Self Fulfilling Cycle

Fed Chairman Says Economy Likely to Slow....

http://www.nytimes.com/2007/11/08/business/09fed-web.html?ei=5065&en=2d73b75dc3e556dd&ex=1195189200&partner=MYWAY&pagewanted=print

This article highlights exactly why Wall Street keeps me up at night. Bernanke goes before the Senate to testify yesterday and begins to tell them that the next few months for both the economy and the stock market are going to slow noticeably. Meanwhile investors on the street listening to the hearing begin selling and they sold the market down over 200 points. The question now is this: Did Bernanke in effect drive this market decline by forecasting a decline? Many market analysts say these daily swings and gyrations of the market have no effect on the long term financial stability of markets, however i disagree for several reasons.

1. As an amateur investor statements like the one Bernanke gave yesterday will resonate in my mind for months whenever I look at my portfolio. Every potential decision I make regarding my investments will be made with his statement "slowing noticeably" still ringing in my ears. It will stop me from making I would estimate three investment decisions over the next quarter. Now detractors may say that I should not be making investments into an unstable economy regardless however I believe a great amount of the market instability that will be felt over the next three months is a result of squeamish people like myself scared that the market will decline.

2. Bernanke's statements yesterday were accompanied by a statement regarding the future of interest rates and the Fed's decisions. In this case Bernanke spoke out of both sides of his mouth. One one side he said that the financial markets will continue to decline in the coming quarter and economic growth will slow to a crawl. While saying this he alluded to the fact that interest rates will remain stable. Why with the economy declining, instability, and economic growth dropping 3% points below summer averages would he not offer the salvation of further interest rate drops. And if he could not commit to that at least leave the option on the table.

3. October November and December are a turbulent time for the market every year regardless of the market cycle due to tax implications. These statements only further unsettle investors in an already turbulent time of the year.

Yes Mr. Bernanke the U.S. Economy is very diversified however the difference in this decline is that it effects almost every American household's primary investment; their house itself. This will not be isolated to just the mortgage and housing industries because of it shakes the very foundations of nearly every families wealth which will have far reaching effects into every aspect of the economy.