-->Remember the"wealth effect" much touted in the late 1990s?
Remember how millions of Americans would open their brokerage
statements, feel suddenly flush with riches, and spend their
paper profits on real estate, SUVs, high-tech gadgetry, and more?

Now, brace yourself for one of the most dramatic reversals in
the wealth effect in modern history!

This week's plunge in the stock market is just the first
sign that this reversal is already under way. The next sign
will come when major stock indexes plunge below their July lows,
wiping out every single gain made throughout August.

The Nasdaq is just a hair away from its July low. The Dow and
the S&P are also in striking distance. Once those lows are
smashed, watch out below! The Dow is bound to tumble to 7,200
and beyond.

Clearly, the dramatic wealth-effect reversal has begun --
just based on the stock market declines that have taken place
to date.

Household net worth plunged $1.4 trillion in the second
quarter, according to the Federal Reserve. In other words,
Americans are getting poorer.

The value of their assets (homes, cars, retirement funds) minus
the cost of liabilities (credit-card debt, mortgages) is 3.4%
less than it was in the first quarter. That means that either
their assets are getting smaller or their liabilities are
getting larger -- either would be bad enough, but...

According to the Fed's numbers, it's BOTH. The value of assets
is falling AND, at the same time, debts are increasing. That's
a dangerous mix.

The main contributor to this wealth drain is the falling stock
market. Stocks fell $877 billion from the first quarter; mutual
fund assets dropped by nearly $200 billion; and pension holdings
cratered $469 billion.

Are home values going up? For now, yes. But the rising value of
household real estate wasn't nearly enough to offset falling
stock prices. The real estate values increased $291 billion --
stock losses alone were THREE times this amount!

At the same time, household debt, such as mortgages, rose
$157 billion and consumer-credit debt increased by $30 billion
in the quarter!

No wonder housing starts fell for three months in a row! No
wonder auto sales in the first half of September are well off
July and August's pace, despite fat and generous financing deals!
Most shocking of all: Retailers' back-to-school sales were
terrible. That portends a bad holiday shopping season as well.

And Wall Street's"experts" were still telling you -- just days
ago -- that we had seen"THE bottom" in the market?! That it was
"a great buying opportunity"?!

Let that be a lesson: You can't trust them! If you do, they will
trap you into more losses. Instead, take advantage of any rally
in the stock market and use it as an opportunity to GET OUT. The
reversal of the wealth effect is just beginning to hit. When it
does, the market will spiral down to even lower lows.

Just look at the news from this week and you will see what we
mean...

* Stocks are collapsing! Stocks plunged 230-plus points on
Thursday. And since the rally peaked on August 22, stocks
have fallen nearly 13%. There is still much more downside to
come... it's not over yet.

http://www.safemoneyreport.com/home/daily.asp?archive=091902

* JP Morgan -- the earnings miss heard 'round the world!
The banking giant announced Tuesday that third-quarter
earnings will be"well below" previous estimates of 58 cents
per share. The bank blames $1.4 billion in loan losses and
other losses related to Enron, WorldCom, Global Crossing,
and Argentina.

In fact, JP Morgan's non-performing assets -- those loans that
it has little hope of collecting -- have been on the rise for
the last SEVEN quarters in a row, reaching $4.4 billion last
quarter. When the latest numbers come out, JP Morgan's bad
loans should be much, much higher.

http://www.safemoneyreport.com/home/daily.asp?archive=091802

* US industrial production stumbles. The Federal Reserve said
industrial production fell 0.3% in August, after slowing in
June and July. Here's the kicker: The last time industrial
production fell was last December, when the US was deep in
recession.

http://www.safemoneyreport.com/home/daily.asp?archive=091702

For all of these stories, visit:
http://www.safemoneyreport.com