Why stocks can shake off mortgage meltdown (Part 2)

This post is continued from Part 1.

(3) Economy still fundamentally strong Turmoil in the credit markets is being caused by a repricing of risk, and not from problems stemming from the broader economy, many say.

"In our opinion this is a financial market event rather than a real economy event," said John Ip, senior economist for Morley Fund Management in London.

As a result, highly leveraged companies and financial firms are likely to feel the pain. But so far, it doesn't look like the upheaval is affecting the ability of companies on sound footing to get credit, he said.

Treasury Secretary Hank Paulson said Wednesday that the fallout from subprime problems was contained and that the global economy remains strong, Reuters reported.

In a sign of the strength of the worldwide economy, the International Monetary Fund last week revised its global growth forecast for 2007 and 2008 to 5.2 percent, up from a previous forecast of 4.9 percent.

(4) Plenty of cash out there Despite problems roiling the debt markets, liquidity - or the amount of money available for investing - remains plentiful worldwide.

China and Russia, for example, have accumulated massive reserves. The global economic boom has also helped drive corporate profits, and many companies are sitting on loads of cash.

"Liquidity is quite abundant and it will cushion the world's economy and the financial markets against the current turmoil," Tony Crescenzi, chief bond market strategist at Miller Tabak and Co. in New York, wrote in a note this week

The tumult in the credit market may persist for some time, but it's likely that "credit formation will return to levels sufficient to power a continuation of the global economic expansion," he wrote.