Bernard Hickey details the key news overnight in 90 seconds at 9 am in association with Bank of New Zealand, including news European stocks fell around 5% and US stocks fell sharply overnight as fears grow that the European and US economies are sliding back into recession at the same time as China's growth slows.
The Dow closed off its lows, but was still down 391 points or 3.5%.
The S&P 500 fell 3.2% as US banking stocks slid sharply. See more here on the global stocks rout at Bloomberg.
Moody's downgraded Bank of America, Citigroup and Wells Fargo while warning that US government support may not be as forthcoming in the future.
The US Federal Reserve's warning of growing economic risks and financial strains started the global rout in stocks and a rush in safe haven assets such as US Treasury bonds.
The Fed's Twis plan to lower long term interest rates by selling short term bonds and buying long term bonds had an unexpected consequence.
Bank shareholders worried that banks would not make so much profit in future by borrowing short term at near 0% interest rates and lending longer term at higher interest rates.
This flattening of what had previously a positive yield curve will make it harder for banks to build up their capital through generating such 'easy' profits in future.
Meanwhile, weak US jobs data and signs of slowing Chinese and European factory output also added to fears Europe and the United States will slide back into recession at the same time China's growth is slowing.
The New Zealand dollar slumped under 78 USc.
It often falls sharply when markets worry about global economic growth and demand for commodities, which are seen as the most volatile when the growth outlook changes.
The oil price fell 6% to under US$80/bbl and even the gold price fell 4% to US$1,733/oz as investors instead sought safe havens in US Treasury bonds.
The US 10 year Treasury bond yield fell below 1.7% for the first time to levels even lower than in 1941 in the depths of World War 2.
The US 30 year Treasury bond yield fell below 2.8%.
No chart with that title exists.
48 Comments
BH writes - "started the global rout in stocks and a rush in safe haven assets such as US Treasury bonds. "
So the US Gov't with nearly $15 trillion in debts and even larger future unfunded liabilities such as Social Security and Medicare, is the supposedly safe place to put your money in the present financial climate - Yeah Right!
Your dead cat...has just gone dead skunk in the middle of the road ...and it's stinking to high high Heaven....!
The ramificatations of N.Z. slide is about to become a broken bilge pump on the good ship..........Wakathehelldowedonow ......Bolly will be humming Everytime you go away......Billy Bob will be getting the who the hell is that guy routine by now.....John Boy will learn quickly smiling and waving at the Bear gets lost in translation......
Eaten by a Bear...!
Eaten by a Bear ! .. not before time we get our revenge , I've been chewed out by Bernard often enough .
........ but back to the question of the dead cat bounce . Inflate the cat first ! ... you know , 'like pumping billions of dollars into too-big-to-fail banks ...
The Kiwi version is to get an oxygen tank , some duct tape , and drive along the Main south Road ( Rolleston ) looking a suitably dead cat .
Too right there GBH....but when the pumping stopped the markets threw the toys out of the cot...spat the dummy.....!!..ooooh lets Twist again...like we did....this summer....oooh lets twist again.......
nah I don't think so...!...long as the E.U. goes down.. the U.S. and A sights safety in numbers.
I like Joseph Stiglitz's big kahuna idea : Instead of pumping $US 700 billion into the brainless-wonder-banks who had a large part to play in the GFC , use that money to create a new group of much smaller banks ..... and on a steady 12 to one lending ratio , suddenly $US 8.4 trillion of credit is created .
http://hat4uk.wordpress.com/2011/09/22/crash-2-heading-for-the-final-ac…
China bubble looking ever more fragile
I still look back on the unfolding of Crash 2, and conclude that the most important thing missing has been inspiration. The sort of inspiration that comes up with a good idea, as opposed to endless bromides (Trichet, King and Geithner), or glib assurances followed by panic-stricken warnings (Lagarde and Obama). And the sort of inspirational speech mapping out a real action plan that gets everyone up for it. Kennedy could do this, as could Churchill and FDR. There is nobody anywhere on the world stage now with the same genius. Party machines and diluted cultures do this: nobody with any talent wants the job, so we wind up with pinheads like Cameron, Sarkozy and Gillard.
This is a political problem - and governments are all out of ammunition
http://www.telegraph.co.uk/finance/comment/jeremy-warner/8782708/This-i… the sense of policy fatigue and indecision is palpable. As one government official remarked: “We’ve already sent the best of our cavalry into battle, and it’s come back in tatters. There’s a limit to what more we can do.”
http://www.telegraph.co.uk/finance/comment/jeremy-warner/8782708/This-i…
"This is not a political problem and it is not an economic problem as such. It is a problem of competence, intelligence and rationality."
Basically the consumer model for society is utterly irrational. It speaks of 'production' yet all it really creates is waste and land-fill. It speaks of labour and value, yet the only expansion it can imagine is based on increasing the size of the public sector or organizing social relations on economic principles (an economy of servitude where we take it in turns preparing coffee for one and other). It has false pretensions of 'affluence', yet all it really 'creates' is more debt in order to pay for those things that we really really really don't need and can do without. The system is now financially bankrupt in addition to being ideologically bankrupt. Good. This will inevitably protect our planet as we cannot afford to carry on with our irrational miscreant ways.
The IMF lady said this;
"The set of solutions and methods to address this situation is quite well known,” she said.
Okay - then what are they?
The only specific action mentioned is this;
Banks also needs to be recapitalised so lenders “are in a position to finance the economy”.
With what you might well ask?
Only the vege garden! :-)
Still thinking on where to spend the money here - my grazing contracts are due for renewal next month, and would have liked to put our own stock on the paddocks... but stock prices are crazy (IMHO). On a planting, need to regrade a private road to get better access to the forest - and requires a bunch of other neighbours to get on board as well - so pinenuts still looking interesting to me but need to fell a few hectares of radiata first. And yet to get onto the Regional Council re the minihydro.
Glad I've got a day job!
:-)
Bernard, can you explain to us what Bill English was referring to when he said (on Morning Report this morning) "We have been paying down debt and we have to make sure our foreign lenders realize that and keep lending to us." ?!?!?
Also, yesterday on morning report, a commentator (can't remember who) said of the revised net foreign position figures (which have been revised in our favour, by including eg the student debt of expatriates as a foreign asset, but which nevertheless continued to deteriorate) "the new figures show us more in the company of countries like the US and UK, not like Portugal and Greece."
US net foriegn position : -17% of GDP
UK: -13% (these 2 are for 2009, may now be below -20%)
NZ revised figures: -70% of GDP (having been magically revised from -90%)
Here is a thread worth a lookie see........for all the forecasters..!
Dr Copper says global recession:
Could be a little humiliation....leading to fiscal constipation......due to under-estimation.....of commoditiy based limitations.
In our immense administrative difficulty, the Prime Minister and his colleagues should have concentrated upon their immediate practical tasks, and left the fulfillment of party ambition and the satisfaction of party appetites, at least until we… stood on firmer and safer
ground.
the state, that is to say the government officials and ministers involved, have already shown a lack of foresight and judgment which plainly reveals their incapacity as compared with private traders competing with one another, animated by the profit motive, and corrected constantly by the fear of loss and by the continual elimination of the inefficient. That is a general principle.
pdk - that's my instictive take on it too, but with lower demand oil & commodity prices will fall, at least at first. Also if mortgages are impossible to get, housing prices should drop too.
I have to think that this is a money/banking problem caused by fiat currency and interest charged on debt. There is still work to be done and people to feed and clothe.
http://www.bloomberg.com/apps/quote?ticker=USGGBE05:IND
If I understand this right, it shows expected inflation over 5 years. "They are calculated by subtracting the real yield of the inflation linked maturity curve from the yield of the closest nominal Treasury maturity." - whatever that is.
It looks like inflation was heading up from 1.25 in December 2010 and reached a high of around 2.4 in May, and has been going down ever since.
It's depressing , but not a depression ... a pity that Obama didn't try this :
" Government can still do more to help the private sector grow - if the old banks won't lend , create some new banks that will . For a fraction of what was spent on dealing with the bad loans of the old banks the government could have created a set of new financial institutions , unencumbered by past bad decisions . "
Joseph Stiglitz " Freefall " page 319 ( p/b edition )
For the history buffs;
http://online.wsj.com/public/resources/documents/info-StockCrash_0710-14.html
bit different Kate - there were only 2 billion people on the planet, and there was room to grow.
This isn't 'all of a sudden' either, this is just a panic/knee-jerk - the real paradigms just grind on.
Go the mini-hydro - ours is all we use now. Have you worked out your head and flow? Borrow a hang-glider or paraglider altimeter to get the height, time the filling of a bucket for the flow. To mix metaphors, we get by on 1 litre a second @ 80 feet. You need the odd efficiency on the consumption side, of course.... :)
The MSCI index has lost more than 20 percent since peaking on May 2, meeting the common definition of a bear market
....but to get Eaten by a Bear...scarfie....the horror....the horror...
will Billy Bob be on the next plane out...?
Billy Bob's patter when shoring up foreign loans....." well yes Fonterra bla blabla...protected bla bla....China bla bla bla ...Fonterra Fonterra Fonterra....bla have I mentioned Fonterra yet..?"
Yesterday Bernard posted on Daniel Yergin's latest CERA missive that Peakoil aint going to happen together with a rebuttal from Prof Hamilton.
Yergin actually has an abysmal record in predicting oil price moves and oil supply in the last decade or more - strangely he is never picked up on this when interviewed.
Fortunately someone has been correlating his pronouncements - no need to read it all just go to the summary graph at the end of the piece:
Chinese vice-Premier coming here
Deputy Prime Minister Bill English will host China’s Vice Premier Hui Liangyu when he visits New Zealand on 27 and 28 September.
The Vice Premier, the second-ranked of China’s four Vice Premiers and a member of China’s Politburo, will be the most senior Chinese official visitor to New Zealand this year.
“China is one of New Zealand’s most important trade and economic partners,” Mr English says. “Our bilateral relationship is in very good shape and regular high-level engagement is critical to maintaining that.
“I made a very productive visit to China in April this year and I’m pleased to host the Vice Premier here in New Zealand.
“Talking directly with one of China’s senior leaders is valuable in understanding the views of China over a range of regional and global issues. That is important to New Zealand as we plan our future strategies in Asia.”
While in New Zealand, the Vice Premier will meet Prime Minister John Key and other senior ministers. Several Chinese Vice Ministers will accompany the Vice Premier, who will preside over the signing of several bilateral arrangements with the Deputy Prime Minister, as well as commercial deals during his visit.
China is now the world’s second largest economy and New Zealand’s second largest export market. Exports to China have tripled in the past five years.
New Zealand and China signed a Free Trade Agreement in 2008. It remains the only comprehensive Free Trade Agreement China has concluded with a developed country.
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