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Five Things You Need to Know: Wall Street Woes Reverberate Through Main Street


As the echoes of Wall Street's "drunkenness" trickle down to Main Street, the real impact of a consumer-led slowdown will begin to appear, and the vapidity of the "all is well" chorus from bankers and brokers on The Street will be revealed.


Kevin Depew's Five Things You Need to Know to stay ahead of the pack on Wall Street:

1. Wall Street Woes Reverberate Through Main Street

Someone once said about the Great Depression: "Just when we thought it was over, it was really only beginning." It feels that way these days as well, largely because the headlines for the past year have detailed every nook and cranny of Wall Street, crevices containing bizarre speculative vehicles most of us wish we'd never heard of: subprime mortgages, asset-backed commercial paper, credit default swaps, mortgage-backed securities, enhanced money market funds, and on and on and on.

But that was just the warm-up. Now the fat's in the fire. An article in this morning's Wall Street Journal detailed how states are facing a nearly $40 billion shortfall in the current fiscal year. The math is pretty simple.

Sales-tax collections have been depressed by the deflation of the housing bubble. Faced with higher food and energy costs, consumers have reined in spending. Personal income taxes have been eroded by higher unemployment, corporate income taxes by declining profits.

The economy isn't a Wall Street story, it's a Main Street story. As the effects of Wall Street's "drunkenness" trickle down to Main Street, the real impact of a consumer-led slowdown will become apparent - and the vapidity of the "all is well" chorus from bankers and brokers on The Street will be revealed.

2. Home Sales "Something of a Quandary"

The National Association of Realtors reported sales of previously owned homes dropped 2.6% in June, more than double the expected decline, and are 15.5% lower year-over-year.

NAR President Richard F. Gaylord, a broker with RE/MAX Real Estate Specialists in Long Beach, California, said in a press release that there's something of a quandary in the current market.

"A recent online survey of Realtors shows nearly a quarter of potential home buyers are waiting on the sidelines," Gaylord said. "However, timing the market can be very tricky, which is why home buyers should always have a long-term view to build wealth."

3. The "Longer-Term View"

Yes, as NAR President Richard Gaylord wisely advises, home buyers should take a "long-term view" to building wealth. As opposed to the apparently shorter-term views written by (then-NAR chief economist) David Lereah:

February, 2005: Why the Real Estate Boom Will Not Bust - And How You Can Profit From It

April, 2007: All Real Estate Is Local: What You Need to Know to Profit in Real Estate - in a Buyer's and a Seller's Market

Other forthcoming titles in this series:

2009: "Why the Phrase "Real Estate Boom" is Often Misunderstood to Mean Higher Prices and How You Can Pray for Them."

2010: "Why the Real Estate Boom Will Soon Bounce Back and How to Eventually Profit From It."

2011: "Why Did I Have to Write "The Real Estate Boom Will Not Bust Through the End of the Decade" and How Did I Not Realize How Long A Decade Really Is?"

2012: "Oh, Dear God, Please, Please Let the Real Estate Boom Bounce Back... and How You Can Profit From It."

2013: "Please, Please, Just Let the Real Estate Boom Come Back This One Time for This One House and How You Can Break Even From It."

2014: "Why I Am Willing to Accept a Small Loss of 35% On the Real Estate Boom and No Longer Care About How to Profit From It."

2015: "Can I Maybe Borrow a Couple Dollars Off You Until the Real Estate Bust is Over?"

4. Washington Mutual Not Accepting IndyMac Checks, Fueling More Panic

The LA Times is reporting that waits and lines have improved at many IndyMac branches as customers rush to close their accounts at the failed bank, but new problems are arising for people attempting to deposit those IndyMac checks at other institutions.

According to the Times, Sheryl MacPhee said a Washington Mutual (WM) manager told her that, under a new corporate policy, the bank was not accepting IndyMac checks. Officials at the Office of Thrift Supervision, WaMu's chief regulator, are investigating complaints about the checks, agency spokesman William Ruberry told the newspaper.

Wells Fargo (WFC)is also placing holds on many IndyMac checks as a precaution, the company said.

5. Socionomics of "Plot Thinning"

As the rush to disassociate from the bull market's symbols of aggressive consumption continues, the backlash against the consumer culture is showing up with increasing frequency in a wide variety of spaces. Take, for instance, today's New York Times piece on summer novel,: And the Plot Thinned.

The headline summary says it all: Novels informed by the values and brands of fashion are starting to pump that well dry. Cultural critics are beginning to take up the mantle of anti-consumerism, rushing to deride the very plotlines and consumerist storytelling they formerly embraced.

Clare Ferraro, the president of Viking, told the Times that such books provide "a kind of balm for hard times, in the same way that glamorous movies did during the Depression." But as the writer of the piece quickly added, "On some level, though, it is terrible to imagine what these books say about ourselves, as escapist as they are meant to be."

Indeed. Hence, the increasing backlash.

No positions in stocks mentioned.

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