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					Name: ________________________________             Date: ____________________________

       Journalism            Simplifying Complex Issues           Mrs. Lindbloom

Overview: As a journalist, you will be expected to take complicated matters and explain them
in terms that the average person will understand. To do so, you need to understand the issue
yourself. This week you will look into the dip that the stock market took on February 27, 2007
and will try to explain the issues behind it.

Review: Technical terms that relate to a specific field are known as ________________.

Directions: Complete each step below. This assignment is due Friday.

Step 1, Prewrite. What do you know about what happened on Tuesday? What don’t you

Step 2, Slideshow. Visit the slideshow located at
Keep the following questions in mind as you look at them.
     What story do you think the pictures tell?
     Who do you think the people in the picture are?
     What do they seem to be doing, thinking and/or feeling?

Now write a paragraph explaining what questions were answered by looking at the photographs
and what questions you still have.
Step 3, Article. Read the following article as a class. Use the following questions as a study
guide. You do not need to answer them.
a. What country experienced a sudden decline in its stock market on February 27?
b. What other markets were affected by the fall of the Chinese market?
c. What assumptions might you make about the Chinese economy and its relationship to the
world economy based on the effects of the crash so far?
d. By how much did their markets decline on the day of the crash?
e. How would you describe the activity in the markets the day after the crash?
f. What assumptions might you make about the health of the markets based on their activity the
day after the crash?
g. What factors were cited as possible causes of the decline in the Chinese market?
h. What effects do some experts speculate may occur as a result of the crash?
i. What data or information do they point to in support of their predictions?
j. Who is Ben S. Bernanke, and what was his response to the news?
k. What effect might his decision about U. S. interest rates have on the global economy, and
what might this indicate about the U. S. economy and its relationship to the global economy?

Step 4, Cause and Effect. Create a cause and effect chart to explain what happened with the
global economy on Monday. Consider the following as you do so:
    What caused the Chinese markets to fall?
    What are actual or potential effects of the fall?
Step 5, Jargon. Find ten economic terms in the article that you did not know before. Write
them and their definitions below.

Word                                       Definition

Step 6, Choosing the Right Words. Note that the article says that the market fell, not that it
crashed. Would saying crashed influence the way that readers interpret the article? Why would
a good journalist avoid using the word crash?
U.S. Market Recovers with Small Gain
by Jeremy W. Peters and Keith Bradsher
The New York Times
March 1, 2007

The stock market began climbing out of the deep trough it slid into on Tuesday, rising modestly
today as investor fears about a cooling economy seemed to ease somewhat.

Most international markets, however, traded off sharply today for a second day, with losses of 2
percent or more in many major Asian bourses and 1 percent declines common in Europe. But the
New York Stock Exchange began advancing from the opening bell at 9:30.

The gains were small and a bit fleeting at first. But by the 4 p.m. closing bell, the Dow Jones
industrial average rose 0.4 percent to recover about an eighth of its 416-point loss on Tuesday.
Its close was 12,268.63, up 52.39 points. The Standard & Poor’s 500-stock index gained 7.78
points, or 0.6 percent, to 1,406.82.

The broad global sell-off of stocks on Tuesday marked the biggest plunge for the American stock
market in nearly four years. It wiped out all the gains the Dow and the S.& P. had made for the
year. By the end of trading today, those gains were still gone, with the two indexes remaining
about where they had been at the beginning of December.

The Nasdaq composite index, heavy with technology stocks, fell even harder than the Dow on
Tuesday and opened weakly today. But by the end of the trading day, it was up, too, closing at
2,416.15, a gain of 8.29 points.

The apparent trigger for the global slump on Tuesday was a spectacular 9-percent fall in
mainland China’s two major bourses in Shanghai and Shenzhen. Both rebounded sharply today,
rising nearly 4 percent today after state-controlled media reported that the government might
allow greater foreign investment in Chinese stocks and would not impose capital gains taxes on
stocks soon.

In Washington, the Federal Reserve chairman, Ben S. Bernanke, told lawmakers today that the
turmoil in the Asian markets and the repercussions on Wall Street are no cause for immediate

“We are looking for moderate growth,” Mr. Bernanke said before the House Budget Committee.
He said that, considering all the new data, including today’s reports showing tepid expansion of
the gross domestic product and a sharp contraction in new home sales, “there is really no
material change in our view” of the economic outlook.

Mr. Bernanke’s remarks, which briefly pushed the Dow up more than 100 points in the morning,
came soon after the government said that the United States economy expanded at much slower
rate than previously thought. The Commerce Department reported today that the gross domestic
product inched ahead by 2.2 percent in the fourth quarter of last year, just ahead of the 2 percent
growth in the third quarter but sharply down from the government’s previous estimate of 3.5
percent growth in the final three months of the year.
Analysts said that today’s rebound probably had more to do with Tuesday’s fall than anything
contained in Mr. Bernanke’s remarks or government economic reports.

“You had a substantial shock to the system,” said Henry McVey, chief United States investment
strategist for Morgan Stanley. “I think it would have been highly unlikely, unless we’re going
into a structural bear market, that the market would be down again today. And I don’t think
we’re going into a structural bear market.”

Markets elsewhere in the world continued to slump today, especially in their first hours of
trading. In Tokyo, the benchmark Nikkei 225 index quickly plunged 4.1 percent, mostly in
reaction to Tuesday’s losses in Europe and New York, but by the close of its trading day, it had
recovered a bit to finish with a 2.9 percent decline.

In Hong Kong, the Hang Seng index finished with a decline of 2.5 percent; it too pulled back
from even steeper losses in the morning. Practically every other stock index in Asia outside of
mainland China also fell.

The pattern was the same, though less severe, in the major European markets, most of which
finished with losses around 1.5 percent.

Given the rebound today in mainland Chinese stocks, which investors in other markets appeared
to ignore, “this morning’s price reaction in Europe shows it is not just China,” said Nigel
Richardson, the Hong Kong-based chief investment officer in Asia for AXA Investment

The managing director general of the Asian Development Bank, Rajat M. Nag, said in an
interview in Hong Kong this morning that the economic fundamentals of most Asian economies
remained strong. But the region remains dependent on exports to markets, especially the United
States, where the growth prospects are cloudy, Mr. Nag said. China is among the most dependent
of all, he said, with international trade in goods equal to 65 percent of its economic output last

“We are still fairly bullish on the Chinese economy’s growth potential,” Mr. Nag said, but its
dependence on exports “is a vulnerability.”

One reason is that China has managed its currency, the yuan, limiting its rise against the dollar to
keep exports strong. In doing so, though, Chinese officials may have indirectly help create what
some experts say are speculative bubbles in China’s stock and real-estate markets.

The government has been buying dollars from exporters and foreign investors alike on a huge
scale, and issuing hundreds of billions of yuan notes to pay for them — currency that may not
otherwise have entered circulation.

The government has tried to contain the potential inflationary effect of issuing so much currency
by having banks and individuals buy government bonds with them, and then effectively tearing
the yuan notes up. Since not all the yuan can be clawed back this way, much of it ends up on the
stock and property markets instead, driving up prices.
The plunge in share prices on Tuesday has raised questions about the long-term sustainability of
those high prices for Chinese assets. But it remains unclear how much they matter to the rest of
the world.

Government regulations have restricted foreign investment in these markets to insignificant
levels by international standards, though those rules are to be relaxed a bit under the policy shift
announced today. In addition, most Chinese still put their money in bank accounts or in real
estate instead of buying stocks, and Tuesday’s plunge, while dramatic, merely returned the
Shanghai stock market to where it began the month.

The consensus of economists today was that the volatility in mainland stocks would have little if
any effect on the enduring strength of economic growth in China.

The stocks of Asian companies that export to the United States, such as the Toyota Corporation,
suffered particularly heavy losses today following the report on Tuesday from the Commerce
Department that orders for cars, washing machines and other durable goods fell by 8 percent in
January. “There is a worry that U.S. consumption could slow substantially, and that is a much
bigger factor than China’s stock market,” the chief Asia economist in the Hong Kong offices of
Credit Suisse, Tao Dong, said.

On top of concerns about a slump in American demand, analysts said the prospect of cuts in
interest rates by the Federal Reserve to head off such a slump was also worrisome. Many
investors in Japan appeared to stay on the sidelines today, watching for signs of whether the sell-
off would continue in New York.

“What comes next here really depends on New York, not Shanghai,” said Eiji Kinouchi, chief
technical analyst at the research arm of Daiwa Securities in Tokyo. “If Shanghai had been the
real cause of the sell-off, it would have happened yesterday, not today.”

Tokyo and Hong Kong markets had barely seemed to blink on Tuesday as Shanghai fell. The
Nikkei 225 index slipped a mere 0.5 percent that day; the Hang Seng drop was measured, though
slightly more pronounced, at 1.8 percent.

Analysts pointed out that Tokyo and even Hong Kong have rarely taken their cues from
Shanghai, a small and highly volatile market that often seems to sit on the fringes of global
capital flows and to be prone to big day-to-day movements.

One factor behind the rebound in mainland markets today was a report in the Shanghai media
that the government might increase the cap on foreign investment to 10 percent of the market.
That report, together with signs the government would not move quickly to impose capital gains
taxes, helped offset continuing nervousness about the Chinese central bank’s ongoing campaign
to put the brakes on the economy by pushing banks to slow their rapid growth in lending.

Elsewhere in Asia today, the Indian market fell 4 percent, Singapore dropped 3.7 percent, South
Korea was down 2.8 percent, Australia dipped 2.7 percent and Thailand crept down by 1 percent.
The worst performer for the day in Asia was the Philippines, the market with the earliest closing
time. It fell nearly 8 percent without benefiting from the afternoon rebounds seen elsewhere.
Foreign investors were the main sellers in the Philippines and many other markets.

Luz Lorenzo, an economist in Manila at ATR Kim Eng Securities, said that if not for purchases
by domestic institutions in the Philippines today, “it could have been worse.”

The broad extent of the decline in Asia underlined the region’s deepening connection to global
financial markets and growing reliance on exports to the industrialized world.

“Every morning, most traders will get a fix on how the Asian markets are trading and how did
the Nasdaq close — I think people have gotten more globalized,” Sandeep Nanda, head of
research at Sharekhan, a large retail brokerage firm in India, said.

Some customers at brokerages in Asia admitted to being mystified by the sharp movements in
share prices. “I am buying in the hope that the share price will rise — I really feel like a gambler
sometimes,” said Moon Chung-lien, a 65-year-old retiree who wore a puzzled expression and
knitted brow as he busily punched stock codes into a computer at the Hong Kong offices of the
Shanghai Commercial Bank early this afternoon.

Tim Condon, the head of financial markets research at ING Financial Markets in Singapore, said
that the most significant feature of the worldwide drop in stock markets was that it was the first
such global shock to financial markets to emerge from mainland China.

“It’s a recognition of the fact that China is a big part of the rally in risky assets,“ Mr. Condon

The prospect of lower American interest rates brought a sharp rise by the yen overnight in New
York, where it climbed from about 120 yen per dollar to around 117.93 yen. In Tokyo trading,
the yen yielded some of those gains, slipping back a bit to 118.32 yen.

The possibility of rate cuts by the Federal Reserve also kindled concerns that American interest
rates might eventually fall far enough to significantly close the gap with Japan’s rock-bottom
rates. That gap is wide now. Japanese overnight lending rates are 0.5 percent compared to 5.25
percent in the United States.

But if the gap shrinks, it could slow or halt the so-called yen carry trade, in which investors
borrow hundreds of billions of dollars worth of Japanese money to invest in stock markets across
Asia and around the world in search of higher returns.

If this flow of money stops, or reverses, it could prompt larger sell-offs on Wall Street and drive
the yen even higher, hurting Japanese exporters even more, analysts said.

“Bernanke holds the trigger,” said Kiichi Fujita, a strategist in Tokyo for Nomura Securities. “If
he cuts interest rates in America, the worry is that the yen carry trade will unwind.”

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