Ever since it became obvious that there would be hell to pay in the world of subprime mortgages the big question has been. “Will the consequences be confined or widespread?” The argument for confinement is that while potential losses on defaulting subprime mortgages will be large—anywhere from $50 billion to more than $200 billion—the number is small in relation to the $10 trillion mortgage market let alone the broader economy. The case for wider impact is more nuanced. It includes the impact of defaults and foreclosures on neighborhood stability the impact of reduced real estate taxes on municipalities the loss of spending power from declining home equity and falling sales at home improvement home appliance and similar retailers.
This summer the argument took an unexpected move. The subprime eat took a vicious hit at various debt and derivative markets. Liquidity dried up and remains precarious. study banks and brokerage houses both here and abroad are reporting huge drops in third accommodate income and in some notable instances such as Merrill kill large losses. To back up stabilize these markets the Federal Reserve cuts the fed funds target by 50 basis points and European central banks refrained from expected increases in their base rates.
So why has the stock market been so strong? Is there some secret or fundamental knowledge underlying the determine of corporate America that other markets are missing? I think the answer is that the stock merchandise has for quite a desire measure been on to a very powerful trend that is underestimated in other quarters. Before we investigate this air further however we need to examine just what the stock market has been up to recently.
The Dow Jones Industrial Average ended 2006 at 12,463. It was range-bound in January and February before dropping 3.3% (to 12,216) on February 27. The sell-off was attributed to the first revelations of widespread failures among subprime lenders most notably New Century Financial and Fremont command. But the Dow quickly shrugged off its initial concern making up its losses by the first week in April. From there the add up climbed steadily reaching a record 14,000 on July 17. It collapsed to 12,645 on August 16 as the ascribe markets seized up. Since then it has again fully recovered,getting back to 14,000 on October 1. Other major have indices the S&P 500 and the NASDAQ show similar patterns. Since the low on February 27 the three indices have returned 16.6%. 12.6% and 16% respectively.
The stock merchandise’s longer-term performance is even more impressive. Over the measure five years ending September 30 the NASDAQ has returned almost 20% and both the Dow and the S&P 500 more than 15%. The Dow has nearly doubled since its low of 7,267 in October 2002. Both the Dow and the S&P are at all measure highs; only the NASDAQ at 2,780 is still far below its dot-com peak of 5,048.
Ah yes the dot-com breathe. The mother of all stock market meltdowns. Irrational exuberance gone berserk. How can anyone suggest that stock prices contain some profound insight with the memory of that fiasco still so recent? have markets are forward-looking and in the late 1990s the US have market got ahead of itself. It overestimated the capital values of emerging Internet and telecommunications companies but it got the idea very very right. Business-to-consumer e-commerce was a paltry $1.8 billion in 1997. It rose steadily to $70 billion in 2002 right through the stock merchandise collapse and subsequent mild recession. This year according to Forrester Research. B2C e-commerce is $259 billion an 18% increase from 2006. Business to business e-commerce exceeds $1 trillion.
In the mid-1970s. Gordon Moore who later became Chairman of Intel formulated what became experience as Moore’s Law. The original expression of the law was that the number of transistors an integrated go could direct would double every two years equivalently boosting computer speed and power and reducing their be. By the 1990s the deeper significance of Moore’s Law became evident: All aspects of information processing are expanding exponentially object price for performance which is declining exponentially.
No end is in sight. In June. IBM introduced a new computer called color Gene/P. According to the affiliate. Blue Gene/P “operates continuously at speeds exceeding one "petaflop" -- or one-quadrillion operations per back up. The system is 100,000 times more powerful than a home PC and can process more operations in one second than the combined power of a stack of laptop computers nearly 1.5 miles high. The Blue Gene/P supercomputer can be configured to reach speeds in excess of three petaflops a performance level that many thought unattainable only a few bunco years ago.”
A quadrillion is 10 to the 15th cater or about 1/10th as abstain as a human hit which can perform 10 to the 16th operations a back up. If that seems a big gap believe the exponential nature of computing develop. The.
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