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Gold/Mining/Energy : Daytrading Canadian stocks in Realtime -- Ignore unavailable to you. Want to Upgrade?

To: CharlieChina who wrote (56268)	7/28/2002 8:35:38 AM
From: bigbuk	Respond to of 62347

Reuters Business Report 'Stockalypse' Gives Sinking Feeling By Pierre Belec NEW YORK (Reuters) - It's a betting game that the entire world is watching, as Wall Street investors could determine the course of the economy in the United States and abroad. Do they have the nerve to drive stocks up? ADVERTISEMENT The stock market's plunge has flushed out more than $7 trillion in wealth since the bubble burst in 2000 and people who got filthy rich during the Great Bull Market of the 1990s are suddenly feeling poor. Fair to wonder what impact this reverse wealth effect will have on consumer spending. Back in the boom days, investing in stocks was such a huge money-making machine that the Street viewed the market as "The Economy." Now that stocks are crumbling, how much longer before the market shock begins to hurt consumers who generate two-thirds of the nation's activity. While the Dow Jones industrial average on Wednesday posted its biggest one-day gain of the year, veteran traders warn that one-day wonders do not signal a trend, and it's unclear that investors plan to come off the sidelines. TIGHTEN PURSE STRINGS If the rope around people's necks winds tighter and they see more of their wealth go up in smoke, the risk is that consumers may tighten their purse strings, thereby shutting down the main engine driving the world's biggest economy and adding to Wall Street's woes. The risk cannot be ignored because of the public's massive participation in the market. Nearly half of the nation's households had a stake in stocks at the height of the bull market. The damage is already being felt. U.S. consumer sentiment tumbled in early July as Americans agonized over their losses. The gloom probably got worst in the two weeks after the University of Michigan did the survey, with the Dow tumbling more than 1,000 points. In the 1990s, mutual funds were the financial fashion and an unparalleled flood of cash poured into the wishing well of stock funds. But many investors are wondering if there will always be a pot of gold at the end of the Wall Street rainbow. There's a big sucking sound in Manhattan's financial district. Investors are pulling money out of U.S. stock mutual funds. In June, investors yanked $13.8 billion out of stock funds, the third largest outflow on record, exceeded only by $15.4 billion in March 2001 and $30 billion in September following the attacks on the World Trade Center and the Pentagon, according to Lipper, the mutual fund tracking firm. 401(k) BASKET CASE Indeed, people are getting tired of losing their shirts. Their 401(k) retirement plans have been turned into 911 emergency basket cases. The market is on course to post a third straight yearly decline. The last time that occurred was 1938 when investors were still reeling from the nasty memories of the Great Depression. The numbers speak for themselves. The Dow is down about 32 percent from its peak, the technology-laced Nasdaq composite has fallen an eye-popping 75 percent and the Standard & Poor's 500 is down 45 percent. The loss of stock market wealth will wreak havoc on the long-term health of the economy, says John Challenger, chief executive officer of Challenger, Gray & Christmas Inc., an international outplacement firm. A growing number of older Americans are postponing their retirement or have chosen to rein in spending because the crash has crushed their 401(k) plans. The alternative to working more or cutting back on spending will have a big impact on the economy, says Challenger. "The growing population of older Americans was expected to inject large sums of money into the economy through their mass consumption of goods and services," he says. "These seniors were among the wealthiest ever and were going to spend copious amounts of money in their 30-plus years of retirement." BEARISH FOR AVERAGE INVESTOR There's a lot of talk the market needed to go through a healthy cleansing after years of excesses. Analysts are preaching that the longer the bear market hangs on, the more appealing the investment environment will be after the fall. But the fact that stocks have kept on falling and the selling has been so severe since June is bearish for the average investor. More importantly, people should not expect a socko ending to this summer's market crumble. Stocks may bounce back but worth keeping in mind is that bear-market rallies are tricky. Dead-cat bounces or in this case, a dead-bull recovery, are much more dangerous than buying in a bull market because bear-market rallies can reverse course at the drop of a dime. The market has been rocked by an unexpected stream of bad corporate earnings, economic uncertainty, terrorist attacks and stunning corporate scandals. The risk premium of owning stocks has gone up, and investors have been driven to safe havens such as bonds, money markets and gold. The smart money is running to the bomb shelters because historically, years of super-normal stock returns -- 20 percent plus gains in the 1990s -- have usually been followed many years of sub-par returns. STARVED FOR CAPITAL As investors avoid stocks, the other risk is that companies will be starved of capital. Lacking cash to grow, businesses may be forced to make a new round of spending cuts that would slam the economy back into recession. A dramatic drop in business spending was the main reason the economy slipped into recession last year. Business spending continues to be the wobbly wheel on a shopping cart. Second-quarter capital spending increased for the first time in eight quarters, but a closer look at the numbers showed the gain was caused by companies needing to replace inventories that had dropped to depressed levels in the past year. The economy is still shaky and the barrage of rate cuts by the Federal Reserve last year failed to stimulate growth across a broad sector. There are many reasons why the rate cuts did not work. One is that the Sept. 11 attacks on the United States happened just as the first couple of reductions were starting to filter through the economy. Since it takes six to nine months for the Fed's stimulative easy money to do its thing, the process was just beginning to ooze through as the airplanes hit. Then, came the corporate scandals that drove a stake through the heart of the market. For the week, Nasdaq fell 4.3 percent to 1,262, the S&P rose 0.6 percent to 853 and the Dow rose 3 percent to 8,264. (Pierre Belec is a freelance writer. Any opinions in the column are solely those of Mr. Belec.)