There is a huge political and social side to the stock-market as well.
Most people believe, as you noted above, that stock market reflects the state of the economy.
So if the market is down, they assume that the economy must be in bad shape.

And when something is in a bad shape, it is always the Govt's fault, right?

And a bad economy in an election year is a very, very dicey situation.

Public office is won/lost based on the state of the economy (Remember Clinton's "It's the economy, stupid" to oust Bush Sr. from office)?

Which is why governments and central banks lose no time in taking whatever measure they can to restore liquidity and consumer confidence.

In some cases, it only postpones the underlying problems to another day, but sometimes it works in the short term.

If they don't take action, the decline will be much more rapid and much more painful.

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"Mah deah, there is much more money to be made in the destruction of civilization than in building it up."

-- Rhett Butler in "Gone with the Wind"

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Originally posted by investpro

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Originally posted by pratickm

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Originally posted by surtalme
When did we last had deflationary recession? (Negative inflation)

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Probably not at a global scale since the 1929 - 1930s.
As I said, inflationary recession is worse than deflationary recession.
We have had several of those, like in the 1970s and in the late 1980s.

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In the 1970s there was only one bear market in the US as I remember from early 73 to end 74 almost 2 years (more like 20 months if my memory serves me well- all engineered by Sheik Yamani-Shake your money- of Saudi Arabia) when the S&P dropped by 50%- but hey following that the market rebounded by over 100% so basically one was back to square one and that did take some time.
In the 80s there were 2 ugly periods. 80-82 when the S&P tumbled 30%, but regained over 200%.Here the bear hug also lasted almost 2 years
Then in the late 80s it was only a few months 3-4 that the bear hugged us all and the S&P tumbled 35% to regain 65%.
In 90 for another 3 months the bear hug was on and the markets went down 20% only to regain 400% right up to the tech bubble and the subsequent 9/11 scenario. S&P high at that time was 1527.46 and lost 50% and to date, though I think it did cross the high of 1527.46, it has for the most part traded below that high and man, people are still feeling good despite that fact.

We weathered them all- the bear periods that is

Please note above is all based on the S&P and is not indicative of anything but serves only as an informational piece and is all based on memory, though if you were to do a study everything would be mighty close.

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I have read many forums, articles etc and it does look like the Bank of Canada will continue to slash the prime rate....I agree with DP_gta and see the rate being at 3% sometime this year.

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Originally posted by DP_gta

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Originally posted by investpro

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Originally posted by pratickm

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Originally posted by surtalme


My 2 cents worth US may come down to 2% and Canada may come to 3% during 2008. That too only if inflation rises otherwise our housing sector is going to get hit. Those who are on floating rate, bhalay bhalay. And those of us who are in fixed rate, look left high and dry.

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