Why the stock markets keep falling
Here's a typical economist speak WSJ article touted as a "primer" on how the Fed injects money into the economy. It is incomprehensible. Frankly, the bemused comments are hilarious. The simple reason markets continue to collapse is just bad news:
Asian markets are crashing Wednesday morning following the US fall Tuesday. Investors in all countries are getting hammered by subprime CDO holdings. More significantly, subprime's deleterious effects are poisoning consumer demand for all kinds of consumer goods.
- Basis Capital, Australia, warns one of its hedge funds may exceed 80% - 8/15/07
- Mitsubishi UFJ and Sumitomo Mitsui, two of Japan's three biggest lenders, plunged to two-year low after reporting losses associated with subprime.
- Toyota Motor Corp. and Westfield Group, the world's largest shopping center owner, slid after Wal-Mart Stores Inc. cut its profit forecast, adding to evidence that U.S. demand is cooling.
- In the US, hedge fund investors this week have a window of opportunity to exercise their redemption clauses and withdraw money. This is tantamount to a bank run and Sentinel Management Group moved to halt redemptions so it wouldn't have to sell securities at deep discounts.
- Walmart and Home Depot cut earnings outlooks.
UPDATE 8/15/07 8:00pdt: The Dow opened slightly up this morning presumably because some investor BOUGHT asset-backed commercial paper from Coventree, a Canadian company on the ropes the past two days because it couldn't find a buyer. Note there was no PR mention of subprime, all debt obligations have fallen under suspicion during this credit crunch.
Technorati Tags: coventree, credit, subprime, Fed, walmart, home depot, basis capital, central banks
Perhaps in an attempt to elucidate, it turned out garbled. All hell broke lose in the comments section. Some, if not most are obviously lost or has no basic understanding of how the Fed works. For those who understand, the article made it confusing to follow. It's gibberish.
It is understandable that there are no buyers. The market is too fragile at this stage. Too risky?
For us here in Asia, stock market has been down for two weeks.
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I would argue that what the "core rate" is less than accurate in indicating inflationary pressures. While the Fed might be under pressure to make a rate adjustment. In the long term such an action would add to inflationary pressure s and have a harder impact the U.S. economy.
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Great comments in that WSJ article. Very funny.
Don't like the Fed? Vote for Ron Paul - he's promised to get rid of the whole institution.
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Hey Pat - doesn't it seem the more transparent real estate gets, the thinner the margins are, for everyone?
...even the foreign investors?
Obeoman
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Yes margins do get thinner... that's why transparency is unnatural for any cartel. Transparency is good for the outsiders. Foreign investors of course benefit greatly from transparency because they don't get screwed by the locals... I'm all for shaving margins off entrenched, inefficient, secret handshake services.
I guess we're talking about philosophical insights. You see, I'm an outsider... and outsiders always want to see a level playing field.
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Pat,
Perhaps it is a philosophical insight into a brutal reality - who has the good information and how does the market separate that out from the noise?
Ultimately the money follows the market,no matter how thin the margin.
Obeoman
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