As part of the recent debt ceiling deal, Congress approved the creation of a bipartisan super-committee comprised of 12 members to fast-track legislation. The constitutionality of such a committee is dubious at best, but it’s just one way for Washington lawmakers to pass off responsibility and avoid tough decisions.
It doesn’t end there. The Federal Reserve has tried two rounds of “quantitative easing,” a scheme to buy up excess debt. The rationale was that it would get the U.S. economy back on track. Instead, this plan juiced the returns of the stock market, and sent gas prices and grocery costs soaring.
Meanwhile, Congressional Republicans are calling for the ouster of Treasury Secretary Tim Geithner as a consequence of the U.S. losing its S&P AAA credit rating.
In other words, it’s business as usual for the government: trying to fix a crisis that’s largely the result of its own poor oversight, while avoiding any responsibility for causing the problem in the first place.
3) U.S. Unemployment Is Running Over 15%!
As long as the U.S. economy isn’t creating enough new jobs, it will stagnate. Although the unemployment rate has declined from the double-digit rates it hit in 2009/2010, many astute individuals have noted that the latest unemployment report is inaccurate.
Using the measurement for unemployment used by the government up until the early 1980s, true unemployment is running over 15%!
Meanwhile, many thrown out of work have exhausted their unemployment benefits, which in some cases lasted as long as 99 weeks. Once off unemployment, they officially disappear from the official unemployed list, making the job market appear better than expected.
Adding millions of jobs would be the best economic stimulus possible. It would allow millions to loosen their belts and spend more, which would be a huge boon across the entire economy.
Publisher’s Note: Author and esteemed economist Bob Wiedemer accurately predicted these events more than four years ago. Over one million Americans have seen the evidence and learned how to weather the stock market, secure interest rates, and save their financial future. Watch the video now.
4) United States Has No Economic Growth
Historically, the Federal Reserve has cut interest rates to increase economic growth. That’s because lower interest rates make it easier for individuals to borrow money to buy cars, houses, start small businesses and the like. However, there’s been nearly no growth since the United States plunged into a recession in 2008. And the Federal Reserve can’t cut rates any lower.
There’s no doubt in the minds of many market participants that more Fed easing policies are on the way, especially after America’s first-quarter GDP was revised from 1.9% to 0.4%.
The stock market’s moves are highly dependent on economic growth. If an individual company can post huge growth numbers, its shares tend to go up, and its shares tend to decline when growth stalls. When a country’s GDP is stagnant, investors don’t know what to expect. Hence the recent stock market plunge, as economic data may suggest that another recession is upon us.
5) No Housing Recovery
The stock market crash of 2011 is starting to resemble the stock market crash of 2008 in one key way: Bank stocks are leading the decline. Since the start of August, banks deemed “too big to fail” like Citigroup and Bank of America have sold off twice as hard as the overall stock market.
It’s easy to see why. Banks are sitting on millions of properties listed on their balance sheets at pre-housing crash prices. If all these properties hit the market at once, prices would have to fall substantially. If the banks have to sell them at a loss, they’ll take a hit to their balance sheet at a time when they’re still trying to improve it.
A housing recovery can spur job growth for construction jobs, real estate agents, and businesses in new communities. But we currently have a housing glut that will take several years to work through.
Until then, without a housing recovery, it’ll be tough for the overall economy to recover. That means the stock market is in for a wild ride and low interest rates are here to stay.
While these five reasons aren’t a comprehensive list of the problems weighing down the stock market and keeping interest rates paltry, they should give most investors a reason to stay cautious over the next few months.
Based on the market’s action and recent economic data, it’s more likely than not we’re entering a double-dip recession. Stay heavy on safe investments and don’t give into the fear.
Publisher’s Note: For a limited time, Newsmax and Moneynews are airing Wiedemer’s exclusive interview presentation. Over one million Americans have seen the evidence and learned how to weather the stock market, secure interest rates, and save their financial future. Watch it now.
© Moneynews. All rights reserved.
Read more: Five Reasons for the Stock Market Crash and Zero Interest Rate
Important: Can you afford to Retire? Shocking Poll Results
It’s said that the stock market climbs a “wall of worry.” Because the stock market is trying to predict the future success or failures of various companies, it sometimes gets things wrong. Horribly, terribly wrong.
With the Dow Jones Industrial Average falling like a rock, with wild swings not seen since the stock market crash of 2008, many investors are on the verge of panic. It’s easy to see why. The Federal Reserve is committed to keeping interest rates near zero until mid-2013 at the earliest. Those low interest rates penalize investors on a fixed income who don’t want the risk of the stock market.
Publisher’s Note: In an exclusive interview presentation, Aftershock 2012, Robert Wiedemer outlines a dire financial warning along with a comprehensive blueprint for economic survival. Over one million Americans have seen the evidence and learned how to weather the stock market, secure interest rates, and save their financial future. Watch the video now.
 |
| Robert Wiedemer discusses stock market and interest rate in Aftershock video. |
1) Current Debt Crisis in Europe and the United States
Between record high bond rates in Greece, Spain, Portugal and Ireland, the eurozone has its hands full in dealing with too much debt relative to the size of its various economies. As a result of the poor bond performance from these countries, Europe is on the cusp of plunging into a banking crisis. Such a crisis could send interest rates soaring for “prime” countries like France and Germany, not to mention throw the continent into a recession.
Across the Atlantic, the United States isn’t faring much better. The recent debt ceiling drama concluded at the 11th hour, with very little in the way of true cuts. Instead, the government has promised to cut future growth, which may or may not even occur. No wonder S&P downgraded U.S. debt!
Ultimately, it isn’t risky assets like stocks that cause economic problems. Markets sell off when seemingly safe assets are suddenly recognized as significantly riskier than they were once perceived.
2) United States Government Is at an Impasse
As part of the recent debt ceiling deal, Congress approved the creation of a bipartisan super-committee comprised of 12 members to fast-track legislation. The constitutionality of such a committee is dubious at best, but it’s just one way for Washington lawmakers to pass off responsibility and avoid tough decisions.
It doesn’t end there. The Federal Reserve has tried two rounds of “quantitative easing,” a scheme to buy up excess debt. The rationale was that it would get the U.S. economy back on track. Instead, this plan juiced the returns of the stock market, and sent gas prices and grocery costs soaring.
Meanwhile, Congressional Republicans are calling for the ouster of Treasury Secretary Tim Geithner as a consequence of the U.S. losing its S&P AAA credit rating.
In other words, it’s business as usual for the government: trying to fix a crisis that’s largely the result of its own poor oversight, while avoiding any responsibility for causing the problem in the first place.
3) U.S. Unemployment Is Running Over 15%!
As long as the U.S. economy isn’t creating enough new jobs, it will stagnate. Although the unemployment rate has declined from the double-digit rates it hit in 2009/2010, many astute individuals have noted that the latest unemployment report is inaccurate.
Using the measurement for unemployment used by the government up until the early 1980s, true unemployment is running over 15%!
Meanwhile, many thrown out of work have exhausted their unemployment benefits, which in some cases lasted as long as 99 weeks. Once off unemployment, they officially disappear from the official unemployed list, making the job market appear better than expected.
Adding millions of jobs would be the best economic stimulus possible. It would allow millions to loosen their belts and spend more, which would be a huge boon across the entire economy.
Publisher’s Note: Author and esteemed economist Bob Wiedemer accurately predicted these events more than four years ago. Over one million Americans have seen the evidence and learned how to weather the stock market, secure interest rates, and save their financial future. Watch the video now.
4) United States Has No Economic Growth
Historically, the Federal Reserve has cut interest rates to increase economic growth. That’s because lower interest rates make it easier for individuals to borrow money to buy cars, houses, start small businesses and the like. However, there’s been nearly no growth since the United States plunged into a recession in 2008. And the Federal Reserve can’t cut rates any lower.
There’s no doubt in the minds of many market participants that more Fed easing policies are on the way, especially after America’s first-quarter GDP was revised from 1.9% to 0.4%.
The stock market’s moves are highly dependent on economic growth. If an individual company can post huge growth numbers, its shares tend to go up, and its shares tend to decline when growth stalls. When a country’s GDP is stagnant, investors don’t know what to expect. Hence the recent stock market plunge, as economic data may suggest that another recession is upon us.
5) No Housing Recovery
The stock market crash of 2011 is starting to resemble the stock market crash of 2008 in one key way: Bank stocks are leading the decline. Since the start of August, banks deemed “too big to fail” like Citigroup and Bank of America have sold off twice as hard as the overall stock market.
It’s easy to see why. Banks are sitting on millions of properties listed on their balance sheets at pre-housing crash prices. If all these properties hit the market at once, prices would have to fall substantially. If the banks have to sell them at a loss, they’ll take a hit to their balance sheet at a time when they’re still trying to improve it.
A housing recovery can spur job growth for construction jobs, real estate agents, and businesses in new communities. But we currently have a housing glut that will take several years to work through.
Until then, without a housing recovery, it’ll be tough for the overall economy to recover. That means the stock market is in for a wild ride and low interest rates are here to stay.
While these five reasons aren’t a comprehensive list of the problems weighing down the stock market and keeping interest rates paltry, they should give most investors a reason to stay cautious over the next few months.
Based on the market’s action and recent economic data, it’s more likely than not we’re entering a double-dip recession. Stay heavy on safe investments and don’t give into the fear.
Publisher’s Note: For a limited time, Newsmax and Moneynews are airing Wiedemer’s exclusive interview presentation. Over one million Americans have seen the evidence and learned how to weather the stock market, secure interest rates, and save their financial future. Watch it now.
© Moneynews. All rights reserved.
Read more: Five Reasons for the Stock Market Crash and Zero Interest Rate
Important: Can you afford to Retire? Shocking Poll Results
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