Thursday’s party is over and investors seemed to wake up with a hangover that left them feeling queasy about the outlook for the European debt crisis.
Today began with the downfall of MF Global Holdings, the futures broker led by CEO Jon Corzine. The company’s big bets on European sovereign debt led it to filing for Chapter 11 bankruptcy protection. MF shares were halted.
Separately, the European Central Bank stepped in to buy Italian and Spanish bonds as yield on the debt of the troubled nations soared amid renewed concern that the euro zone’s economy was stalling and after Chinese officials sought to dampen expectations on how much China was prepared to invest in Europe.
As a result, last week’s euphoria about Europe’s progress toward fixing its fiscal disaster gave way to impatience.
“There are lots of missing details and it’s still frustrating slow,” Kevin Gardiner, the global head of investment strategy at Barclays’ wealth unit, told Bloomberg News.
In Europe, the Stoxx 600 Index closed with a 2.2 percent drop on the day, though still posted a gain for the month of nearly 8 percent.
In afternoon trading in New York, the Dow Jones Industrial Average fell 1.38 percent, the Standard & Poor's 500 Index declined 1.44 percent and the Nasdaq Composite Index shed 1.18 percent. Even with today’s losses, the S&P 500 was still up 12 percent for the month, heading for its largest monthly percentage gain in more than two decades.
Morgan Stanley and Citigroup each tumbled more than 5 percent, after the biggest weekly advance in more than a year for financial shares in the S&P 500.
In Japan, the government intervened to stem the rise of its currency and safeguard the appeal of its exports, sending the US currency to the strongest level in three months.
The greenback gained 1.34 percent against a basket of its major counterparts.
In October, global investors slashed equity holdings to the second lowest level in 12 months, Reuters polls showed on Monday.
Reuters surveys of 56 leading investment houses in the US, Japan, Europe ex UK and Britain showed the average stock holding in a balanced portfolio was 49.5 percent, down from 50.5 percent in September.
Bonds rose to 35.9 percent from 34.6 percent while cash slipped to 5.9 percent, still the second-highest level of the past 12 months after September's 6.3 percent, according to the poll.
There is reason for optimism as US corporate profits are by and large exceeding expectations. American companies are beating Wall Street profit estimates for the 11th straight quarter, enough to revive a bull market that analysts say will eclipse any rally in the past 12 years, according to Bloomberg.
A total of 222 out of 298 Standard & Poor’s 500 Index companies that reported results since October 11 have surpassed forecasts for the third quarter, according to data compiled by Bloomberg.
“This is looking like it’s going to be a really decent quarter,” Warren Koontz, head of U.S. large-cap value stocks at Loomis Sayles & Co, told Bloomberg. “Valuations are very, very low relative to history, and you don’t have to make heroic assumptions on multiples to get reasonable returns.”
(BusinessDesk)
10 Comments
I would be interested to here other peoples (more knowledgeable) comments on this.
It sounds to me as if a large part of the European bail out is based on some sort of leaveraged guarantee fund. Aren't they the same sort of devices that contributed to the US financial crisis (AIG, Leveraged bond guarantees). If I am correct, what sort of idiots are these people?
Thanks Nicholas.
It looks like I am right. If I read that correctly; a bunch of governments are going to garaurantee a bunch of crappy debts and these garauntees are going to to be leveraged in to some sort of CDO investment vehicle. It is worse than the USA mess. Heaven help the poor citizens at the bottom of that heap. Good luck finding somebody silly enough to invest in the CDO unless the fine print is verging on criminally attractive. If the the whole thing unwinds there will be wide scale pollitical collapse.
That sums it up well....
"if it unwinds" I dont think it will take off....no one is lending to the EU banks, and I dont think anyone is that stupid. The EU might legislate to make CDOs not trigger and they may well cloud the issues in multi-layers but the hedge funds are brighter and quicker....Pollies have absolutely no hope unless they simply confiscate the hedgefunds money and lock the managers up.........which seems more and more likely.
regards
The first auction for the ESFS bonds didn't go too well, only sold 3bln, were planning to sell 5bln.
http://www.zerohedge.com/news/demand-efsf-paper-collapses-world-wakes-post-bailout-hangover
It cant be anything else but a lie of Pollies to the ppl who voted them in.
At some stage...the backers of the fund who are the nations themselves, who will be going bankrupt will have to back it up with their own money, which they wont have, this is laughable. This is just smoke and mirrors....its still the voters pain........I can but assume that the Pollies know that the hedgefunds / investors of this world are intelligent and wont play....so its real objective cant be to get them on board, it is to can kick and hide the problem from the voters who are the pattsies......To repeat, it cant be anything else but a lie of Pollies to the ppl who voted them in.
regards
Useful idiots? Honestly debt levels are too high, there are no easy answers to this. All developed countries are hoping and praying for some magical growth. Growth is the only painless option. All measures taken to date, to relieve the debt crisis have been postponement/can kicking. In effect waiting for growth (read waiting for Goto). In the most likely event that growth is over for mature economies, these can kicking endeavours have created an even bigger problem.
Without growth, I see three other options to relieve the debt crisis. Default, inflation, or total reset.
Yeah why not, lets put all the options on the table. Get a stable economic system, fiat currencies always fail, thats a fact. Germany had 5 currencies last century, mark, reichsmark, brentonmark, deutchmark and the euro. They always keep going to zero, no wonder they don't want to print. Fractional reserve banking, and interest bearing debts always crash the system, because they go against baisic maths.
Amount of times Gold has been worth zero in the history of the world - none. Get physical.
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