how come ?

Discussion in 'Economics' started by Vegon, Mar 19, 2008.

  1. Vegon


    While the source of the current fall in equity value is the U.S credit crunch - housing market, and US entering a recession , how come the Asian and European indices take a bigger fall compared to u.s indices cac40 is down around 24% since July 07 pike, the BEL20 is down 21.6% the NK250 is down around 30%, however the DJ is down only 12% the S&P down around 14% ?
  2. European equity markets see through Trichet and Weber's charade and know Euroland's economy will be in deep trouble later this year. Plus EUR strength hurts automakers and machinery stocks. Japan gets hurt because global risk aversion is inflating the value of the JPY thus hurting the Japanese export economy.

    Also don't forget that e.g. the DAX30 (Germany) was up 25+ % in 2007 while the SP500 was up ~5%.
  3. CStar


    Ask yourself what their government did or didn’t do to stop the fall of their equities? Japan was down to 0%, so how do you cut to stimulate there? Ask yourself what happened to the U.S. capital markets when the dot-com bubble burst around 911. The Fed couldn't act quickly enough then, so the markets took a normal course of panic response. They didn't crash, they just retreated by the same percentages you quoted.

    I see too much Fed interference with rate cuts and not enough work on pushing the loan companies to fix the problem they contributed to because of the last Fed fiasco, where the Greenspan rate cuts fueled the housing market bubble. All the economy had to do then was to naturally recover from 911 but no, unwise Fed intervention just put the U.S. in the state it is now in and the Fed further failed to realize there were so many unsafe credit practices going on.

    Now the Fed is working with Freddie and Fannie to allow them more power to 'fix' the situation. I hope that increase latitude comes with stiff restrictions to further unwise practices or they are just putting the crisis off longer instead of fixing it. So far, Bush and Bernanke are on my list of idiots the U.S. would be better without.. Bush will never make it off that list but I hope Bernanke can. Working more with banks is at least a better direction than killing the dollar and making a commodity bubble. The chicken way out is to try to fuel wage inflation. That way, 1,000,000 three-bedroom homes look affordable 5 years in the future. (U.S. late 1970’s, early 1980’s after stagflation.) I’d rather see a more intelligent solution this time around. That is if anyone in power has ever heard of learning from past mistakes.
  4. That may be so, but in real terms the S+p is down 70% from its all time highs.
    Bernanke is printing so much money that he could cause the Dow to go to 25000, but at the same time cause hyper-inflation, and an eventual deep deep recession, when interest rates have to go to 15 or 20% to stop inflation, and no one can be borrowed for growth and no one will have any money, because the cost of living will be so high.
  5. CStar


    I see this slingshot effect you wrote about but I don't think it will happen because I doubt businesses are going to take advantage of these low rates to grow right now. I see more mergers and acquisitions ahead to move the market up but that is an overall negative effect for consumers and could also create more upward pressure on inflation. Right now the cost of doing business is getting too high. Until that comes down or profitability increases from other means, I don't see the growth.

    It is ironic that the DOW didn't do better because of what was fueling the economy, the housing bubble. So much money to be made in real estate made the market a step child in my opinion. I stated a while back that the DOW would improve as soon as people realized the housing boom was over. That proved to be true, at least initially true until the whole credit crunch started eating away at stocks, too.

    I'm with you 100% that if this Fed doesn't get rates back up soon that another bubble is going to occur. You might be right, it might be stocks but I'm thinking more in the way of commodities.

    In any case, fears drive markets down as much or more than enthusiasm and confidence drives them up and the U.S. has done a terrible job of offering investors or consumers confidence in this crisis.