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What The Drop In The Market Means For Stocks (And The Economy)

What The Drop In The Market Means For Stocks (And The Economy)



The recent stock selloff has people once again freaked out about the market. But perhaps it ...

The recent stock selloff has people once again freaked out about the market. But perhaps it
CNNMoney's Fear & Greed Index is now again in extreme fear territory. A month ago, the gauge of
investor sentiment was stuck on greed.



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    What The Drop In The Market Means For Stocks (And The Economy) What The Drop In The Market Means For Stocks (And The Economy) Document Transcript

    • What The Drop In The Market Means For Stocks (And The Economy) Stephen Gandel fortune.cnn.com February 5, 2014 The recent stock selloff has people once again freaked out about the market. But perhaps it shouldn't. CNNMoney's Fear & Greed Index is now again in extreme fear territory. A month ago, the gauge of investor sentiment was stuck on greed. The conventional wisdom is that the selloff will be short-lived. The economy is strong. The stock market, which was up more than 30% as measured by the S&P 500 last year, had gotten a little ahead of itself. Investors were looking to take profits. So when troubles in emerging markets came along, that lit a spark over what was already dry wood. But take a closer look, and that reasoning doesn't really match up with the recent sell off. Ghe Dow Jones Industrial Average (INDU) is down nearly 7% for the year. That's more than the S&P 500 (SPX) and the Nasdaq Composite (COMP), which are down 5% and 3.5%, respectively. MORE: Fear be damned: Now is the time to invest in emerging markets The Dow is made up of larger companies -- the types of corporations that are most tied to the strength of the U.S. economy. The Nasdaq is heavily weighted in technology companies, which have largely avoided the recent selloff. That suggests that the selloff is being driven by worries about the strength of the U.S. economy, not the level of stock prices. Of course, many of those large companies derive a large portion of their revenues from overseas. So investors could be selling those stocks because they are worried about a slowdown in China or Turkey. But Jim Paulsen, an equity strategist at Wells Capital, doesn't buy it. He says we have known about
    • problems in emerging markets for a while, at least since late last summer. Instead, he says, what has really spooked investors is corporate earnings, which are slowing. What's more, a number of companies have indicated that they think profits could be soft for the rest of the year. "It's about growth," says Paulsen. Berkshire Hathaway, for instance, is generally seen as pure of a play on the U.S. economy as you can get. And shares of Berkshire (BRKA) have fallen 7.4%, a larger dip than the rest of the market. What's more, Dow Jones' index of U.S. retailers is down 8.4%, which is also a greater decrease than the rest of the market, and, again, a group of stocks that tend to be tied to the U.S. economy. Here's something else: Coming into the year, both the S&P 500 and the Nasdaq had higher price-toearnings ratios, 17 and 30, respectively than the Dow, which was at 16. When investors sell stocks because they are worried about prices, they typically sell stocks with the highest prices (relative to their earnings). But that doesn't seem to be what's going on here. High-fliers like Facebook (FB) and Netflix (NFLX) have continued to soar. All of this should make you less worried that the recent stock market selloff will gain steam. What you should be worried about is the economy and your job. At least that's what the market seems to think.
    • Off-The-Charts Weather May Be Net Bad For Economy Patti Domm cnbc.com February 5, 2014 Unrelenting harsh winter weather is likely to show up as a slight drag on economic growth in the first quarter, even if there is a spring rebound. The number and intensity of winter storms have stalled pockets of economic activity across the country, with another system dumping freezing rain on top of snow along the East Coast on Wednesday. Ice paralyzed Atlanta late last month, bitter cold shut Chicago schools and snowstorms in the East halted travel. Add drought conditions in the West, and economists are attempting to determine how much they should deduct from first-quarter growth simply because of the weather. "We already saw it in auto sales," said Diane Swonk, chief economist at Mesirow Financial. "It literally freezes the economic activity, and you don't get the activity to resume until we get a thaw." Disruption to air travel alone has been massive. According to FlightAware, 39,000 flights were canceled last month, the most since 21,000 in October 2012, when Hurricane Sandy pummeled the East Coast. Just Wednesday, there were already 3,300 flights cancelled by mid-morning, with many of them in New York, New Jersey, Chicago and Boston. Those businesses most likely to blame weather for poor results don't get much sympathy on Wall Street, but they now won't be alone. The weather is expected to have been severe enough to affect activity across the broader economy. Kraft Foods Wednesday temporarily closed the second biggest wheat flour mill in the U.S., when travel on the roads near its Toledo, Ohio facility was restricted due to heavy snow. (Read more: Best growth in 10 years despite government headwinds) Weather has been cited as a factor behind a series of squishy economic reports, including December's surprisingly weak jobs number and the ISM manufacturing survey this week. Weather was also
    • mentioned as a factor in the ISM service survey report, but that showed improvement and was actually better than expected. "It adds insult to injury for retailers and restaurants," Swonk said. "We also had schools closed, so people were out of work there. It's a question mark how much will show up in the payroll numbers. January is already a bad month ... but the weather is going to affect hours worked and it should also affect the number of people that could get to work." The January jobs report is expected to show 185,000 nonfarm payrolls added last month, up from an anemic 74,000 in December. Economists say the number may have escaped some weather impact because the survey for the report was conducted during a week of milder weather in January. The ISM services survey also showed improvement in the employment component. The 56.4 jobs index was the highest since November 2010. ADP's private sector jobs survey showed 175,000 jobs created in January, but manufacturing lost 12,000 jobs—consistent with the ISM survey. Some activity, such as business travel, will not be recovered, but Swonk predicted that some of the losses in leisure activity will be compensated for by travel to warm destinations. "My guess is that spring break will be people taking lots of sunny vacations," she said. The extreme weather "is really shifting economic activity around," Swonk added. "We tend to recoup, but not in the same places." Stocks initially jumped, but then shrugged off the better ISM services report Wednesday. The market was hypersensitive to weakness in the manufacturing survey Monday, when the Dow lost more than 300 points. (Read more: Markets fear U.S. chilled by more than weather) "The price action is telling you that these markets can deal with tapering as long as U.S. growth is picking up, but if the Fed is tapering at the same time U.S. growth is slowing down, that becomes a problem for markets," said David Woo, head of global rates and currency research at Bank of America Merrill Lynch. Fourth-quarter growth was a strong 3.2 percent, but most economists expect to see a slower first
    • quarter. Data have "been weighed down by the weather," Woo said. "What worries me is [that the first-quarter] GDP growth is correlated more to the weather than the fourth quarter." For instance, he found that based on a study of 10 years of activity, retail sales are correlated more to cold weather in February than in December—possibly a negative indicator for first-quarter consumer spending. Woo also found that cold weather in December is more correlated than other winter months to weaker jobs growth, which may bode better for the January employment report. This year's winter weather is the worst since 1988. He expects the weather to continue to be reflected in economic reports, and therefore markets, but said there should be a strong rebound in economic activity in the spring. Though it's still difficult to quantify weather effects, first-quarter GDP growth could be impacted by about half a percent, said Chris Rupkey, chief financial economist at Bank of TokyoMitsubishi. Weather has a mixed impact on GDP, and he still expects to see first-quarter growth of 3 percent. "Our spending on utilities would be stronger, and that would be adding to consumer spending," he said. "That's one thing that argues against the slowdown. … But I think net-net, consumer spending on goods ... in shops and malls, the slowdown there is going to trump whatever extra spending consumers do to heat their homes this winter. We haven't seen it for a while, but weather can provide a pretty significant headwind for GDP growth." Citigroup economists cut their forecast last week for first-quarter growth to between 1.5 percent and 2 percent from 2.4 percent, partly because of weather, according to Robert DiClemente, Citigroup's chief U.S. economist. "The good news is it's winter and it's always winter this time of year," he said. "You don't do a lot of housing activity. Everything shifts down. It's a question of is it normal? … This has been extreme in every way. It's been incredibly erratic." Economists say winter economic reports are seasonally adjusted to account for bad weather, so there should be some consideration for weather impact, but not this much. March is the wild card, DiClemente said, as economic activity could jump if the disruptive weather stops and that month is milder. "The seasonals anticipate normal weather," he said. "My favorite is March ... a month that doesn't belong to winter or spring. And March by its nature is the most volatile month. It could be this ... is the year we get a gangbuster jobs number because it would be the cleanup from the bogus winter effect." This was supposed to be a better year for reading the economic tea leaves. "This was the year of no more excuses, no more fiscal drag, no more fiscal headwind," DiClemente said. "We were finally going to see the economy on its own, and along comes this absolutely bizarre winter. I'm hoping we can revise [GDP] up again."
    • Millions Of Americans Teetering On Edge Of Financial Ruin Kurt Nimmo Infowars.com February 5, 2014 A poll conducted by NBC News and Marist paints a bleak financial picture for millions of Americans. Nearly 20 percent, more than 40 million Americans, say they have a difficult time making ends meet. The poll follows the results of a report released last year by the U.S. Census Bureau. It showed household income steadily declining since the Great Recession began in 2007. Median income in 2012 was $51,017 a year, down from $51,100 the year before. In 1999, median income was $56,080 when adjusted for inflation. The report also showed 46.5 million Americans mired in poverty. Last January the Commerce Department reported personal income had fallen 3.6% that month, the largest decline in 20 years. Taxes and inflation made the decline even bigger. Disposable personal income fell by 4%. It was the largest loss in half a century. According to the NBC News/Marist survey the tipping point is $50,000 a year. 30 percent of adults earning less than $50,000 per year describe their finances as weak while only 5 percent of those who earn more say the same. “Americans 45 to 59 years old, who may still be supporting their children while at the same time caring for parents, are more likely than other age groups to say their money situation is faltering. One in five members of this generation — 20 percent — says their household finances are weak.” Debt is a factor. The poll revealed that nearly 10 percent, 22 million Americans, are trapped in debt. “Americans who earn less than $50,000 a year are four times more likely than those who make more to be overwhelmed by their level of debt. 16 percent of those with an annual salary less than $50,000 experience significant financial stress compared with only 4 percent who earn more.” As of January 2014 the average credit card debt in America stood at $15,279. The average mortgage debt is $149,925 and the average student loan debt load is $32,250. In total, Americans owe a
    • staggering $11.36 trillion in debt and $856.9 billion in credit card debt. Census Bureau figures and polls, however, do not show the primary reason for declining incomes and the erosion of the middle class. Obama and the new Federal Reserve boss, Janet Yellen, say income inequality is a serious problem, yet they do not explain why and they never will. The precipitous decline in middle class wealth is largely the fault of the Federal Reserve and government economic policy. The Federal Reserve enables deficit spending by government and fractional reserve lending by banks. It does this by creating money out of nothing. This influx of new money dilutes the value of existing currency and creates inflation. This represents an invisible tax government never talks about. “Unfortunately no one in Washington, especially those who defend the poor and the middle class, cares about this subject,” Ron Paul notes. “Instead, all we hear is that tax cuts for the rich are the source of every economic ill in the country. Anyone truly concerned about the middle class suffering from falling real wages, under-employment, a rising cost of living, and a decreasing standard of living should pay a lot more attention to monetary policy. Federal spending, deficits, and Federal Reserve mischief hurt the poor while transferring wealth to the already rich. This is the real problem, and raising taxes on those who produce wealth will only make conditions worse.” The NBC News/Maris poll says most Americans believe the economy is getting better and their financial situation will improve. Unfortunately, there is little evidence to bear this out. So long as the Federal Reserve controls money, the situation will continue to get worse. The solution to income inequality and encroaching rates of poverty is not a tax on the rich. It is abolishing the Federal Reserve and eliminating the control the financial class on Wall Street has over the issuance of money. Sen. Ted Cruz: "The Obama economic agenda has exacerbated income inequality" VIDEO BELOW http://www.youtube.com/watch?v=PQJboCc-kLw INFOWARS.COM BECAUSE THERE'S A WAR ON FOR YOUR MIND