The stock market is NOT going to have a meltdown

[harry123]

I'm saying this not because I think the Feds will stop it from melting own, but because of historical data. Before I looked at the numbers I as pretty bearish on the market, but the numbers tell a different story.

A chart I have up on my site shows that there were only three major bubble periods when stocks should have melted down: 1929, 1987, and 1999. And each time the market got creamed.

What's more is the market correction we just experienced brought the market's medium-term return down the most we have seen since the Crash of 1987. Only one other period shows such a decline and that was in 1938 in the Great Depression. All of that should be somewhat comforting.

Check it out:

http://www.creditwritedowns.com/2008/08/chart-of-day-20-aug-2008-medium-term.html

[Trajan]

1. Is that the real problem ?

I don't think so ....

The problem is whether or not mothers and fathers can provide a decent life for their children .... The market has been reacting to the loss of buying power of families who have lost so much these last decades ... They are tapped out, and unable to spend the economy into health again ....

Wages ...

Health Care ...

Pensions ...

College funding ...

THESE are the problems that arent going to get 'fixed' by the stock market .....

FUCK the stock market : Take care of WORKING people, and wealthy people will get more wealthy, and the markets will expand .... Ignore the Middle class, and they will reduce the markets by not buying goods ....

[Virginia Dare]

2. The big problem is that pensions don't exist anymore..

and most people have their retirements tied up in the stock market. This was not by choice, but by design. So at this point we've got to take care of the stock market in order to take care of working people.

[harry123]

4. Yes, the 401K is the great risk reshuffle

I agree 100%. The risk reshuffle from defined benefit to defined contribution puts all the risk on the average worker to save for retirement. The market matters!

[Trajan]

8. Trickle Down has not worked ...

The market has reduced working men and women to near paupers, and have not provided an avenue to rebound from this: No wage increases ... no ability to purchase ... no ability to help grow the economy ....

IF the wealthy want to become more wealthy, then they MUST prime the pump at the bottom of the pool ....

There will be no turn around of the marketplace until families can buy durable goods again .... and I frankly do not see that happening any time soon ....

[Virginia Dare]

17. Another teensy problem..

the Chinese and the Indians now have the money to buy durable goods. They can now shop at Wal-Mart and they'll have plenty of them around in which to do so. The corporate overlords simply don't care about the American worker anymore. We can all go piss up a rope as far as they're concerned. Welcome to the global economy comrade.

[GoesTo11]

3. The stock market is my pension

OK, there's a lot of rich people who have a lot more than me, but I have no pension at all, just a 401k. As do the majority of people with any kind of retirement plan - defined contributions instead of defined benefits.

[Trajan]

6. Well then it behooves you ....

And ALL market investors ... to TAKE CARE OF WORKERS ......

Sometimes: Profits need to take a back seat to the needs of working people .... When the income of working families are STRANGLED by profit hungry investors, then the economy is STRANGLED by the loss of purchase power of those families .... There is a 'scratch my back and I'll scratch yours' component to this relationship ....

If citizens do not spend money, then NO ONE get's rich .... and the market takes a dive ...

There is a serious imbalance in the marketplace, thanks to conservative policies over the last 3 decades .... Since consumer spending forms some 2/3's of economic activity : There will be no rebound if workers do not get a decent wage ... Wage enough to buy things ....

I hope the best for you in your golden years, but without healthy families, there will be no return to the 'good old days' ...

[harry123]

9. You are pretty angry about the conservative power grab

I think a lot of people are. The US is a kleptocracy gone awry, plain and simple. For more on that read my post here:
http://www.creditwritedowns.com/2008/03/populist-interpretation-of-latest-boom.html

I say this below:

"Real Weekly Earnings peaked over 35 years ago in September 1972! Using the CPI to adjust wages to today's dollars, the average worker made $738.48 per week in September 1972. In January 2008, that figure was $598.18.

(Note: these figures are expressed in Jan 2008 dollars. I use the CPI Index to calculate real dollars, which is based on 1982-1984 dollars. But, I then multiply this figure by 2.1108, which represents the BLS's index factor for Jan 2008).

So, we are getting poorer. And we have been for over 35 years. Only during the end of the Clinton Administration was there an appreciable upswing in real weekly wages over this time period. Don't believe me? See the raw data yourself, here and run the numbers.

In the meantime, CEOs are earning hundreds of millions of dollars, even when they are forced to leave because of poor management which cost their firms billions. In 2005, the average CEO earned 262 times what an average worker gets. In 1965, that figure was 24 times (see story)."




But, we still need to make sure the markets reward retail investors and people with 401K's. That is what the political process is all about - making sure these things change.

[Trajan]

11. EXACTLY ....

That is exactly the point ....

I am glad you posted this: And to think of all the workers in the midwest who feel good if they gross $400.00 per week .... They have no idea what dire straits they are in ...

[harry123]

14. Here are two graphs on hourly earnings

http://www.creditwritedowns.com/2008/06/chart-of-day-real-hourly-earnings.html

Look at the top graph. You can see a massive decline in wage growth until midway through the Clinton Administration. That is just huge.

Again, this is why America needs to get the Republicans out of the White House. They are killing us. And I am NOT even a Democrat; I'm more of an independent Libertarian.

[Trajan]

16. I know this directly ...

My wages stalled under Reagan/Bush, and rose again through Clinton ....

I am currently working at 84% of my wage in 2001 ... 7 years later ....

I appreciate your input ... This is a critical element of the whole economics picture ....

Thanks ....

[GoesTo11]

10. What are you suggesting?

I don't have any workers. I can barely get my kids to clean their rooms.

My 401k pension is already likely to be modest. I won't qualify for hardly any social security. Us average folks can vote progressive and support progressive causes. We can - if we're lucky - choose a "socially responbsible" investment fund - many of these aren't really that good as far as I can tell.

But since we've got a system where many, many in the middle class have their retirement tied to the stock market, a crash would cause severe dislocation.

If I could make the rules, I would certainly want companies to treat workers well - first, I don't need them to squeeze out every possible cent of profit just to continually maximize share price, a small return would be fine, second, I don't think that screwing their workers is really good for companies anyway, it's just a substitute for hard-working, ethical and smart management. Putting ths together, we don't need a crash, it wouldn't be good for people overall, but we should not mind slowing companies' profits a little to make them socially responsible.

[Trajan]

12. IF you depend on the markets to rise in order to survive ...

Then you depend on market growth .... if so, you depend on profitability .. if so, you depend on the sales volume of merchandise and services .. if so, you depend on the ability of workers to buy merchandise and services ....

If you depend on the growth of the markets in order to survive - then you depend on the ability of workers to buy merchandise and services ....

It isnt about YOUR specific investments, but the health of the economy in general: and workers HAVE been reduced by current and recent policies that diminish their incomes ....

The tipping point has been reached: Workers cannot continue to buys goods, and sales have plummeted accordingly ....

You are missing the point entirely: It isnt a matter of how YOUR investments are structured, but about how the impacts of menial w3ages have finally come home to roost in the markets ....

No money ... no sales .... no profits ... no 401K increase ...

[GoesTo11]

13. Who has gained from workers' lost wages?

CEO's and senior management have gained a lot. My guess is that when it comes to outsourced jobs, they get a lot of it and a lot of it goes to corporate profits - but not necessarily shareholders. Instead, a lot of cuts come when a hedge fund buys a company and gets someone like Chainsaw Al Dunlap to fire a bunch of people and then take the company public again.

If a company raises its wages, its stock price won't really be affected. If most companies gave better wages, then stocks would go up because there would be more demand.

But that is unlikely to change. Oh well, I expect the worst from my 401k and my real retirement plan is to work as long as I have to and spend as little as I can.

[Trajan]

15. I totally agree ....

Those 'lost wages' have went somewhere, but I am not sure if they were spent in a way that would provide for future growth, or in a way that was a quick profit grab for personal enrichment ...

The move to outsourcing, and the lower wages expected by workers in other lands, DOES provide a boost to profitability ... but in the end: Can those new workers buy the products and services which American workers cannot afford any longer ? ... Can they make up the difference ? .... I dont see that ever being true ...

Because of a past merger: I am now a Boeing employee (on layoff) ... I see that the IAM and Boeing are at loggerheads over their defined pension plan, which the company wants to kill and replace with a defined contribution plan ... I have 24 years vested in that pension .... It is unfortunate that Boeing cannot see that the result of their plan would be a long term loss of purchasing power in the NW that would affect sales volume in the NW for decades to come ....

Even though their DB plan is worth 50 billions dollars and EXTREMEMLY successful (and a source of investment dollars in the marketplace) .. they are still willing to kill it for the immediate bottom line .... This is not a long term strategy that will bear fruit for anyone else but Boeing managers in the moment, but will also stifle the marketplace in years to come ...

[Virginia Dare]

18. Here's the problem Trajan..

you're looking at it as though other countries are trying to rise to our level. That is clearly not the case, it's been a race to the bottom beginning in the Reagan years.

We're dead to the corporate overlords, so why do we keep clinging to them?

I agree with you when you say that we need to get the repubs out of power and soon. We are going to need a NEW New Deal, and we need somebody with the courage and the muscle to institute it.

[Warpy]

5. Yes and no

No because there is still a lot of money out there looking for a home and one of the better places to sock it away is in the market. Remember, per share price is only part of the story. Per share dividend is the rest.

Yes because the market has lost half its value since 2000 through the 8 year decline in the value of the dollar. In other words, the crash has just about all happened. What will occur now is a shakeout of all the weaker, more indebted companies as the economy continues to contract. That will be the more painful part of the crash as investments evaporate into thin air as companies dissolve.

We've been here before. It's all pretty predictable. Until Washington takes the lead in overturning Reaganomics, it will continue to unfold.

[harry123]

7. The weaker companies include financials

I happen to believe stocks are already in a secular Bear market. With the dollar crash (and inflation), as you say, there have been extraordinary losses for foreign stock market buyers in particular. Does that mean we can't go lower? No. I think we can go a lot lower. But I'm not seeing Armageddon around the corner.

But that doesn't mean that a lot of companies won't hit the wall as you suggested. Financial stocks in particular are going to continue to take a beating. Many financials will cease to exist.

[Virginia Dare]

19. Agreed the entire financial market has been in a virtual bubble..

it's going to burst, and when it does, it will be ugly. An entire generation will lose what little nest egg it had. The prudent thing would be not to panic, but of course that will be everyone's first instinct.

[angryfirelord]

20. More failure ahead

Unlike previous years, we didn't have $9 trillion of debt (including all of the dollars owned by the Chinese) and the rampant expansion of corporate welfare under the Bush administration. Except much more trouble ahead, we've only hit the tip of the iceberg.

http://www.financialsense.com/Market/daily/tuesday.htm