How far will the stock market plunge?

[HappySqurriel]

akuma587 said:

HappySqurriel said:

Its difficult to say ...

In spite of all the great advice our parents and grandparents gave us when we were growing up about living within our means and saving for a rainy day, we’re now at a time where two generations of adults have lived beyond their means and have no savings. Up until a couple of years ago, most of these people managed the unexpected expenses and setbacks in life by tapping into their home equity or taking on more debt.

When you combine the lack of savings with the lack of easy to access credit and the loss of equity in the housing market people don’t have many places to go to get more money. The most liquid asset many people still have access to is their stocks, bonds, etfs or mutual funds (inside or outside their 401k/RRSP).

What this means is the market will continue to fall as long as the economy continues to get worse, and the people who have cash to make investments at the bottom could potentially benefit by picking up stocks with a 2.5 p/e ratio and/or a 20% yeild.

Its not really consumer credit that caused this crisis, or even excessive government spending. Those two things certainly didn't help though.

Frankly it was the people who were supposed to be "smart" who caused it, the "geniuses" on Wall Street who bought into the groupthink that you could run your assets and liabilities at a 30:1 margin and that the housing market was a never-ending buffet. There was way too much emphasis on turning a short term profit rather than taking a step back and saying, "Hey, if something went wrong, we would be totally fucked!" The government certainly hit the snooze button in terms of regulation, but that's like blaming the person who sold someone a gun for them committing suicide.

Ironically, this is reflected in a recent poll. Who would have thought that Americans would trust politicians more than Wall Street on the economy! Its a sign of the apocalypse if you ask me:

http://www.cnn.com/2009/POLITICS/02/23/poll.economy/index.html

Poll: Politicians trusted more than business leaders on economy

 

First off, what does your post have anything to do with what I said?

Regardless of who "Caused" this problem people bought houses they couldn't afford at twice the historical average price with 0% down (quite often) using a very risk mortgage, have built up massive debt buying stuff they didn't need and haven't built up any emergency savings which leaves them very few options on where to go when they need money. Regardless of what the government does a lot of these people will need money, which means that a lot of these people will tap into longer-term investments which are often held as stocks, bonds, etfs and mutual funds which will put downward pressure on the markets.

With that said, if a drug dealer offers you crack are you absolved from your responsibilities when you become a crack-adict? Even though politicians will constantly say "Through no fault of their own" or "Were doing all the right things" when referring to a lot of the people who are in the worst financial position in this crisis doesn't make this true. On the whole, Americans were living beyond their means to an outrageous level and sooner or later a triggering event was going to cause a crisis ... Much like on an personal finance basis, if you have neighbors who are slowly building a mountain of consumer debt eventually something will happen (lose job, get sick, car break down, etc.) which will tumble the financial house of cards they built.