Markets Continue to Lose Steam

The stock market continues to lose steam as the economy slows down.

Markets fall after dip in US jobs

Global stock markets fell sharply after shock US jobs data ignited concerns about wider economic prospects.

The surprise 4,000 reduction in the US workforce in August sent the main Dow Jones index down 250 points to 13,113.

Several thoughts come to mind. First, I would look for the Fed to continue to ease interest rates.

Michael Metz, chief investment strategist at Oppenheimer & Co in New York, reacted to the latest employment figures with gloom.

"It's dreadful ... it seems to me almost inevitable we're heading for recession," Mr Metz said.

The figures will add to pressure on the Federal Reserve to lower interest rates.

Fed chairman Ben Bernanke has stated that he is prepared to act to prevent credit difficulties sparked by the sub-prime crisis from damaging the US economy.

Second, that would mean a further lowering of the dollar value on the international market. That is not at all a bad thing, as it encourages exports to to other countries. But it will also make imported crude oil more expensive.

Third, one item that has been lost in all the recent economic news has been the change to the "uptick rule." The "uptick" rule was put in place by the SEC in 1938 and required short sellers to close out their short market positions after an uptick in the stock price.

That rule kept short seller speculators from spreading rumors and trying to drive the market down to make more money off their short positions.

Well, the SEC cancelled the uptick rule on July 6 of 2007. Consider the volatility we have experienced in the market since early July. I'm not saying all the market drops since July are due only to the elimination of the uptick rule, but it sure did not help.

I think the SEC may need to reconsider their change to the uptick rule.