Global Stock Markets: In the Grip of Fear?
Prieur du Plessis
About this author:- Bio & more articles
- Prieur's blog: Investment Postcards
- Subscribe to Prieur's blog
- Prieur's investment house: Plexus Asset Management
- Contact Prieur
I have been away from the trading desk, and the stock market’s bloodbath, during the past few days as I am on a business visit in Geneva. In order to allow me a bit of extra time to consult with the Suisse gnomes (disguised as private bankers), this week's post will be shorter than usual, and will not include my customary review of the financial markets’ movements and economic statistics.
Confusion and irrational fear characterized financial markets during a remarkable week, with the CBOE Vix Index (the so-called “fear gauge”) spiking above 70 for the first time. According to data from Bespoke, the week’s U.S. stock market crash of 18.2% ranks second as the worst Monday-to-Friday movement for the Dow Jones Industrial Average since 1900. Amid the dumping of stocks on all bourses, the U.S. dollar, Japanese yen and precious metals were the only safe havens. (Also see related posts: Stock market performance round-up: Crash of 2008 and Stock market decline in perspective.)
The realization that the economic damage from the credit crisis was intensifying weighed on investor sentiment. Selling of equities therefore persisted despite a litany of initiatives announced by governments and central banks around the globe, aiming to boost liquidity and restore confidence in the banking system.
Source: Slate
The media headlines were cluttered with reports of various actions being taken to alleviate the financial turmoil (as dealt with comprehensively in the news section of this post). However, none was as succinctly formulated as that of the Central Bank of Jamaica (hat tip: Barry Ritholtz’s The Big Picture).
Next, a tag cloud of the text of the plethora of articles I have read during the past week. This is a way of visualizing word frequencies at a glance. As the saying goes: A picture paints a thousand words …
As far as the outlook for stocks is concerned, Paul Kedrosky Infectious Greed) said:
I am trying very hard to look through all of this to see what things look like on the other side. And I can see faint outlines, for sure, but that other shore still seems awfully far away.
On the other hand, Tim Bond, head of global asset allocation at Barclays Capital, was quoted in the Financial Times as saying:
We believe global equity markets are starting to offer a long-term buying opportunity that is typically only seen once in a generation. We are not calling the bottom in the bear market today, but we do suggest that the low will be seen within the next two or three weeks.
Bond also suggested that returns from equities purchased during this interval may well be extremely higher over the next year and could – if history is any guide – turn out double-digit long-term returns over the next decade.
As a sign of these extraordinary times, mulling through my head at the moment are the lyrics of Peter Gabriel’s song “Perspectives:”
I need perspective, ‘cos I’m facing the wall. I need perspective, ‘cos I’m not that tall. I need perspective, heard the trumpet call. Don’t trust my eyes, want to know where things fall.
Having said that, on Saturday, I summarized my views in a post as follows:
Nobody really knows what happens next, although some indicators are starting to signal that a bounce may not be all that far off. But stock markets are unlikely to find a cycle low before measures are implemented to stem the decline in confidence. It may take a while yet before we see the bear’s corpse, but look out for a 90% up-day as a signal of the completion of the selling climax.
Economic reports
Click here for the week’s economy in pictures, courtesy of Jake of EconomPic Data.
Date | Time (ET) | Statistic | For | Actual | Briefing Forecast | Market Expects | Prior |
Oct 7 | 2:00 PM | FOMC Minutes | Sep 16 | - | - | - | - |
Oct 7 | 3:00 PM | Aug | -$7.9B | $5.2B | $5.0B | $5.2B | |
Oct 8 | 10:00 AM | Pending Home Sales | Aug | 7.4% | - | -1.2% | -2.7% |
Oct 8 | 10:35 AM | Crude Inventories | 10/04 | 8123K | NA | NA | 4278K |
Oct 9 | 8:30 AM | 10/04 | 478 | 475K | 475K | 498K | |
Oct 9 | 10:00 AM | Aug | 0.8% | 0.5% | 0.4% | 1.5% | |
Oct 10 | 8:30 AM | Export Prices ex-ag. | Sep | . | NA | NA | NA |
Oct 10 | 8:30 AM | Import Prices ex-oil | Sep | - | NA | NA | NA |
Oct 10 | 8:30 AM | Aug | - | -$58.0B | -$59.0B | -$62.2B |
Source: Yahoo Finance, October 10, 2008.
In addition to Fed Chairman Ben Bernanke speaking at the Economic Club of New York on Wednesday, October 15, next week’s economic highlights, courtesy of Northern Trust, include the following:
- Retail Sales (October 15): Auto sales dropped to an annual rate of 12.5 million in September from 13.7 million in August. Non-auto retail sales are expected to show noticeable weakness. Reflecting these aspects, the headline retail sales number is projected to have fallen 0.7% in September after a 0.3% drop in August. Consensus: -0.6% versus -0.3% in August, non-auto retail sales: -0.3% versus -0.7% in August.
- Producer Price Index (October 15): The Producer Price Index for Finished Goods is predicted to have dropped 0.4% in September reflecting lower energy prices, while the core PPI most likely moved up 0.1%. Consensus: -0.4%, core PPI +0.2%.
- Consumer Price Index (October 16): A 0.1% increase in the CPI is our forecast for September following a 0.1% drop in August. The core CPI is expected to have moved up 0.1% after a 0.1% gain in August. Consensus: +0.1%, core CPI +0.2%.
- Industrial Production (October 16): The 1.0% drop in the manufacturing man-hours index in September suggests a 0.8% decline in industrial production. The operating rate is projected to have dropped to 77.9 in September. Consensus: -0.8%; Capacity Utilization: 77.9 versus 78.7 in August.
- Housing Starts (October 17): The elevated level of inventories of unsold new homes points to another monthly drop in housing starts (870,000 versus 895,000 in August). Consensus: 880,000.
- Other reports: Inventories (October 15), NAHB Survey, Philadelphia Fed Survey (October 16), Consumer Sentiment Index (October 17).
Click here for a summary of Wachovia’s weekly economic and financial commentary.
A summary of the release dates of economic reports in the
Markets
The performance chart obtained from theWall Street Journal Online shows how different global markets performed during the past week.
Source:Wall Street Journal Online, October 10, 2008.
Now for a few news items and some words and charts from the investment wise that will hopefully assist in guiding our investment portfolios through these troubled times. And do remember to heed Charles Kirk’s (The Kirk Report) words:
The best we can do is manage our risk, stay opportunistic, keep our emotions in control, and keep our eyes open for signs that the worst is really behind us.
That’s the way it looks from Cape Town (or rather from next to Lac Léman in Geneva). Au revoir.
Source: Slate
Related Articles
|
Hedge Fund Jobs
Job Seekers: Search jobs by category, get job alerts by email or live feed, apply online See full list of jobs »
Employers: See all recruitment options, get applications online or by email Post a job »
Trading Center
- Free E-Newsletters
- About Seeking Alpha
- About Us
- Contact Us
- What's New
- Readers Feedback
- Advertise With Us
- Contributors
- Contribute an Article
- Feature Your Book
- Our Contributors
- Anonymous Contributions
- Dispute an Article?
- Legal
- Terms of Use
- Privacy
- Copyright
This article has 3 comments:
- venividivici
- 304 Comments
Oct 12 08:26 AM- gollwoods22
- 8 Comments
Oct 12 08:53 AM- Xyrus
- 75 Comments
Oct 12 01:02 PMOne of the reasons why all these announcements of bailout and such don't sem to have any impact is because there is no truth hat these measures will do anything. That is backed up by the fact that they haven't one anything. Almost as soon as one plan is approved it either needs to be immediately increased or another plan has to be created.
That ends up painting a picture that even our "leaders" really don't have a clue to how large and deep the credit crisis really is. Until they're more certain, people in general are going to sit it out on the sidelines and cash out.
This is as much a crisis in confidence and trust as it is a financial crisis. Face it, the general populace has been lied to many time over the past in regards to the crisis. Firms have reassured their investors only to have to back track weeks later. Banks have reassured their depositors only to have the FDIC come in and take them over.
If people don't trust banks, companies, or their leaders then they aren't going to put their money anywhere near them.
And did I mention that the bailout package was extremely unpopular but was rammed through congress anyway?
Here's the truth. No one knows how bad this is going to get. The Lehman settlement showed us one thing, that things are worse than they seem. Institutions still are not being 100% forthcoming. They will be forced to over the next couple of years, but until that happens the market is going to be a roller coaster at best.
~X~
More by Prieur du Plessis