A Crisis Of Financial Faith

CBS Evening News: Behind The World's Largest Fiscal Collapse In Decades Is A Tangled Web Of Fear And Uncertainty

(CBS)  After the Dow dropped 18 percent last week and the Standard & Poor's 500 experienced the biggest one week drop since 1933 - fear is now the driving motivation and, as CBS News correspondent Priya David reports, investors find themselves in a crisis of financial faith.

"It's panic, it's fear - I think we just don't know what's going to happen," one investor said.

And the media drumbeat doesn't help. Many investors responded when Jim Cramer, host of CNBC's "Mad Money" said this on his television show last week:

"Whatever money you need for the next five years, please take it out of the stock market right now,"

When people hear that, David reports, they call their brokers and many sell.

The markets even track fear itself. The Volatility Index, or VIX, is at a record high.

"VIX has been soaring, will continue as credit crunch continues," says Jordan Goodman, author of "Fast Profits in Hard Times."

The mint has stopped taking orders for gold coins as panicked investors stampede out of the banks and stocks into the safety of tangible assets, David reports.

History tells us that investors go through an emotional cycle. It starts with hope as growth begins, moving to greed, then to skepticism of high prices. Before the cycle is complete, investors then shift to fear as the stock drops, then panic and finally despondency and a bottom, and back to hope again. But as to whether we've reached that bottom, experts disagree.

"We're on our way there, but I don't think we're there yet," Goodman says.

"Now you have these perma-bears come out, the ones who are saying repent now the end is near, and they're talking about seeing another 20, 30, 40 percent decline," says Sam Stovall, chief investment strategist for Standard & Poor's.

But Stovall points out that two thirds of stocks on the New York Stock Exchange are trading at a 52 week low. He calls that a sure sign of an emotional bottom.

"Now, when everyone is telling you how bad they feel, chances are we're at a bottom and its time to buy," Stovall says.

But no one knows exactly where the real bottom will be and it could be weeks before we even know we've hit it.

"People who are trying to buy stocks, even strong stocks right now, are trying to catch a falling knife," Goodman says.

One thing that's for sure is that we're going through a period of uncertainty, David reports, as investors try to decide if it's too late to sell or too early to buy.

The experts that spoke to CBS News agreed that investors should make decisions based on facts, not feelings. So, they say, take a deep breath before you take your next step.

[rcgreene1]

Has anyone been following the European markets and the G7 decision to nationalize banking at least in part?

Will this finally get the governments in the world''s developed countries to take the bull (or in this case, the bear) by the teeth and figure out regulation that will make banking and investors not only responsive to social and economic indicators but responsible to and for the societies they are supposed to serve?

[deckardbr]

Whenever fiat-money (currency with no precious metal to back it) is allowed into an economic system, the temptation to print a great deal of it can''t be resisted. So the Federal Reserve (which is neither federal, nor does it have any reserves) slathers their Federal Reserve Notes about like toilet tissue, until they have no value at all. Therefore, you need many more of them to purchase things. That''s why it takes 300,000 Federal Reserve Notes to purchase a home that cost 100,000 Federal Reserve Notes five years ago. The house isn''t WORTH more, it just COSTS more. And when your paycheck doesn''t keep pace with "inflation", you''re toast. That''s what we have now for an economic system; lots and lots of toast.

[zykracosmos]

Most Asian stock markets recovered in early trading Monday after last week''s historic sell-off as governments around the world intensified efforts to boost the ailing financial system.

In Australia, the S&P/ASX200 index was up more than 4 percent in response to a government plan to guarantee bank and other lender deposits for three years. The benchmark plunged over 8 percent on Friday, its biggest single-day fall ever.

Elsewhere, benchmarks in Singapore, South Korea and New Zealand gained more than 1 percent, while China and Taiwan stocks traded lower.

Japan''s market, where the Nikkei 225 tanked 10 percent Friday to close out its worst week in history, was closed for a public holiday.

The region''s markets showed signs of life after European nations agreed Sunday to temporarily guarantee bank refinancing and provide fresh capital to distressed banks as part of a host of emergency measures to help the credit markets. In the U.S., Treasury Secretary Henry Paulson called Sunday for coordinated, international steps to deal with the global financial crisis.

Wall Street futures indicated a sharp rebound ahead of the opening bell on Monday. Dow Jones industrials futures rose 235 points, or 2.8 percent, to 8,605. Standard & Poor''s 500 futures jumped 19.25, or 1.50 percent, at 1,309.00; and Nasdaq-100 futures added 22.10, or 2.48 percent, at 913.10.

[samthetvcat]

---"Futures spiked up over 300 points tonight, but have since fallen below 200 up.....look for more tanking tomorrow after a brief rally to bankrupt the suckers.."---
Posted by singinrich

oh geez - I was feeling better about the market on Friday, but by today I was like whew thank goodness none of the orders I placed when through.

And then I went to check and one of them actually did go through, and you know what it doesn''t actually feel that bad once you get your feet wet again.

Everybody had this arbitrary number in their head that the market was going to tank to 8,000. So then it did.

But isn''t everybody sort of feeling like wow, everything''s undervalued only they''re waiting to make sure everybody else is feeling the same way?

You never know for sure, so so long as it''s just whatever you are willing to see go bye bye, maybe there''s benefit to keeping an eye open to the possibilities too . . . we''ll see :o

[deckardbr]

If your currency is backed by gold you don''t need faith in the government. The ONLY reason foreigners invested in our debt in the first place was because we destabilized the rest of the world to the point where they didn''t dare invest anywhere else. Now they have so much of our paper that they can''t stop lending to us for fear we won''t repay any of it. Nice scam, huh?

[random_radar]

The financial collapse is not a result of deregulation. It is a result of the government promising to back all the stupid investments. If investors were exposed to all their losses without government bailouts, they would not be such fools.

People are saying this is because of lack of regulation of a free market. There has not been a free market in America since 1913. No one has any idea what a free market would be like.

In free markets you do what you please and reap the consequences. Today''s markets have no consequences because the government is owned by the rich and they make the rest of us pay the consequences. We need more freedom and more consequences to keep people honest. Asking for more regulation plays into the hands of the rich who want complete control of your lives.

The government is a terrifying taskmaster. What kind of fools would ask to be its slaves?

[joenikk]

Dear Congress,

Even if, I could myself, run up there to that reserve vault and fix it for you, I''d still have to admit it. According to "The State", all of those stock documents, are worthless. The only thing I''d get for it, is to hand over my paycheck to some judge, and hear him tell me how "this court...has so much higher ideals than that".
Good luck, Congress. Getting those "world powers" to believe your capable of response now, without their first believing both they and youselves wouldn''t have any way of knowing if you paid, won''t be easy.
First, you might "need" to figure out who your buying stock from. I''d tell you what would happen after that but, I don''t think it would be a good time for you to define "mistrust", they''ll do it well enough for you. And, now that I''m thinking of it, it would be against the law to anyhow.
I suppose it is legal to tell you, if you were to survive the exam, that by next week end, you too, will be waiting to get your NY court mail. The thought, might then occur, "Where did this guy get that cool, little plastic hammer?" Then you''ll realise the only "U.S Government Representitive" any of those "International bankers", have ever met, is that NY State Trooper that had his hand in their mailbox, and that judge with someone else''s little plastic hammer. Who, were bolth justly and preventitivly, educating them all, the great importance of waiting in line.

Please, have a pleasent Monday.

[brianbwb-2009]

Until the liars and crooks are shaken out of the corporations, and their books demonstrate the principles of good governance, no one will trust them, the market will continue to fall.

Also until the still shrinking middle class can feel reassured that their jobs won''t be further outsourced, and there will be an end to the downward pressure on their earnings, a wise public will curb spending, and so even well run companies that produce goods and services will have no one to sell to.

[skeezix06]

Financial faith? Has the stock market now become synonymous with religion?

[neo269]

These are just speculators cutting each others'' throats - and getting what they deserve.

[hdinsight]

The "tangled web" is not of fear & uncertainty. The "tangled web" is of greed & deception.

Now that these gluttons have been caught up to their armpits in the cookie jar, the only "fear & uncertainty" the financial sector feels is generated from asking themselves, "How can I steal cookies in the future if everyone will be watching me more closely?"

[albertw40]

I might vote for John McCain if my retirement funds go back up in the next three weeks. One fund, for example, would only have to go back up $30,000. The Bush-Cheney, McCain-Gramm "deregulate everything" philosophy helped cause this mess. Bush-Cheney, McCain-Gramm should be held accountable for it.

[gop_will_win]

We need money Jesus to perform a miracle for us.

[bread57]

x

[bread57]

Demongirl60:

Giving $500,000 to every adult in the US (there are about 200 million of them) would cost $100 trillion. If you think we''re in debt now...

Plus, putting all that money into circulation would create hyperinflation on a scale unknown to human history. I''m not a fan of the current bailout, and agree that something needs to be done to help ordinary homeowners facing bankruptcy, but your plan ain''t it...

[checkthepast]

Financial faith? Has the stock market now become synonymous with religion?

Posted by skeezix06

The word ''faith'' is not synonymous with religion.
I have faith that if you think about it you will agree.

[credibility2]

Those who panic and are fearful are individuals that are superficial and rely on materialism, rather than morality, personal ethics and integrity to guide their lives. They are morally corrupt and spiritually bankrupt. And make no mistake, the greed and frenzied avarice not only occurred on Wall Street, but it also occurred on Main Street and especially with the Congress and Democrats.

[lloydbest1]

Posted by Demongirl60 at 04:36 AM : Oct 13, 2008
Posted by bread57 at 09:34 AM : Oct 13, 2008

Instead of $500000 allotment to all U.S. adults how about something like this.....?

Those whose 401K fund balances fell below $500000 would be reimbursed to either their maximum values over the past 12 months or to $500000, whichever is less. Two examples:
Person A had a 401K balance peak at $320000 last October. It is now worth $230000. My idea would be he''d be reimbursed $90000 to bring it back to the original value.
Person B had her 401K balance peak at $675000. It really tanked and is now worth only $350000. She would be reimbursed only to $500000. That''s not the full value of her peak asset base but is still a whole lot better than having to settle for $350K.
If the financial industry can demand and get a full or even partial bailout with no visible regulatory plan to insure the kind of nonsense that brought us to this sorry state ever happens again, then ordinary workers should be entitled to some kind of package or safety net themselves.
Demongirl60, your idea really is too expensive and Bread57 such expense as would be incurred by my approach will, at least be tied up in investments rather than simply handed over to spend thus avoiding an inflationary spiral.