Is the market going to rebound?

I'm trying to have faith in our economy and the market, but I think I'm one of the last ones left with money in the market. Should I count on it to rebound?

I don't know when the market will rebound, but in the short term we should get a significant bounce off of these levels. If you're a trader, the next few weeks could be quite profitable. But after that, there is a certain reality that has to set in, and that is the effect that this financial crisis has had on the real economy.

This first leg down has been caused by a freeze up in the credit markets. The second leg down will be caused by a lack of liquidity. The credit crisis was caused by the fact that banks were simply unwilling to lend to each other. They had cash to lend, but they were not willing to lend it out, because the less cash that they have on hand, the more vulnerable they become. The reasons why the banks felt vulnerable are related to some of the exoctic securities that they held, which were in danger of defaulting. But the plans outlined by Bernanke and Paulson should alleviate some of the banks fears, and enable them to start lending again. But then comes phase two.

Phase two is the liquidity problem. Banks take in deposits, and then lend that money out to borrowers. For every dollar that a bank takes in it lends out up to $25 or more to borrowers. Imagine a small community where everyone puts their money in the local bank. The bank then lends out 25 times that amount to the community, to buy homes, make payrolls, and improve businesses...etc. The bank takes the community's money and magically increases it 25 fold. The bank will then take out insurance on those loans, in case they default. An agency rates the bank, and the better the banks rating, the more money it can lend out. If you have a good rating you might be able to lend out at a 25 to 1 ratio, but if you're rating isn't quite so good you might only be allowed to lend at a 10 to 1 ratio. In the past the rating agencies were pretty lax with their rating standards, and banks were anxious to lend out as much money as they could. After all, the more money that you lend out, the more money that you get back in interest. So a lot of money got lent out to people with questionable credit.

Fast forward to the new reality in our imaginary community. Now the bank is only allowed to loan out $10 for every dollar it takes in, all of the sudden there is 60% less money circulating around the community. This is going to have a significant effect on the spending throughout the entire community. Businesses may need to close, unemployment rises, and all of the sudden we have a recession.

That's a liquidity problem, and that's the biggest threat to the world economy. Even if banks do start lending money again, if they don't lend at the same ratio as they did before, then the amount of money in the economy will decrease, and we will be in for a prolonged recession. Prices will have to fall to reflect the new economic reality. Money will be harder to come by, and living standards will fall.

Fixing the liquidity problem will be a whole lot harder than fixing the current credit problem.

It will, at some point. Whether you want to hold on to your investments depends on your time frame.

It will rebound. It may take time, and the wait may be excruciating, but it WILL rebound. The Market survived the Great Depression and Black Tuesday.

I'm actually looking at stocks now to BUY while prices are low. Because I have faith that with time and patience, if I do invest, I'll be rewarded.

The market always rebounds eventually. The only question is from what level will it rebound? And how far up will it rebound?

If the Dow goes down to 100 as it did in 1930's and then rebounds 50%. Then the Dow will end up at 150. Which might be profitable for some investors who got in at the bottom of the decline. But this bounce won't help much any investors who have invested in Dow at the top and stayed with it all the way to the bottom.

It should and will rebound, the question when and how much. The country is suck in turmoil, we really have not experienced this in many of our generations. There are a lot of variables that are still occurring here in the states and around the world that can and will influence the markets. We are in for a bumpy ride ahead. If you have money in the market and don't need it right away you may just ride it our but, if it is money you are saving for something important you might just take it and put it some where safe CD's etc. Technically the market has not crashed yet, and technically we are not in a recession yet - accounting to the economists. (Their wrong) Good Luck

The market will rebound slowly and steadily. You will regain your losses in due time. I buy stocks today. I think we hit the bottom today and the only way is up.

It has always rebounded.
Will it get back to or over 12000, who knows at this point.
You can make up losses if you hold and most importantly
the company invested in has continued growth potential.
Check the P/E ratio each couple of weeks.

It will rebound, but you may lose over half of your money while you wait.

Yes, it will rebound. The turn around will start in the next 2 weeks. If you have money, stocks to buy are financials. Good ones will get bail out money from the government and their stocks are priced at a high discount right now.

Enter Your Message or Comment

User Name:
User Email:
Post a comment:

Archive: Forum -Forum -Finance - Links - 1 - 2 - RSS - All RSS Feeds
The Causes and the Results. 0.014
Copyright (c) 2011 Financial Crisis Monday, May 28, 2012 - Terms of use - Privacy Policy