Bernard Hickey details the key news overnight in 90 seconds at 9 am in association with Bank of New Zealand, including news the Dow closed down 419 points or 3.7% and the S&P 500 ended 4.4% after a plunge on European stocks overnight.
Market fears about the fallout on European and US bank stocks from the European sovereign debt crisis continue to undermine investor confidence.See more here in Bloomberg's US stock market report.
The Wall St Journal reported that officials from the US Federal Reserve were very concerned about the stability of the US arms of European banks and had launched a full investigation. See the WSJ report here.
The EuroStoxx 50 index fell 5.3% and France's CAC 40 index in France fell 5.4%. Germany's Dax index of stocks fell 5.8%%.
Bank stocks were slammed on worries about a freeze on European money markets as bankers worry about other banks' exposure to European sovereign debt.
A Swedish banking regulator warned that European money markets are vulnerable to freezing up again in the same way they did after the Lehman crisis in 2008. See more here at Bloomberg.
The European Central Bank lent one European bank US$500 million, suggesting the bank was unable to borrow off other banks in the interbank market. This was the first time this had happened in 6 months. See more here at WSJ.
Zerohedge reported the US Federal Reserve lent the Swiss National Bank US$200 million, also opening up its US$ swap lines for the first time since October 2010 and suggesting growing stress in the interbank markets.
Weaker than expected US jobs and factory output figures also hit stock markets hard. Jobless claims rose to 408,000 last week when economists had forecast it would only rise to 400,000. See more here at Bloomberg. Morgan Stanley cut its forecast for global growth this year to 3.9% from 4.2% and said the American economy, the world's largest, was already close to recession. See more here at Bloomberg.
Hopes are also fading the US Federal Reserve will be able to launch a third round of quantitative easing or money printing. This followed news overnight of growing inflation pressures in the United States. Consumer price inflation rose 0.5% in June, more than twice the median economist forecast for 0.2% growth in prices. See more here at Bloomberg.
US consumer confidence fell in August to its lowest levels since the 2009 recession. See more here at Bloomberg.
The gold price sprinted over US$1,829/oz as investors searched for safe havens away from US dollars and Euros. See more here at Reuters.
The oil price fell more than US$4/bbl on fears of slowing US and global economic growth. See more here at Reuters.
The US 10 year Treasury yield fell to 1.97% on market fears of long, grinding slowdown in the US economy. See more here at Bloomberg.
The New Zealand dollar fell almost a cent and a half to 82 USc by early morning as global investors moved away from 'riskier' trades such as the New Zealand dollar.
(Updated with details, links, charts below)
No chart with that title exists.
75 Comments
I suspect the ones that Amanda has been banging on about (with a 'good' performance over the last 3 years) have a fair bit of equity exposure Bernard. In fact even conservative funds (with a 20% equity exposure) lose meaningful value when markets fall steeply - the returns from their cash and bond components dont compensate for the whacking the equity part takes.Anyway I am looking forward to Amanda's Kiwisaver update once the market's have gone some way to where they are going..........
Andyh
All we're doing is reporting the results of the market performance. You could argue KiwiSavers have been lucky they started saving mostly after the 2008 stock market slump.
Again. We're just reporting what we're seeing.
What is the alternative to investing in stocks long term?
Are you saying we shouldn't have stock markets?
cheers
Bernard
Stock markets have changed, with the invention of derivitives and naked short selling. Sharks jumping in and out of the market taking bites out intraday and split second trading. It's nothing like investing its gambling, and picking horses for courses. It's a trough for pigs to get fat before they get slaughtered.
Bernard:
''You could argue KiwiSavers have been lucky they started saving mostly after the 2008 stock market slump''.
That is precisely what some of us have been saying - yet Amanda has been touting the performance of some funds over a 3 year timesacle as some sort of vindication for Kiwisaver.
Any investment that a) ties you in to a multi-decade committment b) exposes you to the rapacity and incompetence (name me the Kiwisaver funds which have a direct exposure to precious metals?) of the fund management industry and c) relies on a soon too disappear entirely taxpayer funded subsidy as an inducement is a huge malinvestment IMO.
I have been banging on for a considerable time that pension schemes of all stripes that tie your money up for extended periods are going to be financial sink-holes for those concerned.
Quite how you then end up asking me whether or not we should have stock markets is a tad beyond me. Your question should be; will the economic chaos of the next 10 years allow stock markets to survive in anything like their present form?
Andyh
Lay off Amanda. She hasn't argued any vindication for anything. She's just reporting the numbers that are out there.
There are 1.75 million New Zealanders in KiwiSaver with well over NZ$8 billion invested. They need information, comment, analysis. We're doing our best to give them everything we have.
I agree there are problems with stock markets at the moment. They're volatile.
But it's a long stretch to say they are broken forever and that investors never make money out of them (or that companies never use them to grow).
cheers
Bernard
I am sure Amanda is more than capable of defending her own corner Bernard. Kiwisaver is not short of its one-eyed supporters in this country (Mary Holm springs to mind), so it would be nice if we had a counterbalance to that.
In the not too distant future the wails of anguish surrounding Kiwisaver are going to be something to behold - if you are going to provide 'balanced' comment for the multitude that have signed up then I suggest you start highlighting the negative as well.
I suspect there is an element of clashing ideologies involved - if not here then certainly elswhere on this site e.g. the argument over obesity and GST on fresh fruit and vegetables.
An extract from Charles Hugh Smith on the subject:
Ideologies are prefabricated boxes. They come with a ready-made self-referential internal logic: B follows from A because I believe in A. Facts are "cherry-picked" to support the internal logic, but the truly key component in any ideology, Left, Right or Libertarian, is magical thinking, i.e. wishful thinking.
I can illustrate this very simply.
The basic assumption of any ideology or "ideological "debate" (quotes explained in a moment) is that all problems would be resolved if only the "other side" came round to your conviction.
So let's follow that through: if all Republicans suddenly agreed with Paul Krugman and Robert Reich, would Peak Everything be resolved? Would the U.S.A.'s dependence on exponentially rising debt and imported oceans of oil magically go away? Would the consequences of The End of Work vanish? Would the consequences of 72 million (or 79 million counting legal immigrants) Baby Boomers retiring, fully 25% of the entire population, magically disappear?
Now repeat the question for the flip-side of the coin: if Democrats suddenly saw the light about free markets, low taxes, etc., and became die-hard Republicans, would any of these structural problems suddenly go away? No.
Though each ideology claims to have the "answers," the "answers" are all magical thinking: if only the wealthy would pay more taxes, if only taxes were lowered, if only those SUV drivers would buy a Prius, if only we cut Pentagon spending, etc. etc. etc. All of these ideology-generated "solutions" are just tweaking the parameters of internally doomed systems.
http://www.oftwominds.com/blogjuly11/random-reflections-7-11.html
Colin - I am not approaching Kiwisaver from the compulsion side of things (which is a discrete arguement). I am approaching it from the angle of whether anyone (compelled or otherwise) should be locked in to a long term scheme run by the NZ fund management industry.
Andy, I agree with where you are coming from with Kiwisaver. The information on ideologies was intended to help explain Amanda's side and/or some of the other deeply entrained 'debate' that is going on.
The quality of entrained ideological debates appear to deteriorate markedly in election season. Too many people seem to choose a political party early, and then defend its policies and leadership without further question.
Bernard ! ... you agree that stockmarkets are not permanently broken ; investors can make money ; stockmarkets are simply volatile ; and that companies can use them to grow ......
...... ahhhhh , welcome to the light-side , friend . Come , walk with us on the golden path of growth and prosperity .......
What took you so long , we have been waiting for you ......
Yep oil demand tends to fall when their is an incipient global recession. Its gone largely unacknowledged but the rise in oil in the last 9 months is what killed any chance of the US seeing any meaningful recovery. Chalk another recession down to peakoil.
Right so a week or so ago short selling was banned in bits of the European market - result - back to where we were.
What are they going to try next? A blanket ban in shorting across all markets?
andyh - Good point about short-selling. Mish Shedlock pointed out that the European authorities were trying to pin the blame on short sellers. Now that the financial institutions shares have fallen precipitously following the ban proves their allegations to be false.
Ilargi summed it up here on the automaticearth
-
Bank of America:
+7.93% Aug 15, but -22.4% in past month, -34.95% in past 3 months -
Citigroup:
+4.76% Aug 15, but -18.53% in past month, -24.71% in past 3 months -
Morgan Stanley:
+6.10% Aug 15, but -15.03% in past month, -25.74% in past 3 months -
Goldman Sachs:
+2.28% Aug 15, but -8.28% in past month, -15.79% in past 3 months -
Société Générale:
+2.06% Aug 15, but -28.53% in past month, -41.23% in past 3 months
Here's Ambrose
20.55 Back to the headline act of tonight's show - the global debt crisis. International Business Editor Ambrose Evans-Pritchard on today's market shenanigans, and a US Treasury first:
Panic flight to safety has pushed the yield on 10-year US Treasuries below 2pc for the first time in American history, exceeding the extremes of the Lehman crisis and the banking crash of the 1930s.
Investors scrambled to buy the bonds of strongest industrial states on Thursday on fears of a double-dip recession on both sides of the Atlantic and a European banking crash, driving down their returns to investors. German yields fell to 2.08pc and Switzerland's 3-month rates have turned deeply negative.
Markets were stunned by a plunge in the manufacturing index of the Philadelphia Federal Reserve to minus 30.7 in August from plus 3.2 in July, one of the most violent falls ever recorded.
"It is a catastrophic collapse," said Rob Carnell from ING. "Markets are in a fearful state right now, and data like this gives them plenty of excuses to panic."
Andrew Roberts, credit strategist at RBS, said investors are haunted by fears that European banks may have lost full access to America's $7 trillion markets, leaving them at imminent risk of a dollar squeeze.
An unidentified European lender had to tap $500m from the European Central Bank's (ECB) swap line with the Federal Reserve, indicating that it had been shut out of the markets. US investors have brought down the guillotine since the EMU debt crisis spread to Italy and Spain, and Germany vetoed any form of eurobonds or fiscal union.
Jonlivesey
When investors panic like this, and there are big moves, I think you have to conclude that they think they see big changes coming. They think the Banking system is toast, especially in Europe. They think their money is not safe in equities, but will be safe in US Treasuries and Gold.
But panic can go both ways. If after a further drop investors perceive equities to be under-priced, money could flow out of Gold and Treasuries not quite as fast as it flowed in. The last investors to get into Treasuries and Gold will be badly hurt.
Investors think German and UK debt is safe and the rest of the EU is on a gradient from less safe for France, to disaster on the periphery. Even Spanish and Italian yields are rising once more, despite the best efforts of the ECB. In fact, the "big picture" here is that investors are no longer trading the Euro-zone as one thing, but as separate countries.
And I have been saying for a while now that if you ignore the rhetoric and just watch how Germany actually behaves, Germany is saying that if the Euro-zone survives, that's fine, but they aren't going to cripple German credit-worthiness in a vain attempt to keep it together. I think the action in Bonds shows that investors approve of that, since they are once more buying one "end" of the Euro-zone and selling the other "end".
Andrew I have to reply to this as it irritates me every time I see comments about investors selling because they............. whatever reason you want to give. The reality is in secondary markets for every seller you need a buyer so who is the investor the seller or the buyer who presumeably sees some value in what they are purchasing?
Perhaps markets would be less volatile if the media reports were along the following lines.
" Markets drop as astute buyers pick up bargains from panicked sellers"
or as I think it was Warren Buffet who said something along the lines of" Financial markets are the mechanism whereby wealth is transferred from the impatient to the patient"
The US S+P 500 is 400 points below where it was in 2007 (20% plus down):
http://www.bloomberg.com/apps/quote?ticker=SPX:IND
Its 300 points (15% plus) down from its peak in 2000
http://moneycentral.msn.com/investor/charts/chartdl.aspx?symbol=%24INX&…
I could repeat the excercise with practically any major share index you care to mention. And all that taking place while the Fed threw the kitchen sink at trying to boost the share market. By the way anyone notice that head and shoulders (we aint talking shampoo)?
Tell me again about 'impatient versus patient' and 'buy to hold' ?
Andy I don't really want to get into a debate over this, but if you just buy and hold at the indices chock full of wnderful companies like the insolvent US banks then of course you are going to come unstuck. However there are plenty of good companies, paying dividends and with minimal levels of debt that have done well over the time frames you outline. Sure good companies get trashed during market panics but that is precisely when the more astute investors like Gummy pounce.
Oh and I washed my hair this morning thanks.
As you say there is a buyer for every seller, normally...
So if Im selling, presumably with no buyers the bids go down? what if the ECB is stepping in and buying because no one (private) else will?
So the interesting thing is to break out who the sellers are and who the buyers are...otherwise you dont really know if its meltdown and the central banks are propping as Andrew says or indeed its fear v greed......for the former its a huge worry, for the latter its no real concern.
regards
Seeing the falling bond yields, I wonder if John Key's optimisim might have been a mistake. Didn't they just sign up for a heap of future loans with the expectation that yields were on the way up?
The Aussie mid range bonds are down 13 basis points overnight and (basket case) UK 10 year @ 3.75%.
We've heard this was coming from Hugh Hendry for some time now.
KD - I have not been following UK bond yields and was amazed at their !0 year yield. Who would lend to the UK Govt for 10 years and only require a 3.75% yield? Disclosure of interest, I am a POM by birth and as such believe that the economic future of the UK is as bleak as anywhere in the OECD.
HH, Old piece, but a cracker, I think he's a great watch/read....add in the latest Roubini piece
on move to cash and you have to wonder why ppl see hyper-inflation while (the ppl I think at least are the better thinkers) say a depression risk is dominant...
regards
The Depression And Choice Corner Is NOW (Philly Fed)
Four more eurozone countries ask Greece for collateral
The Netherlands, Slovenia, Slovakia and Austria want same terms as Finland
http://www.ekathimerini.com/4dcgi/_w_articles_wsite1_1_18/08/2011_402779
Since the GFC in 08 i've made good money cherry-picking stocks on the downs and selling on the ups but i'm out of the market now and have been selling down some over-exposure on bonds with reputable companies.
fortunately i bought in to top end Oz gold stocks like Newcrest in '04 so they can be my buffer....don't hold physical gold.
Despite the fact that gold has soared more than 500% during the last decade, most professional investors still refuse to embrace it as a respectable asset class.
Gold is like a prostitute that becomes a brain surgeon. No matter how accomplished a surgeon she may become, most folks will still consider her a hooker, not a doctor.
That’s unfortunate, especially if you happen to need brain surgery.
Right now, the entire world needs a kind of monetary brain surgery. Gold can handle the job. So don’t let her skin-tight spandex shorts and her stiletto pumps fool you; this gal can do things with investment capital and personal savings that paper currencies can only dream about....even some of the old financial curmudgeons that tyrawl and monopolise this site could do to pay heed ??!!
Trouble is, Rob, that having escaped a near fatal labotomy last time, it's hard to trust the surgeon this time around ( because this time it's different). Sometimes it's easier to wish those who are about to have a first- time operation, luck; hope they heal, do well.
yep ...last time it left me smarting a lot too Nicholas....but I get what Robs saying ..I feel like a commuter watching buses come and go.....standing in the rain... to apprehensive to get on cause they look so damn full....but they keep going n I'm getting wet here.
Gummie's Book of the Week : Just finished reading " The Little Book of Sideways Markets " by Vitaliy Katsenelson . ... Sub-title , " How to make money in markets that go nowhere ."
.. highly recommend it to any stockmarket investor . The author argues that markets trend sideways for long periods , 16 to 20 years at a stretch , before resuming a secular bull market upwards , of equal duration . He believes that the current crawl-sideways market will endure until 2020 .
But , he offers excellent advice on how to profit by active management of a portfolio of company shares , within the sideways market period .
Reminds me of that card game I used to play as a kid, 'Stop the Bus'.
Shame I can't back the bus up eh?
On the Oracle thing, I think PDK is on to it. I don't think there is too much doubt of the correlation between GDP and energy consumption. You can only hope he is wrong about oil but in the end he won't be wrong, just delayed a bit.
andyh : No appendix needed in a ruptured market . Collect big fat dividends from your companies . And when some shares get over-valued , have the presence of mind to sell them , ignoring any emotional attachment . ... as we have witnessed through the GFC , even within a sideways markets , cyclical bear & bull markets occur . But these are not portents of a new secular bull market .
Repeat after Gummy : " collect the dividends , collect the dividends ... "
[ .. Gummy doesn't do derivatives ; when you're only 150 cm tall , words 'like " shorting " are already banned .. ]
Crikey..heaps of feathers flying on here today...
The world will not stop needing stuff...we supply stuff like that...our exports will stand any test in the markets, so long as the govt doesn't bugger it up with stupid deals with Obama.
Our greatest threats come from useless govt....govt too gutless to cut its own expenditure.
The other threat comes from the banks as they push to sell credit to more fools.
Good news for Fletcher Building:
"Fletcher Building is very pleased to announce that its subsidiary, Fletcher Construction, is part of the consortium that has been awarded the contract for the Waterview connection tunnels and Great North Road interchange in Auckland.
Fletcher Construction has a 32 percent share of the “Well Connected Consortium”, with McConnell Dowell, Obayashi Corporation and three design companies, Beca, Parsons Brinkerhoff and Tonkin and Taylor taking the remaining 16 percent.
The project has an expected design and construction cost of approximately $1.3 billion and is expected to be completed over the next five years.
The Well Connected Consortium will form an Alliance with the New Zealand Transport Agency to deliver the project on behalf of the New Zealand Government. The selection of the preferred consortium has been through a competitive process involving a combination of price and non-price attributes and the whole selection process has taken more than a year.
The project involves two parallel tunnels under Avondale Heights that are each 13.1m in diameter and 2.4km long. The existing interchange at Waterview will be reconfigured with extra connectivity.
The scheme involves several road and pedestrian bridges as well as considerable amounts of landscaping, environmental mitigation and a number of community assets."
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.