Economy Watch: Garden-Variety Crash or the Popping of a Stock Bubble?

Has it risen to the level of a crash?

By Dees Stribling, Contributing Editor

Has it risen to the level of a crash? For what it’s worth, feed the words “stock market crash” into Google (as of Monday night) and there are more than 5,000 stories pulled up by the Google news aggregator. A good many of those aren’t related to the current situation faced by investors in equities markets around the world, which is making them decidedly anxious. But a good many of the Google-captured articles are about the crisis, from all sorts of angles: “Why Stocks Are Melting Around the World,” “This Graphic Explains Monday’s Stock Market Crash,” and “4 New Truths from the Stock Market Crisis of 2015” The Crash of 2015, it might end up being called.

There have been crashes before. And it the risk of sounding like Herbert Hoover, most of them right themselves before too long. That’s even been the recent experience. In 2011, around this time of the year, the Dow (for instance) lost 5.6 percent in one day, triggered by a downgrade of U.S. sovereign debt. S&P had its reasons, as it noted: “the downgrade reflects our view that the effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges to a degree.” That summer, a few members of Congress had made noise about allowing the United States to default on its debt, which is the linchpin of the world economy. That talk went away, and while the markets were rocky for a few months, they did recover.

There’s nothing quite like that now. Mostly more abstract worries are cited — China, gas prices, and so on. Maybe so. The current cash seems bubble-flavored. During the worst of the recession, when plenty of investors are still heavy with cash, they’ve hunted (and found) stock bargains. Investor interest in the markets revived, and the economy did passably well, and pretty soon the early investing momentum morphed into the sustained gains. Under a bubble scenario, sustained gains often take on a life of their own, and it’s a party for investors because of fat returns. That is, until there’s a crash.

What does it mean for the various kinds of real estate? No answer to that yet. But the data are coming in, just like for the wider markets. This is one bit: REITs as an investment vehicle has already been a little sluggish this year. Even before August, the Bloomberg index that tracks REITs had lost 2.6 percent. As of Monday, the gauge was down 5.6 percent for August (for comparison, for the last month, the Dow has lost about 9.6 percent). Real estate stocks, at least, are feeling the heat as well.


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