Bell Curve The Law Talking Guy Raised by Republicans U.S. West
Well, he's kind of had it in for me ever since I accidentally ran over his dog. Actually, replace "accidentally" with "repeatedly," and replace "dog" with "son."

Wednesday, August 01, 2007

Six Percent

On July 19, the Dow Jones Industrial Average crossed 14000 for the first time--but now it has now fallen 800 points. The S&P 500 also reached a record high on July 19 at 1553--but has now plummeted 100 points. The Nasdaq Composite index also peaked on July 19 at 2,718--but has now fallen 170 points. In other words, all three major U.S. stock indices peaked simultaneously and have now fallen 6% or more in just eight trading days.

Worldwide we see the same thing. The Australian Stock Exchange index (S&P/ASX 200) suffered same percentage fall from its high on July 24, including a 3.3% plunge yesterday unequaled since Sept 17, 2001. The FTSE 100 in London was trading at or near record highs throughout most of July, but since July 20th it has also fallen over 6%. Similarly, the Nikkei 225 fell the same percentage over the same period.

I am no expert, so perhaps this means nothing, but I am concerned that this might be the leading edge of a worldwide slump. If so, I wonder what effect that might have on the U.S. Presidential primaries next year. Traditionally, a faltering economy is good for the opposition... could the Democrats take the White House but lose Congress?


Raised By Republicans said...

Dear Chicken Little,

Don't worry. In all likelihood, it was just a bit of profit taking.

The really nasty slump will start when the Baby Boomers really start to retire (and liquify their stock portfolios) en masse. Recent stock market sluggishness may have postponed that time somewhat.

Dr. Strangelove said...

You're probably right, but for some reason this still nags at me. Interesting point about the Boomers... I've never heard "liquify" sound quite so ominous before :-)

The Law Talking Guy said...

The indices are still way above where they were one year ago (Dow at 11000).
Check out:

The real danger to the economy, I think, continues to be the serious credit crunch rippling from the housing sector. The good news is that interest rates are too low for there to be that much of a crunch, I think.

Dead Parrot said...

Politically, the major economic issues are inflation and unemployment. Both are under control right now. I don't see either as a risk to the Republicans or an opportunity for the Democrats.

As a point of contrast, Bush 41 and the Republicans were severely damaged leading up to the 1992 election when the unemployment rate had gone up from 5.2% in June 1991 to 7.8% in June 1992. The economic uncertainty and angst seemed to play right into Clinton's message.

Right now, the unemployment rate is 4.5%. A year ago it was 4.6%. We are operating at full employment. With so many people drawing a paycheck, I think it will be hard for the Democrats to dent the Republicans on economic issues.

USWest said...

I find it interesting that while all the economic indicators are good, GDP growth, Productivity, employment, inflation, etc., the stock market is looking bearish. Is this a sign that the finance sector is becoming oddly divorced from the overall economy? Is this what happens when there are huge wealth gaps in an economy based on credit?

I agree with RBR, and he does make an interesting point. What will this mean for those of us coming up the rear with IRAs and 401Ks?

I would also point out that in the past, wealth was based on the actual production of something tangible. Now it is largely based on services and investment. It is sort of abstract in nature.

I also think that a market readjustment is a good thing. When working people can’t save enough for a down payment on a home, there is a problem. I don’t care how low the interest rates are. Since the loan market is going to pretty much tighten, more people will be shut out of the market simply because they won’t qualify for traditional loans or have the down payment needed to secure a fair mortgage. One is damned either way.

Anonymous said...

The general economic fundamentals are good across the world, but it is well recognised that there is an excess of "liquidity" in the system. Asian countries have been buying US treasury bonds so there won't be another Asian collapse, oil producing countries have to buy something from their tangible profits, and Japan still has a very low interest rate. From what I've read, small change will occur due to the current credit issues, but the liquidity in the system probably will not alter until Japan starts raising it's rates. That could alter the profits of service and financial industries that will flow on to a bear economy. But what do I know?

The other concerns to the whole economic situation is the current housing bubble across the western world -- not Asia -- that will bite. Hopefully governments will manage to contain things enough so that houses are simply not good investments for the next ten years.

I also think, as mentioned previously on this blog, that another issue is when -- not if -- the US dollar either loses or has to share reserve currency status with the Euro. That'll probably require the French getting their act into gear first...

Spotted Handfish

Raised By Republicans said...

Look for a real estate crash in China after the Olympics.