[Fish2006]

The 500 point drop was a glitch in the system - it was more of a gradual drop over about 40 minutes (someone did a study of actual prices of the stocks that make up the index over that time period and computed the index correctly).

Real estate - well, I agree to a point. The primary thing that will happen is that people will stop moving, and wont be able to refinance, which stops the ability of people to get equity from their houses and spend it. Prices in real estate will go down probably another 10%. Personally, for me, I am thinking it might be the ideal time to buy a vacation home - perhaps another year down the road... but it will probably affect consumer spending at the margins. If would be worse, but wages are finally starting to spike, and across the economy as a whole, that should keep us Americans consuming crap just like we have always been.

The big story in the news with regard to real estate affecting the stock market is the subprime loans, alt-A loans, and option arms coming due (i.e. deliquencies are up something like 20% in the last 2 months nationwide). Thankfully, as common as it may seem, subprime and alt-A are only 5% of the mortgage market. I don't see a problem unless you a.) work in subprime mortgage servicing or origination or b.) need to get a mortgage with marginal credit, or c.) have a stock portfolio that has a sector weighting towards subprime mortgage companies. It is big news, but it gets drawfed by what is really causing the correction... which is...

The dollar weaking against the yen and the euro, which makes dollar denominated stocks worth less than before. The credit market that is most vulnerable is not the mortgage credit market, but its all this cheap money being lent out to do LBO/Mergers/Aquisitions. Any time you see everything drop - all sectors, it is usually forex related.