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What’s a ‘double dip’?—and other language of today’s market
July 26, 2010

Just when you thought you’d mastered the lingo, here comes another wave of financial jargon to describe what’s going on in the markets today. To help keep you up-to-speed, here’s a short glossary of some of the terms you might encounter.

Double dip
In economic parlance, this refers to the risk that the economy, not long after coming out of a recession, will slip back into another recession. In the current economic environment, some are raising the possibility that this could happen in the U.S. or elsewhere.

U-, V- or W-shaped recovery
This concerns the pace of an economic recovery. A “V-shaped” recovery means the economy dips dramatically (the downslope of the “V”) and rebounds just as quickly (the upslope of the “V”). A “U-shaped” recession and recovery is less pronounced and slower to develop. A “W-shaped” recovery involves a sharp decline in certain economic metrics, followed by a sharp rise, followed again by a sharp decline then finishing with another sharp rise.

Deflation
Most of us are familiar with the concept of inflation, an increase in living costs. Whether modest or significant, inflation has been a way of life for Americans through recent generations. Deflation is the opposite—a period when prices for goods and services begin to fall. Deflation is typically associated with a decline in the standard of living, and some suggest that the risk of this has recently risen.

Market correction
When the stock market declines by a level of 5% or more, up to 20% (as measured by a broad market index such as the Dow Jones Industrial Average or S&P 500), professionals generally describe it as a correction in stock prices.

Bear market
The generally accepted standard to qualify for a bear market is when stocks (as measured by an index) drop 20% or more in a set period of time, perhaps within two months or less.

Bubble
In economic terms, a bubble occurs when the value of a particular item or industry rises dramatically over a short period of time, usually to unsustainable levels. In recent times, bubbles have occurred in the technology industry (the “dot-com” bubble of the late 1990s) and in real estate (the housing bubble that began to burst in 2007).

Derivatives
This is the name given to a contract between two parties that derives its price from an underlying asset. The value is based on changes in the prices of the underlying asset, which can range from hard assets like gold or agricultural products to interest rates and stocks. While they provide a way to hedge risk, more regulation may be placed on those that attract speculators, which some believe has caused problems in the markets.

High Frequency Trading (HFT)
Much of the market’s recent volatility has been blamed on rapid trading strategies that large institutions execute through powerful computers. These machines can quickly crunch numbers to identify potential short-term price opportunities and then execute very large buy and sell orders. If it works right, it has the potential to generate significant profits for the firms doing the trading. Technology advances have made this a factor in the markets only in recent years.

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This column is for informational purposes only. The information may not be suitable for every situation and should not be relied on without the advice of your tax, legal and/or financial advisors. Neither Ameriprise Financial nor its financial advisors provide tax or legal advice. Consult with qualified tax and legal advisors about your tax and legal situation. This column was prepared by Ameriprise Financial.

Financial planning services and investments offered through Ameriprise Financial Services, Inc., Member FINRA & SIPC.

©2009 Ameriprise Financial, Inc. All rights reserved.


Robert A. Powell, CFP®, CMFC®
Financial Advisor | Registered Principal
CERTIFIED FINANCIAL PLANNER™ practitioner

Ameriprise Financial, Inc.
2 Pittsburgh Circle
Ellwood City PA 16117

Phone 724-758-7112
Phone 724-752-5252

http://www.ameripriseadvisors.com/robert.a.powell/

Fax 724-758-2669

This communication is published in the United States for residents of
Pennsylvania, Ohio, West Virginia, Maryland, Florida, Indiana, Nevada,
Georgia and California; and this advisor is licensed in the states of
Pennsylvania, Ohio, West Virginia, Maryland, Florida, Indiana, Nevada,
Georgia and California.

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