What happens when the wheels come off something? The bottom usually falls out, next!
By Sam Johns
NEW YORK (BNW) If the stock market is an indication of how things are going in America, we all need to be shaking in our boots because we are on the same course that caused the Great Depression! With the collapse of the housing market because of the Sub-Prime Lending scheme and others factors that contribute to any countrys economic decline, it appears that the wheels have come off of the US economy and now the bottom is getting ready to fall out. As as a result... crash!
The worse is yet to come as a tidal wave of worry about housing and credit markets swept over Wall Street recently, sending the Dow industrials tumbling over 500 points this week. Its the second-biggest point loss of the year. There are only two emotions that drive the stock market greed and fear. Right now, fear has the high rollers selling off their stocks in mass.
"Uncertainty is not what the market likes," said Todd Clark, director of stock trading at Nollenberger Capital Partners Inc. in San Francisco. "Sell first and find out later - that's pretty much what happened today."
A glimpse of the Dow Jones industrial average after the 30-stock index plunged over 400 points Thursday afternoon amid fears about credit and housing markets.
The 30-share Dow plunged nearly 450 points earlier in the session before moving off its lows and closing down about 2.3 percent. The Dow sank 416 points on Feb. 27 on worries about slowing global growth.
The collapse of the US economy is incontrovertible and coming very soon. Because while others counties like China, Russia, Mexico and the rest of the world have been going the work every morning and stacking cheese, stupid Americans have been on a misadventure in Iraq fighting the war (sic) on terror.
The uncertainty that unnerved investors last week came mainly on two fronts: tougher times for the credit markets and another barrage of bad news for housing.
Tighter credit is troubling to investors for two reasons. It's likely to slow the buyout boom that's helped prop up stock prices. And it could raise the cost of borrowing for companies, hurting corporate earnings. Another problem with the US economy is that Americans do not save for a rainy day.
Why can't Americans save a dime?
According to a new survey released today by CardTrak.com, the median amount of credit card debt carried by Americans is about $6,600 while the mean (or average) credit card debt load is nearly $9,900.
Based on an online poll of slightly more than 55,000 consumers that concluded in April, 61% said they carryover debt each month on their credit cards, while 31% said they pay-off balances monthly and 7% stated they have no credit cards.
Of cardholders carrying debt, over 64% had balances under $10,000. However, an astonishing 13% of the same group said they carry total credit card balances in excess of $25,000.
Robert B. McKinley, head of CardTrak.com, says "While the average working stiff may revolve between $6,000 and $7,000 each month, the nation is bloated with credit card high-rollers who carry five-figure balances. "McKinley notes there has been much debate about the definition and calculation of U.S. credit card debt. However, the CardTrak.com poll results confirm the latest industry data.
At the end of 2006, Americans owed $745 billion on general purpose credit cards including $641 billion on VISA®/MasterCard® cards, and $104 billion on American Express®/Discover® cards, according to CardWeb.com (www.cardweb.com). Consumers also owed an estimated $105 billion on limited purpose cards or store/gas credit cards. In total, American cardholders owed $850 billion on all credit cards as of December 31, 2006, according to CardWeb.com (www.cardweb.com).
Furthermore, the latest revolving credit figures released by the Federal Reserve show Americans owed $888 billion in March, which includes lines of credit attached to checking accounts.
Of the $850 billion in credit card debt, about 18% is paid-off each month without incurring interest charges and about 3% is revolving business credit card debt, according to CardData (www.carddata.com). Discounting interest-free and commercial debt, Americans are revolving about $672 billion on all credit cards.
Of the nation's 111 million households, about 7% have no credit cards and 21% do not have a general purpose or major credit card. Discounting those who have no credit cards and those who only have a low balance store or gas credit card, there are 88 million households using credit cards today. Therefore, average credit card debt is $9659 per household ($850 billion/88 million
To date, there have been roughly 20 buyout-related debt deals that have been postponed as credit markets have tightened.
"The loan market is in a deep correction and investors are forcing deals to be reconstructed," said Faris Kahn, editor at Reuters Loan Pricing Corp., which tracks debt and loan markets.
Credit market fears also sparked a sell off last week, when the Dow sank 226 points. This week's declines come about a week after the Dow hit another record, closing above 14,000 for the first time last Thursday.
More disappointing news from the housing sector also pressured stocks last week, and builders, posted huge losses. And a bigger-than expected drop in new home sales in June added to those woes. The Commerce Department reported new home sales felled 6.6 percent.
A jump in the price of oil above $77 a barrel helped spark the sell-off, although crude prices finished lower with U.S. light crude for September down 93 cents to $74.95 a barrel.
"That was a big reversal, taking away one of the legs away from the stool of the sell-off," said Clark.
Overall, the earnings news investors considered last week was bad.
Market breadth was negative on heavier than normal volume. Losers topped winners 10 to 1 on the New York Stock Exchange on volume of 2.79 billion shares. Based on early tallies, the number of shares trading hands on the NYSE reached a record high last Thursday.
Decliners beat advancers 5 to 1 on the Nasdaq on volume of 3.45 billion shares. Treasury bonds surged as investors sought safety, taking the yield on the 10-year note to 4.78 percent from 4.91 percent late Wednesday. Bond prices and yields move in opposite directions.
While this week looks to be a big loser for the market, the outlook beyond that may not be so dreary. Peter Cardillo, chief market economist for Avalon Partners, said Thursday's steep sell-off was probably a blip in the latest leg of the bull market.
"I don't see it as an end to the bull market, but maybe the end of the bull run," he said. "I think that the market needs to reassess some of the euphoria that took place recently."
Investors still have some economic and earnings news to sift through last Friday including a reading on second quarter GDP and the University of Michigan's consumer sentiment survey for July.
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