Risky Business Weights on Stocks
The stock market has for the past few years climbed up the classic wall of worry. Ignoring higher oil prices, problems in the US housing market, and everything else the market advanced to record highs, briefly reaching over 14,000 on the Dow.
The reason that stock prices have advanced over the past few years has largely been because of the unprecedented explosion of liquidity around the world. The US Federal Reserve has been expanding the money supply at a breakneck pace in an effort to prop up the US economy.
However, now it appears that the party is over. Fears of a credit crunch created by the meltdown of the US sub prime loan home lending market are beginning to take their toll. Last week the stock market had its worse week in four years with a quick loss of nearly eight hundred points on the Dow.
It is as if the risk of lending money to people who will have trouble repaying the loans has suddenly been discovered by financial institutions and investors. Imagine that.
Someone who makes $30,000 a year but lied on their loan application and reported a $60,000 a year income can not keep up with $2,000 a month house payments. Multiply that little example by the millions and you will get some idea as to how serious the meltdown in the sub prime lending market may be.
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