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Author: JamesWAllen Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 6364  
Subject: Re: Dow: then 11400, now 8579 Date: 10/10/2008 1:34 PM
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Larry,

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.

Jim
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