Market Behavior

This market wasn’t offering good deals for stock investors.  It was flat around 17,500 for months. Investors decided to sell off their stocks to drive US stock prices, to “buy low”.  Companies with cash routinely buy back their stock when it is low for the same reasons.  When their stock prices rise, these companies sell their stock and take their profit. 

 

When China’s stock market tanked and it signaled a possible decline in China’s economy.  US global companies selling into China face lower sales into China.  Investors wanted to re-price these stocks. US global companies now need to make plans to lower their costs and protect their profits.

 

China devalued their currency by 3% to give the products they manufacture a 3% advantage in the global market, to ensure that their exports would not be reduced.  Chinese consumers will have to spend 3% more for US goods.

 

The Fed balance sheet is under water. They have given the banks a zero interest rate for 7 years. This gave the banks “free money” to invest and prop up their profits. Most of this money went into hedge funds, but enough was loaned out to investors to give them some leverage. Their rumored increase in interest rates from zero to a quarter point would give the Fed some income to repair their balance sheet. 

 

The elephants in the living room nobody talks about are sovereign debt and printed money. High taxes and a “penned-up” 450% increase in the money supply, when released, will further decimate US consumers. 

 

Debt ridden governments need to cut spending on everything that would damage their economies further.  In the US that would be unnecessary regulations and tax subsidies for healthcare and education that moved the price of these industries beyond the price/demand curve.  

 

Norb Leahy, Dunwoody GA Tea Party Leader