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risk
by leon on October 13, 2008
With forecasts that the world is headed for its worst recession in 25 years, if it's lucky, the Huffington Post has run a timely piece on the ones who predicted the economic firestorm.
They include New York University economics professor Nouriel Roubini ("A 1987 style stock market crash could occur leading to further panic and severe financial and economic distress. In this meltdown scenario US and global financial markets will experience their most severe crisis in the last quarter of a century"), Warren Buffett five years ago ("Derivatives generate reported earnings that are often wildly overstated and based on estimates whose inaccuracy may not be exposed for many years ...Large amounts of risk have becomes concentrated in the hands of relatively few derivatives dealers ... which can trigger serious systematic problems"), Joseph Stiglitz ("The economy's weaknesses were concealed by the Federal Reserve, which pumped in liquidity, and by regulators that looked away as loans were handed out well beyond borrowers' ability to repay them. Meanwhile, banks and credit-rating agencies pretended that financial alchemy could convert bad mortgages into AAA assets, and the Fed looked the other way as the U.S. household-savings rate plummeted to zero. It's a bleak picture. The total loss from this economic downturn - measured by the disparity between the economy's actual output and its potential output - is likely to be the greatest since the Great Depression), and Paul Krugman back in 2005 ("How bad will that aftermath be? The U.S. economy is currently suffering from twin imbalances. On one side, domestic spending is swollen by the housing bubble, which has led both to a huge surge in construction and to high consumer spending, as people extract equity from their homes. On the other side, we have a huge trade deficit, which we cover by selling bonds to foreigners. As I like to say, these days Americans make a living by selling each other houses, paid for with money borrowed from China. One way or another, the economy will eventually eliminate both imbalances."
No one listened and now we pay the price.
Permalink: Forecasts of the economic disaster
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Response from:
Name: ThePowerStocks.com Team
(10/13/08 9:53pm)
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Here’s our market view on American stock market for 10th October, 2008
The stock market has collapsed - since Sept. 19 the DJIA is down 25% and the S&P 500 is down 28% and down 42% from a year ago.
How can this happen so quickly and so dramatically when so many good things have occurred? Oil is down to $82 a barrel; interest rates are very low; the dollar is up; valuation levels are extremely attractive among many blue chip stocks.
What's the real problem? The problem that is killing the stock market is a lack of hope about the future.
Hope springs from optimism that is based on facts and history. Look at the history of America and really all of mankind. Life is full of setbacks and problems - that's just the deal. But this too shall pass, as all scary periods have.
Doomsayers have been around forever and their batting average is zero. Buying stock is based on hope - hope for the future. If one doesn't have hope, they shouldn't be in this business.
So what is the best service we, as professionals, can provide for our clients?
First, discuss the fact that we are dealing with serious problems but it is not at all like 1929. The Federal Reserve and the Treasury Department are doing many things to restore confidence in the financial system. There is global coordination in attacking the problem, which is lack of confidence.
Tell your clients to look at history of our great nation and what has happened since 1776 when we faced very serious problems. The stock market actually rose steadily about six months after Pearl Harbor and until the end of WWII even though the outcome was not at all clear for several years.
No one knows when the stock market will bottom and a new bull will commence. We do know that stocks and mutual funds offer the best values we have seen since Black Monday, Oct. 19, 1987.
Almost all Americans have hope about the future of our nation, but they need help to control their normal fears.
ThePowerStocks.com Team
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