Wall Street and Beach Road
All major U.S. stock market benchmarks tumbled last Friday–including the mighty NASDAQ. The Dow Jones industrial average closed below the 10,000 level–for the first time since April 1, 1999.
We clearly have a market correction, but do we have a bear market on our hands? The question is quite relevant, even to the average CNMI citizen, who probably remains largely unaware of his personal stake in America’s equity markets.
The CNMI government worker, for example, is an active participant in America’s financial markets. The CNMI Retirement Fund invests a substantial portion of its $400 million nest egg in the American market. Our government workers therefore contribute a portion of every paycheck to the U.S. market.
The CNMI worker who deposits his earnings into a regular bank savings account is also an active participant in America’s financial markets. CNMI banks control approximately $500 million in customer deposits. But the entire $500 million is not loaned out to local residents and businesses. Only a small percentage of those deposits circulate in the local economy; the rest is invested abroad, for higher (and presumably, safer) returns.
Even the average garment factory worker, local and nonresident alike, has a stake in America’s equity markets. When U.S. stocks soar, American investors (now approximately 50 percent of all U.S. households) profit. And this, in turn, creates the “wealth effect,” which allows American consumers to feel more affluent and thereby purchase more CNMI-made clothing. The United States is still our primary export market.
The United States is also Japan’s primary export market. Without American consumption and rampant trade deficits, Japan’s economy would be in even worse shape than it is in today.
Japan, of course, is still our number one tourist market, which means that, without America’s stock market-induced wealth effect, Japan’s exports would probably suffer to such an extent as to significantly curtail Japanese tourism in the CNMI.
So, one way or another, either directly or indirectly, Wall Street is inextricably tied to Beach Road, Middle Road, Chalan Kiya, and so forth. We in the CNMI, as with the rest of the world, are deeply affected by the developments on Wall Street.
In the last two weeks alone, my individual retirement accounts lost $2,000–a whole year’s worth of contributions.
Let it not be a bear market yet.
