Stock zaniness

“Panic.” “Free fall.” These were some of the words used by traders to describe the 7 percent fall in the Nasdaq composite yesterday. Will the financial waves being made in the U.S. stock market ever hit our shores? The answer is probably a weak “sort of.”

The direct angle for folks here with money in the stock market, or retirement funds invested on their behalf in the market, is pretty obvious. So we’ll take a look at an indirect angle: In theory, a falling market would make these folks feel poorer, and the diminished “wealth effect” would reign in their spending. I don’t think most folks in the Commonwealth are living off of their investment portfolios, though, and the wealth effect is probably not a major factor here. The mainland U.S., though, certainly is at the mercy of the wealth effect.

And it’s just that market that we depend on to buy our locally produced garments. Thus far, though, the diminished wealth effect of the recently falling market isn’t a substantial event. It is, though, potentially substantial, and if the stock market was to melt down, we’d feel a bit of the heat.

For some reason, stocks make headlines but bonds never do. Stocks are riskier and sexier. But the bond market is something for us to keep an eye on. Bond prices are what sets interest rates (or, conversely, we could say that interest rates set bond prices, I s’pose). We’re all hostages to interest rates, either directly or indirectly. The direct angle, of course, would be what we earn on our bank balances, and the interest charges for credit cards, auto loans, mortgages, and such. Changing rates bring a changing financial landscape to households.

Indirectly, interest rates are like economic air. You don’t see them or think about them often, but they’re a part of the entire financial atmosphere. Higher interest rates mean higher costs for businesses that need to borrow cash. Higher costs for businesses, of course, aren’t good news for consumers or for employees. Conversely, lower interest rates can grease the economic skids and allow more business growth.

Moving from business to government, interest rates are, of course, a big issue when it comes to the Commonwealth borrowing money for various projects.

It’s the bond market, then, that holds the big sway over the CNMI’s economy. Stocks aren’t as critical of an issue for us here as they are for our friends in the states. And as for bonds, the market is being yanked in several directions, as some got cheaper lately, while others had their prices bid up. Don’t ask me what’s going on with that situation. Your guess is as good as mine.

By the time this edition hits your breakfast table, the U.S. market will have either righted itself or the market fall will have continued into panic territory. As I right these words, there are a lot of nervous fingers on financial triggers in America.

Well, let them sweat it out. We’re not as linked to this crazy market as mainland America is.