A Question Of Confidence
The 2008 market collapse followed a loss of confidence in the financial system. The current collapse follows a loss of confidence in government ability, both in the U.S. and in Europe, to continue propping things up.
A healthy stock market is one in which investors don't care about the government; they focus on the strength of the companies whose stocks they are buying.
Today, both the stock market and the economy have become dependent on government support, and the current crisis grows from a fear that governments are losing control of the situation.
Investor reaction reflects that quandary. Calls have begun for government aid: a fresh Federal Reserve stimulus program, or tax cuts aimed at spurring business investment, or perhaps both.
Either of those could theoretically turn stocks higher, at least temporarily. But with many major corporations sitting on record cash hoards that they are uninterested in investing, the problem isn't the absence of ready cash in the system. Fed Chairman Ben Bernanke himself has made that point.
A new Fed spending program would provide fresh money that might flow into stocks and boost the market, and such a program may well be one of the results of the current crisis. But it might not solve the basic problem, which is the concern that European debt, gridlock in Washington and a slowing U.S. economy together spell troubled economic times to come.
'The bad news is that the market is largely dependent on the decisions of a small number of policy makers rather than on fundamental concerns. And most of these policy makers happen to be on vacation,' says Jason Trennert, founder of New York investment-strategy concern Strategas.
Everything isn't bad. The U.S. doesn't seem to be in a financial bubble, a real-estate bubble or even a tech-stock bubble. And corporations are flush with cash.
The Dow Jones Industrial Average was down 4.3% on Thursday, its worst drop since 2009, but things were much worse in 2008. It fell more than 7% on two single days in October 2008 and more than 5% another day that month. In November 2008 it fell more than 4.7% on five separate days.
China may be in a real-estate bubble. But the bigger immediate problem is that investors are losing confidence in the ability of Europe and the U.S. to keep their economies growing while at the same time managing their public debts.
Investors are looking to Washington, which is gridlocked over the very issue that concerns investors: How to sustain growth. The U.S. economy seems unable to grow steadily without life-support from the government, which no longer seems able to provide that help.
'There are questions about how much steam is in our economy in this fiscal environment where Congress can't do anything. So the question is what the Fed can do, if anything, or are we headed for the dreaded double-dip' recession, says Henry Herrmann, chief executive of money-management firm Waddell & Reed in Overland Park, Kan.
E.S. Browning
A healthy stock market is one in which investors don't care about the government; they focus on the strength of the companies whose stocks they are buying.
Today, both the stock market and the economy have become dependent on government support, and the current crisis grows from a fear that governments are losing control of the situation.
Investor reaction reflects that quandary. Calls have begun for government aid: a fresh Federal Reserve stimulus program, or tax cuts aimed at spurring business investment, or perhaps both.
Either of those could theoretically turn stocks higher, at least temporarily. But with many major corporations sitting on record cash hoards that they are uninterested in investing, the problem isn't the absence of ready cash in the system. Fed Chairman Ben Bernanke himself has made that point.
A new Fed spending program would provide fresh money that might flow into stocks and boost the market, and such a program may well be one of the results of the current crisis. But it might not solve the basic problem, which is the concern that European debt, gridlock in Washington and a slowing U.S. economy together spell troubled economic times to come.
'The bad news is that the market is largely dependent on the decisions of a small number of policy makers rather than on fundamental concerns. And most of these policy makers happen to be on vacation,' says Jason Trennert, founder of New York investment-strategy concern Strategas.
Everything isn't bad. The U.S. doesn't seem to be in a financial bubble, a real-estate bubble or even a tech-stock bubble. And corporations are flush with cash.
The Dow Jones Industrial Average was down 4.3% on Thursday, its worst drop since 2009, but things were much worse in 2008. It fell more than 7% on two single days in October 2008 and more than 5% another day that month. In November 2008 it fell more than 4.7% on five separate days.
China may be in a real-estate bubble. But the bigger immediate problem is that investors are losing confidence in the ability of Europe and the U.S. to keep their economies growing while at the same time managing their public debts.
Investors are looking to Washington, which is gridlocked over the very issue that concerns investors: How to sustain growth. The U.S. economy seems unable to grow steadily without life-support from the government, which no longer seems able to provide that help.
'There are questions about how much steam is in our economy in this fiscal environment where Congress can't do anything. So the question is what the Fed can do, if anything, or are we headed for the dreaded double-dip' recession, says Henry Herrmann, chief executive of money-management firm Waddell & Reed in Overland Park, Kan.
E.S. Browning
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