1. Most Discussed
  2. Gainers & Losers

US - Why the Market is down

  1. bligh007

    577 Posts.

    From http://www.comstockfunds.com

    Why The Market Is Down--The Real Reason
    Although the market decline of the past two days is being attributed to the terrorist threat, we suspect that the high valuations, lack of profits and the fragile economy are more to blame. After all, following September 11, when did the terrorist threat ever recede? If it did, somebody forgot to tell us at Comstock. We think the financial powers that be would rather blame the poor market performance on anything else rather than admit the dreadful fundamental and technical conditions currently facing the market.
    The Conference Board leading indicators and the chain store sales report added to the increasing amount of evidence that the economy is faltering. After holding even for three months the leading indicators for April fell to its lowest level since December. Chain store sales declined slightly, but it was the third drop in the last four weeks and the fifth in the last eight weeks. With the labor picture also weak, it is likely that the tepid chain store numbers are reflecting a harsh reality. Now that the macro numbers are hesitating it is becoming increasingly apparent that America’s CEOs may be on to something when they insist they see few signs of economic recovery.

    The economy began to slow down in 2000, went into recession in March 2001, and was still declining at the time of the September 11 attack. Following the attack the economy came to a virtual halt, and then began to bounce back, aided by a number of one-time events. These were zero-rate auto financing, heavy discounting on general merchandise, a big increase in the money supply, the 2001 tax rebates, heavy mortgage refinancing (REFI), an unusually warm winter, lower oil prices and recent tax refunds. All of this helped clean out excess inventories, and resulted in a big inventory swing that was a main component of the strong first quarter growth.

    Now these one-time temporary lifts are gone, and it is doubtful that the economy can grow once the inventory swing ends. In order for the recovery to take hold and continue, corporate spending must come back strongly, and this looks highly unlikely. Corporations are suffering from excess capacity, lack of pricing power, narrow profit margins and record debt burdens. As a result they are continuing to slash costs for labor, capital expenditures and general expenses. If anything, layoffs can negatively affect consumer spending long before consumer spending leads to any kind of corporate rebound. All in all, it is no coincidence that the stock market is down 16 months after the Fed began to ease. That last happened in 1929 to 1930.

Before making any financial decisions based on what you read, always consult an advisor or expert.

The HotCopper website is operated by Report Card Pty Ltd. Any information posted on the website has been prepared without taking into account your objectives, financial situation or needs and as such, you should before acting on the information or advice, consider the appropriateness of the information or advice in relation to your objectives, financial situation or needs. Please be aware that any information posted on this site should not be considered to be financial product advice.

From time to time comments aimed at manipulating other investors may appear on these forums. Posters may post overly optimistic or pessimistic comments on particular stocks, in an attempt to influence other investors. It is not possible for management to moderate all posts so some misleading and inaccurate posts may still appear on these forums. If you do have serious concerns with a post or posts you should report a Terms of Use Violation (TOU) on the link above. Unless specifically stated persons posting on this site are NOT investment advisors and do NOT hold the necessary licence, or have any formal training, to give investment advice.


Thank you for visiting HotCopper

We have detected that you are running ad blocking software.

HotCopper relies on revenue generated from advertisers. Kindly disable your ad blocking software to return to the HotCopper website.

I understand, I have disabled my ad blocker. Let me in!

Need help? Click here for support.