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October 13, 2008
Ten Reasons the Stock
usual the mainstream media has done a great job of sensationalizing the
dramatic drop in the stock market over the last two weeks. As usual,
they have done a poor job of reporting many of the reasons it is
The emergency financial rescue legislation passed by Congress less than
two weeks ago was never intended to be an instant cure for our ailing
economy, but some people have criticized the package because it was not.
Wake up people! This is not a movie. This is real.
Here are 10 factors driving down the domestic stock market:
resetting their lending guidelines.
companies (Fortune 1000) are revising their fourth-quarter earnings
outlook downward. Stockholders are expecting this.
large companies may suspend their fourth-quarter dividend payout to
conserve cash, and they may make sizeable job cuts.
portfolio managers are attempting to cut their losses, out of panic and
fear of not knowing where the bottom is going to be.
fund managers are trying to maximize their cash, because they are trying
to sustain pension payments.
businesses are trying to hang in there until the credit market thaws out
before being forced to start laying people off.
of the emergency $700 billion (plus tax extenders and pork) rescue
package have not been implemented yet.
uncertainty and panic selling are contributing to a downward snowballing
markets are experiencing the same effects, which impacts our domestic
markets and vice versa.
a general negative outlook for 2009 due to the poisonous political tone
in Congress, and negativity in the presidential campaigns.
These are just some of the more obvious factors driving the stock market
down. Some of the not-so-obvious reasons are risky financial
instruments, called derivatives, which are used by financial
Over-valued and bundled mortgage-backed securities are examples of such
derivatives, which have backfired and imploded on some lending
institutions’ balance sheets.
Can we say Fannie Mae and Freddie Mac?
until a month ago, most of Main Street America didn’t even know what
Fannie and Freddie were, but now they do. And they are learning more and
more about them every day, and the role they have played in setting off
the national financial crisis.
The stock market will bottom out sooner rather than later, because there
is real value in millions of real products and services, which are being
produced and provided by real businesses and most importantly, real
It’s called economic resiliency.
Businesses large and small, banks, credit unions, mortgage companies,
stock market traders, portfolio managers and investors are all
redefining “business as usual”.
Lending institutions will start lending again, businesses will readjust
their operations, consumers will keep buying stuff, and we will begin to
bounce back when a collective calm starts to offset some of the fear and
irrational decisions by some people in the financial markets.
The U.S. economy has more economic resiliency than any other economy in
the world, because of our free markets system, ingenuity,
entrepreneurial determination, and the underlying winning will of the
have been shaken, but not stirred.
© 2008 North Star
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