Message Font: Serif | Sans-Serif
No. of Recommendations: 6

If only America was having economic problems, I'd say we could solve it by 2009 and move on upward. But this is a global biggie, and we may be the leader downward in an increasingly spiraling situation.

Is this a stock market phenomenon or is a problem with the economy?

The great crash in Oct87 was purely a stock market phenomenon. Someone figured that if they sold the stock futures short, they could trigger a cascade. It worked and stock fell about 20% in a day, but it didn't affect the economy. Stock recovered and were actually up for the year.

9/11 hit Wall Street hard. When the market re-opened selling was heavy for about 10 days, but we had an incredible relief rally in Oct01 and Nov01. NYC was hurt by 9/11 but the overall economy just shrugged it off.

The financials have been in crisis for over a year. The problem has just recently spread into over sectors because lenders are being cautious in this environment.

If this problem persist for a few more weeks until the Fed and the Treasury start repairing the damage that they've created, the net impact on the economy will be minimal. People will simply defer buying cars and other big ticket items until it's easier to finance such purchases.

If the problem lasts for months, then it will affect job creation and major business projects (i.e, capital spending.) The result will be a short recession.

I think the most likely outcome is the first one. The fourth quarter will be weak, maybe even negative growth, but the economy will rebound strongly in 1Q09. Earnings estimates will be lowered over the next few weaks but revised back up ater the ER/CC in Jan09.

Print the post  


What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.