There’s an old saying that says “whatever goes up must come down”. And in reference to world stock bourses, including the Tel Aviv Stock Exchange, “coming down” is looking like nothing less than a catastrophic free fall. After dropping an average of nearly 3 percent yesterday, today’s opening looks like it could end even worse as stock markets all over the worlds are falling between 7 and 10 % per day over the dismal news concerning the problems of the American economy, still considered as the largest economy in the world.
There are a number of reasons why all this is happening, including the energy crises, global warming and climate change, the continuing aftermath of Al Qaeda sponsored terrorism, and perhaps (for the outgoing Bush Administration anyway) the nearly 5 year disaster known as the U.S. led invasion of Iraq. As for Israel, the economy here is heavily tied to the fortunes of the American Economy as Israel’s biggest economic pluses in recent years have been connected to technologically based industries, especially information technology and bio-technology. Due to Israel’s mounting political problems in the aftermath of the 2006 Lebanese war and the conflict with the Palestinians in which most European countries consider Israel as an occupying aggressive oppressor of “Palestinian rights”, Israeli companies have had to rely more and more on the USA to market both products and services.
With crude oil prices hovering at close to the $100 per barrel mark, and after the U.S. Treasury has wound up spending over $200 billion in it’s continuing war against insurgents in Iraq, these and other problems, including the mortgage loan crises, have brought the American economy to the brink of what is being talked about as a major economic recession; one even greater than the one of 1991-94 that resulted in the U.S. President George Herbert Bush (G.W.’s dad) losing his re-election bid to Bill Clinton, and at least half of the workers in high paying aerospace industries in California and other states looking for $1,000 per month sales jobs in cities like Atlanta.
The “R” word, meaning recession, is definitely being talked about these days, and is bound to arrive at Israel’s doorstep sooner or later. After all, the Tel Aviv stock indexes have been rising too high for too long, and as other bourses start “heading south” stocks in Israel are bound to go that way too. Many Israeli companies, especially the high tech ones are posted on the NASDAQ, the American “over the counter” stock exchange that for years has become one of the most popular indexes for technological based companies to be listed on. These stocks are often very fickle and any reverberation in economic fortunes can cause them to fall quite rapidly. Many NASDAQ listed stocks are selling for as much as 30 times the actual earnings of the companies they represent, which mean that a lot of speculation is involved in pushing up their trading value.
As a result, they are now leading the markets in a very troubling direction. Everyone will be watching which direction Wall Street will head today, following the breaking news announcement that the US Federal is lowering its prime lending rate by 0.75%. The Dow dropped by 500 points on Monday and even the Fed’s attempt to bring stability into the financial markets may not be enough to stop the fall, as the problems of the mortgage crises and other financial concerns remain. Most home mortgages are fixed rate ones that keep the same interest rate during the life of the loan.
What the intermediate to long term outlook for Israel’s economy will be as a result of these market flip flops remains to be seen. But for sure, if the “R” word becomes reality in America, it’s bound to reach Israel sooner or later.