Friday, May 21, 2010
Stock Market Plummeted Again
The stock market has seen dramatic downturn in last few days. S&P index, for example, plummeted to 1076.51 (as of 11:10am on 21st May) from 1136.94 on May 17. People attribute this sudden fall to many factors such as, uncertainty in some European economies, falling expectations for real GDP growth, oil price decline, and so on others. Among these, national debt crisis in Greece seems to be dominant for this situation. The Greece news has been on the center of world media for last couple of months. While Greece alone does not have that strength to produce big effect on stock markets, the important thing to note here is that the problem of Greece is not the problem of Greece alone but the problem is of entire Europe. The symptoms have already started spreading out, and Portugal and Spain have already been victimized. People have fear that the crisis might grip the entire Europe sooner or later, the sentiment of which appears to be reflected in the stock prices. The recent fall in oil price may also explain this situation, as justified from people’s expectation that the real GDP will decline not only in Europe but also in the entire world.
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Petrica Molnar:
ReplyDeleteI think what is happening with these foreign countries like Spain and Portugal who are in the EU, is that individual investors are losing their trust in the security of their investments made in EU system. Before we believed that Government Securities had potentially no risk because the Government could easily raise taxes or print money to pay their debts. Greece has now shown us otherwise, as the Greece government is filing for bankruptcy. Big market countries like Germany now have to wonder what might have gone wrong, and how the EU failed to regulate Greece to prevent this situation. Right now their are many questions and not to many answer. Investors are now at a stand still, they worry that their money is not safe, and so they choose not to invest and people are investing less in everything.And because foreign investment and U.S. markets are so closely tied we have dramatic downturn in the stock market and oil prices. Hopefully they find the answers, and prevent a EU government run. I use this statement as a similarity to the bank run we had before the great depression. Will people choose to opt out of their Government securities in the EU and potential trash their Economic system. Stay tuned to find out.
I believe the problem with the stock market is very much linked to the uncertainty in the economy. Economies worldwide are challenged and people are looking for a magic bullet to fix it. We have become accustomed to having everything we want instantly therefore; we don’t want to walk this situation out in a manner that would ensure permanent economic sustainability. Because in many cases, the price of stock was inflated and households and investment firms lost money, we are attempting to get the stock market back to where, in my opinion it never should have been, a place of being once again over valued. It appears that the United States is not alone in this unfortunate financial fiasco. Greece and other countries made similar mistakes and because many of the world’s economies are interwoven, it appears that international economies are impacting the U.S. economy. Personally, I do not believe that international economic woes are the main reason for U.S. stock market challenges. I believe internal corporate challenges and uncertainty of how the Obama administration might impact financial policies and regulations play a bigger role in our economic challenges.
ReplyDeleteAvadella White
The financial problems in Europe, the effects on the EU and the Euro, and the subsequent declines in the market in the United States, exemplify how truly interconnected our world has become. Since this post there have been additional declines in the market resulting from China’s concerns about investments in Europe and its substantial euro currency reserves. I believe there is a valuable lesson to learn from these events as the United States is currently making many of the same mistakes. It will be interesting to see how these events unfold and whether or not the crisis in Europe will force the U.S. economy into a decline.
ReplyDelete-Matthew Moore
There are many reasons for the recent stock market decline this May. Of these reasons, the primary is a lack of market efficiency which created panic among bidders. They panicked so much that they were selling stocks when they were low. The economy of the United States is in good shape and is making a gradual climb but is it going to pick up great steam in the short run? No. There are numerous companies making money and thriving however, employment rates are not increasing to match the re-growth of the companies. The reason for this is that there are many questions that the government has yet to answer, such as next year’s taxes rules and regulations and the cost of health care for companies and how much it will cost for them to have the ability to provide insurance to their employers. These and others will affect how many employers the businesses can afford to employ. The Greek protest was a major contributor to the sharp stock market decline. Keep in mind our currency, the American currency, is the reserve currency of the world. With that thought it is clear to see how foreign events dramatically affect our economy. The fear of a huge Greek debt crisis was an evident example of this as the Dow dropped approximately 1000 points in 15 minutes.
ReplyDeleteWith the stock market recacting the way it did the to the evenets around the world, it shows us how every country can effect other countries economies. Even with Greece itself not being a large economy it has had a large effect on the world economy. It being part of the European Union, and using the Euro. The fear of the Greek debt crisis has hurt the Euro in the finianical markets. With that other markets are either directly or indirectly hurt becuase of the crisis in Greece. This in why the US stock market has taken a turn dowm.
ReplyDelete-Nathan Howe
The European market was bound to take a hit when Toyota announced in January of 2010 it was recalling up to 1.8 million cars across Europe, including about 220,000 in the UK, following problems with defective accelerator pedals. Toyota Motor Europe NV/SA (TME) oversees the wholesale sales and marketing of Toyota and Lexus vehicles, parts and accessories, and Toyota’s European manufacturing and engineering operations. Toyota directly and indirectly employs around 80,000 people in Europe and has invested over €7 billion since 1990. Though these recalls are voluntary and are a preventative measure, it still places a bad light on the company as a whole. With the decreased sales of the popular Lexus and the halting of production of their popular vehicle in order to fix the problem cars already on the road, financially, fixing all of these problems along with the suspension of production as well as the low market already, has a nice price tag with a delay in recouping its investment. Unfortunately for Europe and the rest of the world, the recovery in the markets is slow with many stumbling blocks.
ReplyDelete-Alysia J. Sturges
None of the nations including the US are willing to address the core problem of debt. The current debt of US is 60% of its GDP. The crux of the PIIGS (Portugal, Ireland, Italy, Greece and Spain) problem is that for years, these economies have accrued huge debts (Greece and Spain almost 100% of its GDP). The manner in which UK debt is increasing, it is sure to join the PIIGS bandwagon very soon, which may lead to negative growth throughout Europe and later US. Because of the debt crisis, many financial pundits are speculating slowdown of the world economy in the coming years. Investors continued to shun bonds of Greece, Portugal and Spain, pushing yields on these countries' bonds higher. This lead to a huge sell-off in the world stock markets (in the last two months) starting with Europe, and spreading to US and Asia, which resulted in a steep drop of the Dow jones index by almost 1000 points. Also crude oil prices are seeing a downtrend, because of the speculation that stimulated world GDP growth may not be sustainable.
ReplyDeleteAntara Majumder
Renell Anderson
ReplyDeleteRelated to your post:
1) “Failing expectations for Real GDP growth” is an absolutely valid concern considering GDP = Pb (Volume), where Pb represents a fixed price it is highly unlikely that the identified countries will see the necessary growth to cover the debt problems that they are experiencing.
2) Contagion fear and the disappearance of the needed public confidence in the debt structures in that region will continue to have adverse effects on Asian, and US markets even though the EU has pledged a “TARP” like trillion dollar bailout. This is primarily because even though the EU will probably buy most of Greece’s, Portugal, and Spain’s toxic debt (bond issues), those economies must still make the necessary changes in their annual expenditures to curtail the continued need for financing their infrastructures that was behind them getting in the adverse debt ratios that they are in now.
3) Ultimately all markets around the world are significantly dependent on positive perception of fiscal healthiness in order to be able to support the needed external financing and repayment patience associated with government repayment structures. The ability to develop and sustain self supporting budgets that will maintain the appropriate Real GDP / dept ratios while making the lender desired return on investment payments will be part of the many challenges confronting global governments and markets.
4) The notion that borrowing against future earnings at extreme levels with unrealistic repayment terms has been at root of personal, business and governmental dilemmas for decades. This faulty reasoning must be minimized in the future.
Related to your post:
ReplyDelete1) “Failing expectations for Real GDP growth” is an absolutely valid concern considering GDP = Pb (Volume), where Pb represents a fixed price it is highly unlikely that the identified countries will see the necessary growth to cover the debt problems that they are experiencing.
2) Contagion fear and the disappearance of the needed public confidence in the debt structures in that region will continue to have adverse effects on Asian, and US markets even though the EU has pledged a “TARP” like trillion dollar bailout. This is primarily because even though the EU will probably buy most of Greece’s, Portugal, and Spain’s toxic debt (bond issues), those economies must still make the necessary changes in their annual expenditures to curtail the continued need for financing their infrastructures that was behind them getting in the adverse debt ratios that they are in now.
3) Ultimately all markets around the world are significantly dependent on positive perception of fiscal healthiness in order to be able to support the needed external financing and repayment patience associated with government repayment structures. The ability to develop and sustain self supporting budgets that will maintain the appropriate Real GDP / dept ratios while making the lender desired return on investment payments will be part of the many challenges confronting global governments and markets.
4) The notion that borrowing against future earnings at extreme levels with unrealistic repayment terms has been at root of personal, business and governmental dilemmas for decades. This faulty reasoning must be minimized in the future.
Renell Anderson
Many years of unrestrained spending, cheap unaccountable lending and clear and obvious failure to implement financial reforms have left Greece badly exposed for the occurrence of the global economic downturn. This uncovered what former President George W. Bush would call "fuzzy math," fudged and erroneous statistics that revealed debt levels and deficits that far exceeded limits set by the EuroZone. The national debt, believed to be 300 billion Euros, which equates to around 414 billion dollars, is larger than Greece's entire economy, with some estimates predicting it will reach up to 120% of GDP this year. Greece's credit rating has been downgraded to the lowest in the EZ, meaning it will likely be viewed as a financial black hole by foreign investors. This leaves the country struggling to pay its bills as interest rates on existing debts rise. With the financial markets betting the country will default on its debts, this reflects badly on the credibility of the euro. The present fears that financial doubts will infect other nations at the low end of Europe's economies, with not only Portugal and the Republic of Ireland coming under scrutiny, are well founded.
ReplyDelete-Javier Janbieh