(Off topic) Some answers --- others please ignore
(And please don't criticize me for the contents of this post. I'm only doing this because I was asked.)
Don here are some of your questions:
"Is there a thread that covers some of the economic issues that affect the stock market?"
I haven't found one, largely because the economists, including the ones I know and have talked to, cannot concieve of wasting their time with the enormous volumes of flaming junk that appear on most threads. Most people that know what is going on refuse to post or even moderate a thread. This thread is rare in that people here are intelligent, experienced, open to other views, treat otehrs with respect, and have integrity.
The best methods for finding economic news are the traditional ones--- visit the economics press. I use the web sites of the London Times, Financial Times, Far Eastern Economic Review, etc. Its especially useful to visit foriegn press sites in Asia and Europe where they often take a different perspective on events since their experience of them is not US centered. I'm constantly looking for more of these sites.
Also there are books such as Doug Henwood's WALL STREET which are useful (AMAZON) in understanding Street psychology.
"How the information translates into stock movements"
See J. K. Galbraith. The psychology of the Street determines the market. However the Street doesn't understand much about economics only about trading and companies and doing those things within the context of the current status quo and climate of public opinion. I never listen to anything a Wall Street analyst has to say about the future of the economy. They make money off of selling stocks. They are not economists. That guy standing up on the floor of the market and being interviewed by CNBC can't tell you much more than what is going on around him with the traders (when they are even honest about it.)
We are in a Bull market. These end only when a lot of people (the sheep) get fleeced. People who didn't think they would. What you have to watch out for is when the insiders, traders and big money people figure out something is happening that they didn't know about before. They will act before they tell the sheep (Soros). This happens regularly since most sheep think they know a lot when they know nothing and will go on grazing the grass until the wolf is in their midst. They might not even recognize something is happening until the sheep next door gets eaten. So you can try to watch for a change in Street psychology but..... My wife counts every time the word "depress" shows up (like counting the spread of the word ubiquitous).
"I see that Japan banks could trigger a sell off of US bonds but how does that effect the stock market?"
Well first off don't believe that US companies don't do a lot of business in Asia and JAPAN. They do, especially JAPAN. Japan is a big market for technology products and Asia has been the ground zero of capital spending in the world economy, with many US companies investing heavily there in plants. Now if you build a plant in Asia and suddenly find no market for its products what do you do with the plant? One thing you do is shut down a more expensive older plant in some other part of the world. And guess where that is! (the USA) You certainly don't build more plants to boost capacity if you see your anticipated "growth" market shutting down. This effect will take time, just like a Fed tightening.
Now look what happens when the IMF knocks on the door of a country like Korea (just look at what happened in Russia!). The IMF says tighten your belt, cut domestic spending, boost exports, drop trade barriers to protect your industries etc. The effect is usually an enormous cut in domestic demand and a local recession or worse. I see no way that Korea can avoid this. It will try to export its way out of the mess.
Its the cuts in domestic demand in the Asian market that has a long term impact on the US. We already run enormous trade deficits with other parts of the world which we make up through capital inflows. We will find it harder to sell capital goods (equipment for production AMAT etc.) and commercial goods (computer etc.) as our currency appreciates (which it is doing big time against the Yen and the Mark). Foreign exports will come here and drive our businesses out of entire industries (see Micron and memory chips). The room for error on the part of domestic companies will diminish. (What we are seeing with Novell).
"If none of the soap comes from Japan what difference does it make?"
The basics, look in your stores, are coming from Mexico and China. Your pants are coming from China! I was absolutely shocked at the absence of Chinese textile goods in Europe which has done much more to create an economy in which domestic goods can compete based on quality with cheap Asian imports. The US produces capital goods and agricultural commodities. We can't survive without imports. We don't make many cheap goods anymore. We have lost domestic production capability in so many areas and can never compete on price with the goods flooding in here from Asia. So you have to look at the structural problems in the US economy for the impact.
"If every bank in Japan went bankrupt what difference would it make?"
Well besides the production side of the coin, there is the financial side of the coin. Its called tight money. If the banks in Japan go belly up, where will Japanese companies get capital with which to finance their activities? Domestically look at it this way. What happens when the bank decides you have borrowed too much money for the true state of your assets? Lets say you use you stock portfolio to secure your new coop purchase and suddenly your stock portfolio is going down rather than up! (ever had a margin call?)Well the banks say no more money and if your payments falter call in the loan. Credit is grossly overextended to US consumers. Financial panics happen when people sell off assets to lock in current value.
Look at where this stock market is. Is it trading in a reasonable range or are the value of assets overpriced in equity terms? Has the market figgured into the price of equities a reasonable rate of growth in revenues for companies or are companies selling at unreasonable P/E and unreasonable revenue growth to price expectations?
A trader isn't going to tell you any of these things.
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It makes sense to have a greater percentage of your money in cash today then it did ever before. I think much of the smart money has been getting out of the bid up tech stocks to lock in the capital gains. Its only the sheep that will ride the market down in the same way as they rode the market up. |
