Topic: Voodoo Economics 101
With the economy gearing up for a downturn that is going to shock this country into realizing that you can go warring whilst tax-cutting, i just have to start a new category!!!
Ironically, the term voodoo economics came from George the First when he was running against Ronald Reagan, and the elder Bush realized then that welfare for the wealthy was no way to run a country, but i guess since his daddy lost to a man who wanted to sink billions into a "defense" system based on a fairy tale, George the Second, like most dittoheads, probably saw Ronald (6) Wilson (6) Reagan (6) as his personal lawd & saviour---ER
Dow plunges 190 points, steepest drop in 2 years
By James F. Peltz and Thomas S. Mulligan / Los Angeles Times
Stock prices suffered their hardest fall in more than two years Friday -- with the Dow Jones industrials plunging more than 190 points -- as evidence mounted that the U.S. economy's once-robust growth is slowing.
Even another drop in oil prices, to nearly $50 a barrel, couldn't ease the malaise on Wall Street amid a growing debate over whether the economy is merely hitting a soft patch, or is at risk of a more serious pullback.
Either way, "investors are in a lousy state of mind," said Al Goldman, chief market strategist at the investment firm A.G. Edwards & Sons Inc. in St. Louis. Another sharp downturn Monday could put the Dow Jones industrial average below the psychologically significant 10,000 mark.
Friday's retreat was partly a reaction to disappointing profits at IBM Corp. and a slump in consumer sentiment, as reported by a widely watched survey.
But the sell-off began Wednesday, triggered by data signaling that the stout economic growth of the past two years has slowed, hobbled in part by high energy prices. Reports on retail sales and industrial production both failed to meet expectations this week.
"This suggests an economy that is rapidly losing steam," Kathy Bostjancic, senior economist at Merrill Lynch & Co., said Friday in a note to clients.
The blue-chip average plummeted 191.24 points to 10,087.51, its steepest daily drop since March 24, 2003, and its third consecutive decline of 100 points or more -- the first time that has happened since January 2003.
That gave the Dow a loss for the week of nearly 374 points or 3.6 percent, its worst weekly showing in more than two years, and dropped the average to its lowest level since Election Day last Nov. 2. Broader market indexes also suffered sharp declines.
Some analysts said Wall Street was overreacting, contending the economy isn't in danger of falling into recession and in fact is continuing to expand at a respectable pace.
Anthony Chan, senior economist with J.P. Morgan Asset Management, said the markets have shifted in just a matter of months from believing that the economy was overheating to fearing that it would plunge into recession.
"Both of those extremes were exaggerated," Chan said.
Even so, warning signs abound. IBM -- a bellwether for technology spending -- posted a disappointing first-quarter profit after the market closed Thursday. Its shares plummeted nearly 7 percent on Friday to $76.70 a share. Because IBM is a major component of the Dow, it contributed heavily to Friday's damage on Wall Street.
The stock market is seen by many as an indicator of future economic trends, since investors are buying and selling based on whether they see the economy, corporate profits and consumer spending rising or falling in the coming months.Stocks had rallied for the past 2 1/2 years -- with the Dow hitting a four-year peak of 10,940.55 on March 4 -- as the economy grew briskly. After the economy expanded 4.4 percent last year, its best showing in five years, many analysts predicted that growth would slow a bit this year.
One reason: The Federal Reserve, concerned that the economy was heating up inflation, has been raising short-term interest rates since mid-2004. The higher rates, combined with high energy prices, have indeed helped brake the economy, many analysts say.
Continued strong economic data in January and February probably created unrealistically high expectations for full-year growth, said Richard D. Rippe, chief economist for Prudential Securities. The March numbers were a cold shower, but that's not necessarily a bad thing, he said.
"I'm not sure the markets want booming growth," Rippe said. For one thing, the pause gives the Fed more flexibility to continue raising rates gradually or even take a break from rate increases, he said.
In any case, Joseph LaVorgna, a senior economist at Deutsche Bank Securities Inc., said the recent "lousy" economic data strikes him as merely "a pause that refreshes," rather than a sign that the economy is poised to fall off a cliff.
"We're still pretty bullish," LaVorgna said.
Indeed, another bellwether company -- the industrial conglomerate General Electric Co. -- reported an unexpectedly strong 25 percent gain in first-quarter profit Friday. Its stock rose 25 cents to $35.75 a share.
Corporate profits overall are expected to grow another 7 percent to 9 percent in the first quarter, which is down from their torrid double-digit growth last year but still a healthy advance, some analysts said. (Notice no mention of salary increases---ER)
"The economy is doing just fine, but the economic recovery is in its fourth year and it's slowing down," Goldman said. "Yet investors are looking at everything as though the glass is half-empty."
Positive signals seem to be ignored by investors hunting for data that confirm their pessimistic views, LaVorgna said. Another example is how Wall Street has largely ignored the drop in oil prices from record highs set two weeks ago.
Richard B. Hoey, chief economist at Dreyfus Corp., said that things seem to be working out according to the Fed's plan. Since the Fed started raising rates last June, he said, its goal has been to slow economic growth -- but not squelch it -- and keep inflation moderate.
