Scary times are ahead of us, and we don”™t mean Halloween. Get ready as the mainstream media trots out its “eerie parallels” to the 20th anniversary of the stock market crash of Oct. 19, 1987. And probably the 78th anniversary of the “Big Crash.”
We”™re a week into one of the scariest months in the history of the stock market and the sky hasn”™t fallen. Some doomsayers may wish to add the word “yet” to the end of that sentence.
A couple of weak parallels can be drawn between 1987 and 2007; bad news on the economic front and politicians posturing for the next year”™s presidential election. But does it mean a crash is looming? We can”™t predict that, even if the economic indicators are not the best.
The National Association of Realtors reported pending home sales fell 6.5 percent to a reading of 85.5 in August; down 21.5 percent from August 2006.
“Fewer contracts were being written because of mortgage availability issues and a separate internal survey of our members shows more than 10 percent of sales contracts fell through at the last moment in August, primarily the result of canceled loan commitments,” said Lawrence Yun, a senior economist with the National Association of Realtors.
“The volume of activity we”™re seeing today is below sustainable market fundamentals because some creditworthy people are trying to buy homes but can”™t because of the credit crunch.”
More bad news last week came from the auto industry. Ford Motor Co.”™s sales fell 21 percent last month, with a 39 percent drop in car sales and 5 percent for its trucks.
Chrysler also posted a down month, with sales off 5 percent compared to last year.
General Motors did better, posting a modest sales increase of less than 1 percentage point.
Despite the national bad news, Peter Gioia, vice president and economist for the Connecticut Business & Industry Association, said it”™s unlikely Connecticut will enter a recession.
The Midwest, the South, parts of California and Nevada and other parts of the nation are much harder hit by the subprime mortgage problems or are shedding jobs. Some states, like Florida, Gioia says, are in a recession. But he is bullish on the Nutmeg State.
“Right now in Connecticut we have a strong manufacturing economy built around exports as well as strong export-related financial services. Financial services linked to Wall Street are mainly strong, but vulnerable to liquidity problems. Housing, while weakened, is much more likely to stabilize here since we are adding jobs at a steady, solid rate. In short, Connecticut is likely to outperform the national average.”
But, he is a realist; risks exist.
“The Federal Reserve and Treasury must react swiftly when any liquidity problems, a ”˜credit crunch,”™ hits capital markets. We must not see serious inflationary pressure from a collapsing dollar or oil/commodity price shocks.”
If either or both of those risks come to fruition, then “risk of recession grows alarmingly.”
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