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Economic Uncertainty

August 8, 2011, 9:50 PM by Angela Kennecke

Economic Uncertainty
SIOUX FALLS, SD - An Augustana professor says it's unemployment figures, along with a number of other economic indicators, that are really driving the stock market down and not the Standard & Poor's downgrade of the U.S. credit ratings.

The Dow Jones industrials closed down 634 points, or 5.5 percent, Monday.  It's the first time the Dow fell below 11,000 since November and its biggest one-day point drop since December 2008.

The big dip in the stock market on the heels of the Standard and Poor's downgrade of the U.S. credit rating was all the talk on 24-hour news channels. But Augustana Professor Robert Wright says it's no surprise.

"For people who follow this, it's not really news. S & P has been talking about downgrading for months now. I guess the surprise is it had the chutzpah, or fortitude, to go through with the downgrade," Wright said.

Wright doesn't think the stock market is reacting to the S & P announcement because the treasury market actually went up. Wright's latest book, which he co-authored with a Wall Street Journal reporter, lists a number of economic indicators that affect investing.

"The key now is to look at those leading indicators to try to get a feel to where the economy is going to go over the next several weeks and months," Wright said.

Wright says those indicators are all soft, which could mean another recession.

"Or what some economists call a 'funk,' which is a period of anemic, where there's still high unemployment. Growth might be positive, but it's not at the three percent inflation level we'd like to see," Wright said.

Wright says blame it on the sub-prime mortgage mess that's left so many Americans still upside down on their homes. And Wright doesn't think S & P's ratings will lead to higher interest rates for consumers.

"That means this is much ado about nothing. Basically what S & P is saying is there is a chance that United States will not be able to repay its debts in the future without causing inflation. Everybody knew that already," Wright said.

And what about how all this is affecting your 401(k)? Wright says just as your portfolio rebounded from the value it lost in 2008, if you hold tight within a couple of years that most likely will happen again.

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