NBC Hypes Credit Problems as Fuel for Dow Sell-off

     Is the media pushing the “credit crunch” as a catalyst for the recent decline in the stock market?


     It seems the media know why the stock market is down. Some journalists are blaming this recent correction in the stock market on widespread credit problems and point to troubles in the housing market as evidence.


     “[B]ut nothing is likely to unsettle the markets as much as more credit woes,” said NBC News correspondent Pat Dawson on the July 29 “NBC Nightly News.” “Any additional problems with mortgage defaults or companies trying to borrow and coming up short is likely to send investors running for the exits again.”


     Some in the media have worried this could be a sign of even bigger economic problems, but profits for the second quarter have far exceeded expectations and the credit problems may not be as bad as the media have portrayed.


     “[P]rofits are so important,” said Lawrence Kudlow on the July 27 “Hugh Hewitt Show.” “In fact, profits are going to solve these credit problems, which I don’t think are as widespread as some people do. But right now we are in the throes of a difficult correction.”


     Profits so far have exceeded analysts’ expectations.


     “The 313 companies in the Standard & Poor's 500 Index that reported through July 27 posted an average earnings gain of 9.7 percent, doubling the average analyst estimate of 4.8 percent, according to data compiled by Bloomberg,” wrote Tom Randall for Bloomberg on July 30.


     One analyst, David Bianco, chief equity strategist at New York-based UBS Securities, told Randall “the beginning of a liquidity crisis that may spread from subprime mortgages to elsewhere” is “far-fetched.” Standard & Poor’s companies are generating “twice as much cash as they spend and don’t rely on credit to fund growth.”


     Kudlow also suggested that credit problems would be solved if the markets weren’t operating under the threat of a tax-hike, supported by some in the media, like Newsweek magazine. Some congressional democrats want to raise the capital-gains tax rate to 28 percent from 15 percent.


     “Congressional Democrats could enhance this healing process if they would quit threatening to raise taxes on buyout firms and hedge funds whose ears are being pinned back by the bond market,” wrote Kudlow for National Review Online on July 27.

     “[T]he loan credit freeze-up currently plaguing corporate stock and bond markets would improve rapidly if Washington would befriend the markets, instead of waging war against them,” he concluded.