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Market gyrations cause heartache, economic pain

Bob Moon Aug 10, 2011
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Kai Ryssdal: We’re obliged on what feels like the umpteenth day of 400- or 500- or 600-point swings in the Dow Jones Industrial Average to begin with some vocabulary.

Here you go.

Volatility

One more time, in case you missed it.

Volatility

A tendency to vary often or widely, as in price. Unpredictability, if you will.

Today’s fingers of blame for the market swings point to the French banking sector. But whatever the cause, the stomach-churning ride on Wall Street of late is starting to become a worry in and of itself. Here’s our senior business correspondent Bob Moon.


Bob Moon: Everyone can hear the screaming from this Wall Street rollercoaster, and investment manager Hugh Johnson says to some degree, the real economy is taking a back seat to all the noise.

Hugh Johnson: Right now, quite frankly, the level of volatility makes investors take their mind off important fundamentals and think about just preserving their capital. So it’s not, in my judgment, this level of volatility, is certainly not a good thing.

Consider this: Transfers in 401(k) accounts monitored by the tracking firm Aon Hewitt were four times the normal amount on Monday — in excess of $1.6 billion moved out of stock funds and invested primarily in bonds.

That’s a worrisome sign for Wall Street historian Charles Geisst, a professor at Manhattan College. He fears investment capital, to grow existing businesses and start new ones, could dry up the way it did during the Great Depression, preventing the hiring of new workers.

Charles Geisst: I think that if investors are too badly scared by this, maybe to the point where some of them are starting to rethink their investment strategies entirely, that lack of capital investment will only become more of a self-fulfilling prophecy. No one will buy these new issues, the capital won’t be raised, employment won’t be created.

Indeed, so far nine companies have either scaled back or postponed plans for initial public stock offerings this week because of all the uncertainty.

So what can be done to calm these troubled waters? Frank Fantozzi is a wealth manager at Planned Financial Services.

Frank Fantozzi: When you don’t have faith in your leadership, it’s tough to feel good about everything else.

In fact, all the market experts I spoke to today led off with that same answer: This fear will continue until investors start having faith that the federal government is serious about tackling our economic problems.

I’m Bob Moon for Marketplace.

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