Shares tumble as all the bears come out
May 25, 2010 - 4:15PM
Australian shares tumbled today, hitting fresh nine-month lows as investors remain spooked by euro-zone instability, while rising tensions on the Korean peninsula also discouraged buyers.
The benchmark S&P/ASX200 index closed down 130.1 points, or 3 per cent, at 4265.3, its lowest close since August. The broader All Ordinaries index was off 126.5 points, or 2.9 per cent, at 4286.3.
At home, all the major sub-indexes were down, with energy shares off 3.9 per cent, materials down 3.7 per cent and financials slumping 3 per cent.
The Aussie dollar also resumed its retreat, dropping nearly 2 US cents to sink to 81.3 US cents.
About $150 billion has been wiped from the market this month, with the All Ordinaries off 11 per cent so far - the biggest slide since October 2008 when the collapse of US investment bank Lehman Brothers sent financial markets into a tailspin.
Europe's fumbling response to a debt crisis in Greece and bulging deficits in other euro-zone countries has unnerved markets, and the central bank takeover of a small Spanish lender at the weekend stoked the latest fears of a wider meltdown.
Across the region, other major markets were also sharply lower. South Korea's Kospi Index was down 4.3 per cent after a report said North Korea ordered its military to prepare for war last week. Japan's Nikkei 225 was off 2.7 per cent, with the benchmark indexes in Hong Kong and Singapore both down more 2 per cent.
“It appears that every single bear in Asia is emerging from its caves. It’s the complete reversal of what we’re seeing yesterday,” said Arab Bank Australia treasury dealer David Scutt. “Banks are being smacked. Commodity producers are being smacked. An all-around bad day for the markets.”
Also, short-term banks bill futures were selling off, Mr Scutt said.
"This is another sign that markets are wary of another liquidity crisis forming and mirrors the increase in Libor rates seen overnight in London."
Libor, the three-month US dollar London interbank offered rate - a key measure of the health of the credit markets - rose to 0.5 per cent overnight, the highest since July 2009. The increase suggests that there is growing caution among banks about lending to each other. Libor hit 3.6 per cent at the end of 2008, during the height of the financial crisis.
“Worryingly, the same feature was seen in the months leading up to and following the collapse of Lehman Brothers in 2008.”
Blue chips tumble
The world’s biggest miner, BHP Billiton, fell $1.52, or 4 per cent, to $36.28 and rival Rio Tinto dropped $2.45, or 3.8 per cent, to $61.70.
Iron ore miner Fortescue renewed its criticism of the government’s mining super profits tax plans and said it is likely to delay plans to start paying dividends due to the proposed tax, warning investors its shares could fall further as a result.
The shares duly extended early losses, to finish down 28 cents, or 7.5 per cent at $3.44.
The four major banks closed lower also.Commonwealth Bank was off $1.92, or 3.7 per cent, at $50.31 and Westpac declined 90 cents, or 3.9 per cent, to $22.26. ANZ closed down 56 cents, or 2.6 per cent, at $21.34 and National Australia Bank was 80 cents, or 3.3 per cent, lower at $23.76.
In the energy sector, Oil Search had dipped 26 cents to $5.25, Woodside was down $1.46, or 3.4 per cent, at $41.37 and Santos gave up 54 cents, or 4.4 per cent, to $11.75.
Flight Centre bucks trend
Flight Centre shares rosed 2.9 per cent to $16.80 after the travel firm upgraded its profit guidance for 2010 to a pretax profit of $190 million to $200 million, up from forecasts of $160 million to $180 million.
Healthscope saw its shares slip 1.9 per cent to $5.15, after private equity firm Blackstone Group joined a group bidding $US1.5 billion for the hospital operator, a source familiar with the situation said.
Minara Resources fell 4.5 cents, or 6.3 per cent, to 66.50 cents after it said it is looking offshore to more desirable tax jurisdictions.
Transurban declined 11 cents, or 2.5 cents, to $4.30 after the Takeovers Panel has refused to make interim orders sought to stop a rights issue by the toll roads operator.
Agribusiness and real estate group Ruralco Holdings was steady at $2.50 after it said it expected a solid full year financial result after boosting first half net profit by 23 per cent.
The most traded stock by volume was Australian Mines, with 222.32 million shares changing hands for $222,328 thousand. The stock was steady at 0.1 of a cent.
Preliminary national turnover was 2.26 billion shares worth $5.91 billion, with 250 stocks up, 867 down and 256 unchanged.
Losses 'overdone'
The Australian market has fallen 14 percent from its recent peak in April as the European worries, the Australian dollar's fall and a planned mining tax whacked sentiment.
"It is definitely overdone, the forward P/E of the market is 10 times which is extraordinarily low," said E.L. & C. Baillieu director Richard Morrow.
The long-term average forward price/earnings ratio for Australian stocks is around 14 times.
"People are staring down the barrel at this horrendous tax and everything has gone into abeyance ahead of that," he said.
http://www.smh.com.au/business/markets/shares-tumble-as-all-the-bears-come-out-20100525-w8i2.html
Showing posts with label GFC II. Show all posts
Showing posts with label GFC II. Show all posts
Tuesday 25 May 2010
Monday 24 May 2010
Stockmarket: what should investors do now?
Stockmarket: what should investors do now?
The FTSE100 dropped below the 5,000 barrier in the aftermath of the naked short-selling ban in Germany and the ongoing euro crisis.
By Paul Farrow
Published: 3:07PM BST 21 May 2010
Investors had been enjoying a market revival since shares hit their March 2009 lows. Markets had become more volatile in recent weeks but many fund managers had ruled out any possibility of a full-blown stock market crash.
However, the eurozone crisis is worsening and many analysts are predicting a double-dip recession and further market falls.
Paul Niven, head of asset Allocation at F&C, said: "Equity markets have entered into a technical correction, with major indices, such as the US S&P 500 falling more than 10pc from recent peaks. The VIX index of 'fear and greed' (which measures the volatility of the S&P500) has hit 13-month highs and is back trading at levels only seen during the 2008 meltdown.
"The way that markets are now behaving is suggestive of a move to pricing in renewed and significant economic weakness and the danger for investors is that market action will begin to negatively permeate economic fundamentals. It may be that capitulation is required in the near term to mark a short term trough in risk assets."
Financial advisers admit that no one can predict what will happen and suggest the best way to avoid boom-and-bust cycles is to make objective investment decisions that ignore fashions. What's more there will be some fund managers who argue that the volatility will trigger buying opportunities, although it is understandable that caution is the operative word for many investors at this juncture.
The advice from the great and the good, more often than not, is not to panic. There is the well-trodden argument from Fidelity that "it's about the time in the market, not out of it that counts''. But that can seem flippant when it comes to the prospect of losing your hard-earned cash.
Experts say that if you haven't already, it would be well worth reviewing your holdings to see if you are overexposed to any asset class or classes. Diversification and getting the balance right are vital.
Patrick Connolly at AWD Chase de Vere said that most people don't appreciate the risk they are taking when stock markets are going up. They only realise when markets are going down or are more volatile and then can panic and sell out at entirely the wrong time, he said.
"Too often investors buy at the top of the market when they are feeling bullish and sell out at the bottom when they are feeling negative. They should not allow short-term sentiment to influence their decision," said Connolly.
"The right approach is to hold a level of cash and then a diversified portfolio including shares, fixed interest and commercial property. These different investments need to be held in the right proportion to meet the requirements and risk profile of individual investors."
AWD Chase de Vere suggest that a diversified portfolio could include investment funds such as, PSigma Income, M&G Global Leaders, Cazenove European, Threadneedle American, JPM Emerging Markets, M&G Property Portfolio, Fidelity Moneybuilder Income and Schroder Strategic Bond.
Connolly added: "While panicking and selling is likely to be the wrong approach, for those who are concerned it is sensible to review their existing holdings and ensure they have the right level of diversification in their portfolios."
Adrian Lowcock at Bestinvest said that investors should look to have exposure to other asset classes, such as bonds, commercial property and absolute return funds.
His favoured funds in each of these sectors include Invesco Perpetual Tactical Bond, Henderson UK Property, Standard Life Global Absolute Return Strategies. He added: "The EU/IMF bail-out package will struggle to contain the issue and markets have responded accordingly. Investors should look to diversify their portfolios to reduce volatility but it is likely to be a bumpy ride in the short term."
http://www.telegraph.co.uk/finance/personalfinance/investing/7749761/Stockmarket-what-should-investors-do-now.html
The FTSE100 dropped below the 5,000 barrier in the aftermath of the naked short-selling ban in Germany and the ongoing euro crisis.
By Paul Farrow
Published: 3:07PM BST 21 May 2010
Investors had been enjoying a market revival since shares hit their March 2009 lows. Markets had become more volatile in recent weeks but many fund managers had ruled out any possibility of a full-blown stock market crash.
However, the eurozone crisis is worsening and many analysts are predicting a double-dip recession and further market falls.
Paul Niven, head of asset Allocation at F&C, said: "Equity markets have entered into a technical correction, with major indices, such as the US S&P 500 falling more than 10pc from recent peaks. The VIX index of 'fear and greed' (which measures the volatility of the S&P500) has hit 13-month highs and is back trading at levels only seen during the 2008 meltdown.
"The way that markets are now behaving is suggestive of a move to pricing in renewed and significant economic weakness and the danger for investors is that market action will begin to negatively permeate economic fundamentals. It may be that capitulation is required in the near term to mark a short term trough in risk assets."
Financial advisers admit that no one can predict what will happen and suggest the best way to avoid boom-and-bust cycles is to make objective investment decisions that ignore fashions. What's more there will be some fund managers who argue that the volatility will trigger buying opportunities, although it is understandable that caution is the operative word for many investors at this juncture.
The advice from the great and the good, more often than not, is not to panic. There is the well-trodden argument from Fidelity that "it's about the time in the market, not out of it that counts''. But that can seem flippant when it comes to the prospect of losing your hard-earned cash.
Experts say that if you haven't already, it would be well worth reviewing your holdings to see if you are overexposed to any asset class or classes. Diversification and getting the balance right are vital.
Patrick Connolly at AWD Chase de Vere said that most people don't appreciate the risk they are taking when stock markets are going up. They only realise when markets are going down or are more volatile and then can panic and sell out at entirely the wrong time, he said.
"Too often investors buy at the top of the market when they are feeling bullish and sell out at the bottom when they are feeling negative. They should not allow short-term sentiment to influence their decision," said Connolly.
"The right approach is to hold a level of cash and then a diversified portfolio including shares, fixed interest and commercial property. These different investments need to be held in the right proportion to meet the requirements and risk profile of individual investors."
AWD Chase de Vere suggest that a diversified portfolio could include investment funds such as, PSigma Income, M&G Global Leaders, Cazenove European, Threadneedle American, JPM Emerging Markets, M&G Property Portfolio, Fidelity Moneybuilder Income and Schroder Strategic Bond.
Connolly added: "While panicking and selling is likely to be the wrong approach, for those who are concerned it is sensible to review their existing holdings and ensure they have the right level of diversification in their portfolios."
Adrian Lowcock at Bestinvest said that investors should look to have exposure to other asset classes, such as bonds, commercial property and absolute return funds.
His favoured funds in each of these sectors include Invesco Perpetual Tactical Bond, Henderson UK Property, Standard Life Global Absolute Return Strategies. He added: "The EU/IMF bail-out package will struggle to contain the issue and markets have responded accordingly. Investors should look to diversify their portfolios to reduce volatility but it is likely to be a bumpy ride in the short term."
http://www.telegraph.co.uk/finance/personalfinance/investing/7749761/Stockmarket-what-should-investors-do-now.html
Nouriel Roubini said the bubble would burst and it did. So what next?
Nouriel Roubini said the bubble would burst and it did. So what next?
The dismal science? Don't believe a word of it. If Nouriel Roubini's New Year's Eve invitations were anything to go by, economics is far from the dour affair it once was.
By Jonathan Sibun
Published: 5:51PM BST 23 May 2010
The dismal science? Don't believe a word of it. If Nouriel Roubini's New Year's Eve invitations were anything to go by, economics is far from the dour affair it once was.
By Jonathan Sibun
Published: 5:51PM BST 23 May 2010
Holed up in the Caribbean island of St Bart's, Roubini was forced to choose between two parties. The first hosted by Chelsea owner Roman Abramovich, the second by Colonel Gaddafi's son Hannibal.
While dancing the night away with a Russian oligarch or the son of a Libyan dictator might not be everyone's glass of Cristal, the invitations show just how far the New York university professor has come in the celebrity stakes.
Just three years earlier, Roubini had been the object of derision in the economics community as he prophesied a US housing market crash, financial crisis and partial collapse of the banking sector. Today, as an adviser to governments and central bankers and much feted in the media, he's well aware of the power of being right.
"In my line of business your reputation is based on being right," he says. "The publicity is just noise. Certainly with a global crisis, the dismal scientists are having some prominence, even if most of the economics profession actually failed to predict it."
The 51-year-old, widely known as Dr Doom, is in town to publicise his new book Crisis Economics, a crash course in the financial crisis and what can be done to avoid another.
The book does little to suggest he is uncomfortable with his nickname. Where Roubini is concerned, the great recession has some way to run.
"The crisis is not over; we are just at the next stage. This is where we move from a private to a public debt problem," he says, his speech the mongrel drawl of a man who was born in Turkey to Iranian parents, raised in Israel and Italy and lives in New York. "We socialised part of the private losses by bailing out financial institutions and providing fiscal stimulus to avoid the great recession from turning into a depression. But rising public debt is never a free lunch, eventually you have to pay for it."
As eurozone leaders panic and markets continue to dive, Roubini believes Greece will prove to be just the first of a series of countries standing on the brink.
"We have to start to worry about the solvency of governments. What is happening today in Greece is the tip of the iceberg of rising sovereign debt problems in the eurozone, in the UK, in Japan and in the US. This... is going to be the next issue in the global financial crisis."
It already is. And Roubini claims to have foreseen it as far back as 2006.
"I was writing about the PIGS [Portugal, Italy, Greece and Spain] six to nine months before everyone else, I was worried about the future of the monetary union back in 2006," he says. "At the World Economic Forum I outraged a policy official by suggesting the monetary union might break up."
Roubini has sandwiched a visit to the The Daily Telegraph's offices between a private meeting with Bank of England Governor Mervyn King – "I regularly meet with policy makers. I don't know if it's even worth mentioning" – and a talk at the London School of Economics. I ask him if I can see his LSE speech.
"I haven't written one. I never prepare a speech, I don't even have notes. I usually just speak out of my own thoughts; stream of consciousness."
It's a manner he adopts when we meet. Looking over my shoulder, declining eye contact, he moves seamlessly between what he describes as the economist's usual suspects – "the US, eurozone, Japan, China, emerging markets, inflation, deflation, markets" – as he must when teaching his 400 students in New York.
The prognosis for all the suspects save China and the emerging markets is grim, little wonder given the backdrop of a 3.8pc drop in the FTSE last week and panic among investors spooked by German chancellor Angela Merkel's short-selling ban. The ban has been dismissed as fiddling while Rome, or rather the eurozone, burns.
Roubini believes Greece's problems will see the country forced to restructure its debt and raises the longer term prospect of a breakdown of the union with the potential exits of Greece, Spain and Portugal.
Could it survive such a blow? "Well you could think of a world where there is a eurozone with only a core of really strong economies around Germany," he says. "But the process that would lead to one or more countries leaving the union would be so disruptive that the euro as a major reserve currency would be severely damaged."
Like many economists, Roubini does not talk in absolute predictions. It is all about what could happen in worse case scenarios.
But he argues they are only becoming more likely under current political leadership, the UK's new Conservative-Liberal coalition included. "I am worried about the hung parliament. Whenever you have divided, weak or multi-party governments, budget deficits tend to be higher. It is harder to make the necessary sacrifices."
He dismisses the £6bn of cuts announced by the coalition as "small compared to what is needed", but rejects the idea that the UK is worse off than many of its peers.
"In the US there is a lack of bipartisanship between Democrats and Republicans, in Germany Merkel has just lost the majority in her legislature, in Japan you have a weak and ineffective government, in Greece you have riots and strikes," he says. "The point is that a lot of sacrifices will have to be made in these countries but many of the governments are weak or divided. It is that political strain that markets are worried about. The view is: you can announce anything, we'll see whether you're going to implement it."
This, he explains, is the ultimate challenge facing governments.
"If you're pushing through austerity while there is growth that's one thing, but if you're pushing it through while the recession is deepening, politically that is harder to sell. And the eurozone doesn't just need fiscal consolidation but also structural reform to increase productivity and restore competitiveness," he says.
Germany is the blueprint, Roubini points out, but "it took a decade for them to see the benefits of structural reform and corporate restructuring".
"If Spain and Portugal start today, you'll see the short-term cost without the long-term benefit and they might run out of political time," he says. "That's why I worry about several eurozone members having to restructure their debt, or deciding that the benefits of staying in the monetary union are less than the cost of it."
The prognosis for the UK is, at least, a little less alarming. An independent currency gives it a few more levers to pull – quantitative easing means default is unlikely to be an issue. But that comes with its own challenges.
"Eventually inflation will go up and that erodes the real value of public debt," Roubini says. "In that scenario the value of the pound will fall sharply. It could even become disorderly and that could damage the economy, the financial markets and also the role of the pound as a reserve currency."
Yet another challenge for Government then. Whether the coalition can live up to it remains to be seen. And whether it thinks it has to.
Roubini is adamant that the great recession is not over. But a temporary economic pick-up, which would convince governments that reform is unnecessary, could bring its own problems.
"People asked me why I saw there was a bubble and my question was why others didn't. During the bubble everybody was benefiting and losing a sense of reality," he says. "And now, since there is the beginning of economic recovery – however bumpy that might be – in some sense people are already starting to forget what happened two years ago. Banks are going back to business as usual and bonuses are back to levels that are outrageous by any standards. There is actually a backlash against even moderate reforms that governments are trying to pass."
Reform, Roubini insists, is necessary, recovery or not. "We are still in the middle of this crisis and there is more trouble ahead of us, even if there is a recovery. During the great depression the economy contracted between 1929 and 1933, there was the beginning of a recovery, but then a second recession from 1937 to 1939. If you don't address the issues, you risk having a double-dip recession and one which is at least as severe as the first one."
Roubini has built his reputation on such forecasts. So, given the real reputation builder was forecasting the crisis, has he been one of the few to enjoy the troubled times of the past few years?
"We are witnessing the worst global economic crisis in the last 60 to 70 years and for an economist that offers an opportunity," he says. "So it has been interesting, but the damage financially and economically has been so severe and so many people have suffered. Anybody involved has to bear that in mind."
Perhaps the dismal science was a fair moniker after all.
http://www.telegraph.co.uk/finance/economics/7756684/Nouriel-Roubini-said-said-the-bubble-would-burst-and-it-did.-So-what-next.html
http://www.telegraph.co.uk/finance/economics/7756684/Nouriel-Roubini-said-said-the-bubble-would-burst-and-it-did.-So-what-next.html
Sunday 23 May 2010
Rebound staves off the GFC Mark II
Rebound staves off the GFC Mark II
TIM COLEBATCH AND RICHARD WILLINGHAM
May 22, 2010
THE biggest fall on global financial markets since the panic of 2008 halted suddenly in Australia yesterday, raising hopes that markets might avoid a second catastrophic meltdown.
After a month of almost unbroken falls - more like free-fall over the past week - share prices and the Australian dollar rebounded strongly during yesterday's trading after opening sharply lower.
In a roller-coaster day on the markets, the dollar fell, rose and fell again. Its journey took it from US80.73¢ in early trading to US83.65¢, then back to US82.69¢ by the evening.
On the stockmarket, the benchmark S&P/ASX200 index began 2.5 per cent down after Wall Street overnight suffered its biggest fall for more than a year, widely attributed to fears of a slump in Europe and a slowdown in China. But, unexpectedly, it began creeping back up, then the creep became a bound, and it ended up just 0.25 per cent lower at 4305.4.
But even after yesterday's bounce, it was a week that took us back to the panic of October 2008. Stock prices fell 6.6 per cent, wiping $90 billion off the market's value. The dollar plunged 7.3 per cent against the US dollar, and only slightly less on the Reserve Bank's broader index.
Analysts said the Aussie could drop below US80¢ next week if the market retreat continued but its long-term prospects were positive.
''We still think it can head lower from here,'' said Westpac currency strategist Jonathan Cavenagh. ''We think it can head into the 70s.''
Yesterday's rally was fuelled by a market rumour that the Reserve Bank was buying the currency. But the Reserve refused to confirm or deny this, and some suggested it was a correction after the rapid sell-off of recent days. But as analysts tried to make sense of it all, opinions differed not only on where the market will go next, but on what is driving the global retreat of investors away from stocks and risk and into the safety of bonds and the US dollar.
Trillions of dollars have been pulled out of stock markets the world over. Wall Street's benchmark index, the S&P500, fell 7.4 per cent in the past week. In Britain, the FTSE index was down 6.6 per cent, the same as Australia's, while Japan's Nikkei index fell 4.1 per cent.
Shadow treasurer Joe Hockey yesterday blamed the plunge partly on the government's proposed resource rent tax on mining. But Prime Minister Kevin Rudd emphasised the global falls, attributing them to ''a genuine crisis of confidence in Europe''.
In their gloom, the markets have ignored very strong growth figures and forecasts from Asia and the US. China's 12 per cent growth in the year to March has now been topped by Singapore (15.5 per cent) and Taiwan (13.3 per cent). In the US, the Fed is forecasting growth this year to be in the range of 3.2 to 3.7 per cent.
The 11 per cent plunge in the Australian dollar from its peak of US93.41¢ in mid-April will be good for the slow lane of our two-speed economy. For local manufacturers, tourism operators and farmers, it makes exporting more viable and profitable.
But imports will become more expensive, at least for the middlemen, and anyone travelling overseas will need more money.
The proposed resources tax appears to have been at most a marginal influence. The plunge in Australian stock prices over the past month has been similar to the fall in stock prices in the US.
Source: The Age
http://www.smh.com.au/business/rebound-staves-off-the-gfc-mark-ii-20100521-w231.html
TIM COLEBATCH AND RICHARD WILLINGHAM
May 22, 2010
THE biggest fall on global financial markets since the panic of 2008 halted suddenly in Australia yesterday, raising hopes that markets might avoid a second catastrophic meltdown.
After a month of almost unbroken falls - more like free-fall over the past week - share prices and the Australian dollar rebounded strongly during yesterday's trading after opening sharply lower.
In a roller-coaster day on the markets, the dollar fell, rose and fell again. Its journey took it from US80.73¢ in early trading to US83.65¢, then back to US82.69¢ by the evening.
On the stockmarket, the benchmark S&P/ASX200 index began 2.5 per cent down after Wall Street overnight suffered its biggest fall for more than a year, widely attributed to fears of a slump in Europe and a slowdown in China. But, unexpectedly, it began creeping back up, then the creep became a bound, and it ended up just 0.25 per cent lower at 4305.4.
But even after yesterday's bounce, it was a week that took us back to the panic of October 2008. Stock prices fell 6.6 per cent, wiping $90 billion off the market's value. The dollar plunged 7.3 per cent against the US dollar, and only slightly less on the Reserve Bank's broader index.
Analysts said the Aussie could drop below US80¢ next week if the market retreat continued but its long-term prospects were positive.
''We still think it can head lower from here,'' said Westpac currency strategist Jonathan Cavenagh. ''We think it can head into the 70s.''
Yesterday's rally was fuelled by a market rumour that the Reserve Bank was buying the currency. But the Reserve refused to confirm or deny this, and some suggested it was a correction after the rapid sell-off of recent days. But as analysts tried to make sense of it all, opinions differed not only on where the market will go next, but on what is driving the global retreat of investors away from stocks and risk and into the safety of bonds and the US dollar.
Trillions of dollars have been pulled out of stock markets the world over. Wall Street's benchmark index, the S&P500, fell 7.4 per cent in the past week. In Britain, the FTSE index was down 6.6 per cent, the same as Australia's, while Japan's Nikkei index fell 4.1 per cent.
Shadow treasurer Joe Hockey yesterday blamed the plunge partly on the government's proposed resource rent tax on mining. But Prime Minister Kevin Rudd emphasised the global falls, attributing them to ''a genuine crisis of confidence in Europe''.
In their gloom, the markets have ignored very strong growth figures and forecasts from Asia and the US. China's 12 per cent growth in the year to March has now been topped by Singapore (15.5 per cent) and Taiwan (13.3 per cent). In the US, the Fed is forecasting growth this year to be in the range of 3.2 to 3.7 per cent.
The 11 per cent plunge in the Australian dollar from its peak of US93.41¢ in mid-April will be good for the slow lane of our two-speed economy. For local manufacturers, tourism operators and farmers, it makes exporting more viable and profitable.
But imports will become more expensive, at least for the middlemen, and anyone travelling overseas will need more money.
The proposed resources tax appears to have been at most a marginal influence. The plunge in Australian stock prices over the past month has been similar to the fall in stock prices in the US.
Source: The Age
http://www.smh.com.au/business/rebound-staves-off-the-gfc-mark-ii-20100521-w231.html
Saturday 22 May 2010
It's a risky business, don't you forget it
It's a risky business, don't you forget it
May 22, 2010
There was a time not so long ago when the markets were convinced that the risks the global financial crisis had exposed were contained. But that was then. Yesterday's market fightback aside, risk has been rediscovered and risk aversion is back in vogue.
It has been evident in the attack on the euro, the proxy for Europe's sovereign debt problem, and the message it sends that government debt taken on to save the financial system and prop up the global economy in 2008 and 2009 will be a long-term weight on growth everywhere.
It is also behind the Australian dollar's dive. The Rudd government's clumsily handled resource rent tax, signs of a pause on Reserve Bank rate rises and our commodity-heavy currency's vulnerability to concerns about global growth were other factors, as was a currency market version of programme trading. Selling by Japanese retail ''carry trade'' investors was triggered as the US dollar-yen rate moved below 90 yen and the Aussie-yen rate went below 75 yen. But however you cut it, what we are talking about is risk rediscovered and reinsured.
After misjudging how America's sub-prime property crisis would infect world markets, hedge funds and other big investors are determined not to be caught again, either by underestimating the possibility that Europe's sovereign debt crisis will fan out into a new systemic global crisis, or by mis-pricing the long-term impact of the debt-funded bailout.
The most fundamental risk insurance that investors take out is a fatter percentage return on the investments they make.
I can't tell you if hedge funds believe they have taken out enough insurance by beating down the quoted prices of shares and other vulnerable markers, including the euro and the Aussie. But I can tell you that insurance levels have been significantly increased worldwide.
In September the companies in the S&P/ASX 200 share index were promising to deliver earnings that equal a 5.9 per cent return on the cost of buying them. Totally safe 10-year Commonwealth bonds were yielding 5.5 per cent, so share investors were receiving a premium of less than half a percentage point for their higher risk, potentially higher return sharemarket exposure.
After this month's slide, the same share index is yielding 8.5 per cent, and the bond rate is down to 5.3 per cent, pushing the risk premium on the sharemarket up significantly, to 3.2 percentage points.
On the same measure Wall Street's share investing risk premium has moved from 3.4 percentage points to 5 percentage points, and even higher insurance has been taken out in Europe. The risk premium there was already big at 4.3 percentage points in September. Today it is 6.3 percentage points, as lower share prices push the euro market's share earnings yield up to 9 per cent, and as a flight to the safety of German government debt pushes its long-term government bond yield to 2.67 per cent - a level that is not only below anything seen during the global financial crisis, but the lowest seen since World War II.
That's a fat cushion by historical standards. It's worth noting that even as the markets have melted, some indicators have been pointing in the other direction.
While there's been a spike in a prominent sharemarket fear indicator, the Chicago Board Options Exchange's Vix index, interbank lending spreads are much narrower than they were during the financial crisis.
Yesterday's Australian market bounce showed that some investors see signs such as these as evidence that this is a crisis in name only, and see the elevated risk premiums as a buying signal.
Others will note that the markets remain hostage to political events - none more so than Australia's.
Last night, for example, Angela Merkel's coalition government was preparing to push Germany's share of the €750 billion rescue package for Greece and other debt-burdened European Union nations through its lower house. The vote was going to be close and the markets needed Merkel to win to hold their nerve.
Australia is running into an election that is shaping up as the most crucial for the markets here in decades. Tony Abbott's declarations that a Coalition government would call off the national broadband project that threatens Telstra's hegemony, scrap a tax that penalises highly profitable miners and rewards marginal ones, and find money elsewhere in part by cancelling the Rudd government's planned cut in company tax from 30 per cent to 28 per cent mean that Australian businesses and the markets face vastly different outcomes from a poll that is only months away.
mmaiden@theage.com.au
Source: The Age
http://www.brisbanetimes.com.au/business/its-a-risky-business-dont-you-forget-it-20100521-w1tw.html
May 22, 2010
There was a time not so long ago when the markets were convinced that the risks the global financial crisis had exposed were contained. But that was then. Yesterday's market fightback aside, risk has been rediscovered and risk aversion is back in vogue.
It has been evident in the attack on the euro, the proxy for Europe's sovereign debt problem, and the message it sends that government debt taken on to save the financial system and prop up the global economy in 2008 and 2009 will be a long-term weight on growth everywhere.
It is also behind the Australian dollar's dive. The Rudd government's clumsily handled resource rent tax, signs of a pause on Reserve Bank rate rises and our commodity-heavy currency's vulnerability to concerns about global growth were other factors, as was a currency market version of programme trading. Selling by Japanese retail ''carry trade'' investors was triggered as the US dollar-yen rate moved below 90 yen and the Aussie-yen rate went below 75 yen. But however you cut it, what we are talking about is risk rediscovered and reinsured.
After misjudging how America's sub-prime property crisis would infect world markets, hedge funds and other big investors are determined not to be caught again, either by underestimating the possibility that Europe's sovereign debt crisis will fan out into a new systemic global crisis, or by mis-pricing the long-term impact of the debt-funded bailout.
The most fundamental risk insurance that investors take out is a fatter percentage return on the investments they make.
I can't tell you if hedge funds believe they have taken out enough insurance by beating down the quoted prices of shares and other vulnerable markers, including the euro and the Aussie. But I can tell you that insurance levels have been significantly increased worldwide.
In September the companies in the S&P/ASX 200 share index were promising to deliver earnings that equal a 5.9 per cent return on the cost of buying them. Totally safe 10-year Commonwealth bonds were yielding 5.5 per cent, so share investors were receiving a premium of less than half a percentage point for their higher risk, potentially higher return sharemarket exposure.
After this month's slide, the same share index is yielding 8.5 per cent, and the bond rate is down to 5.3 per cent, pushing the risk premium on the sharemarket up significantly, to 3.2 percentage points.
On the same measure Wall Street's share investing risk premium has moved from 3.4 percentage points to 5 percentage points, and even higher insurance has been taken out in Europe. The risk premium there was already big at 4.3 percentage points in September. Today it is 6.3 percentage points, as lower share prices push the euro market's share earnings yield up to 9 per cent, and as a flight to the safety of German government debt pushes its long-term government bond yield to 2.67 per cent - a level that is not only below anything seen during the global financial crisis, but the lowest seen since World War II.
That's a fat cushion by historical standards. It's worth noting that even as the markets have melted, some indicators have been pointing in the other direction.
- There are concerns that Europe's growth will be strangled by debt,
- concern too about China's decision to restrict bank lending and slow the pace of its recovery, but global indicators in recent months have in the main been positive.
- Thursday night's slight rise in US jobless claims was an exception, albeit a badly timed one for the markets.
While there's been a spike in a prominent sharemarket fear indicator, the Chicago Board Options Exchange's Vix index, interbank lending spreads are much narrower than they were during the financial crisis.
Yesterday's Australian market bounce showed that some investors see signs such as these as evidence that this is a crisis in name only, and see the elevated risk premiums as a buying signal.
Others will note that the markets remain hostage to political events - none more so than Australia's.
Last night, for example, Angela Merkel's coalition government was preparing to push Germany's share of the €750 billion rescue package for Greece and other debt-burdened European Union nations through its lower house. The vote was going to be close and the markets needed Merkel to win to hold their nerve.
Australia is running into an election that is shaping up as the most crucial for the markets here in decades. Tony Abbott's declarations that a Coalition government would call off the national broadband project that threatens Telstra's hegemony, scrap a tax that penalises highly profitable miners and rewards marginal ones, and find money elsewhere in part by cancelling the Rudd government's planned cut in company tax from 30 per cent to 28 per cent mean that Australian businesses and the markets face vastly different outcomes from a poll that is only months away.
mmaiden@theage.com.au
Source: The Age
http://www.brisbanetimes.com.au/business/its-a-risky-business-dont-you-forget-it-20100521-w1tw.html
Friday 21 May 2010
GFC II looms if debt woes grow, UBS warns
GFC II looms if debt woes grow, UBS warns
STUART WASHINGTON
May 21, 2010 - 12:05PM
A European inability to contain its debt crisis would lead to ‘‘Global Financial Crisis No. 2’’, a senior economist has warned.
Scott Haslem, an economist with investment bank UBS, said today current instability suggested there were two potential paths for the global economy related to the debt crisis emanating from Europe.
One path was that fears surrounding European debt would continue to escalate, creating a lack of trust in global financial institutions resulting in what Mr Haslem termed ‘‘Global Financial Crisis No. 2’’.
But Mr Haslem said a more likely path would be that European leaders would meet the challenges posed by Greece’s current instability, partly because the consequences of failure would be so dire.
‘‘The most negative path is simply that the rise in risk and the dysfunction that is in Europe at the moment, if we can’t contain that in the European environment and it becomes a global financial crisis, then I think it’s going to be difficult days ahead,’’ he said.
‘‘I think the more likely scenario is that policy makers have walked this path before over the last couple of years ... and probably know a little bit more how to deal with these issues.
‘‘I think the more likely path is that we become more comfortable over the next couple of months that this is indeed likely to be contained to Europe and we re-join what we define as a fairly moderate, patchy economic recovery.’’
He made the remarks this morning ahead of the Australian S&P 200 as low as 3.2 per cent below its close yesterday.
swashington@smh.com.au
http://www.smh.com.au/business/gfc-ii-looms-if-debt-woes-grow-ubs-warns-20100521-vzub.html
STUART WASHINGTON
May 21, 2010 - 12:05PM
A European inability to contain its debt crisis would lead to ‘‘Global Financial Crisis No. 2’’, a senior economist has warned.
Scott Haslem, an economist with investment bank UBS, said today current instability suggested there were two potential paths for the global economy related to the debt crisis emanating from Europe.
One path was that fears surrounding European debt would continue to escalate, creating a lack of trust in global financial institutions resulting in what Mr Haslem termed ‘‘Global Financial Crisis No. 2’’.
But Mr Haslem said a more likely path would be that European leaders would meet the challenges posed by Greece’s current instability, partly because the consequences of failure would be so dire.
‘‘The most negative path is simply that the rise in risk and the dysfunction that is in Europe at the moment, if we can’t contain that in the European environment and it becomes a global financial crisis, then I think it’s going to be difficult days ahead,’’ he said.
‘‘I think the more likely scenario is that policy makers have walked this path before over the last couple of years ... and probably know a little bit more how to deal with these issues.
‘‘I think the more likely path is that we become more comfortable over the next couple of months that this is indeed likely to be contained to Europe and we re-join what we define as a fairly moderate, patchy economic recovery.’’
He made the remarks this morning ahead of the Australian S&P 200 as low as 3.2 per cent below its close yesterday.
swashington@smh.com.au
http://www.smh.com.au/business/gfc-ii-looms-if-debt-woes-grow-ubs-warns-20100521-vzub.html
Thursday 20 May 2010
Asian stocks fall on Japan deflation warnings
Asian stocks fall on Japan deflation warnings
May 20, 2010 - 2:54PM
Asian stocks fell, dragging the MSCI Asia Pacific Index to its lowest in more than six months, after Japan's finance minister warned about continuing deflation and concern grew about Europe's debt crisis.
Canon Inc., a camera maker that counts Europe as its biggest market by revenue, lost 2.9 per cent in Tokyo. Surfwear maker Billabong International, which gets 23 per cent of its sales in Europe, slumped 5.1 per cent in Sydney. Toyota sank 2 per cent as the carmaker offered repairs for an engine fault in its Passo subcompact models.
The MSCI Asia Pacific Index fell 1 per cent in Tokyo, set to close at its lowest level since Sept. 4. The gauge has tumbled 12 per cent from its high this year on April 15 amid concern debt problems in countries from Greece to Spain will spill over into other European nations. Germany this week introduced a temporary ban on naked short selling to calm the region's financial markets.
''With the volatility at present it's difficult for investors to swim against the tide,'' said Tim Schroeders, who helps manage about $US1.1 billion at Pengana Capital in Melbourne. ''Doubts over Europe's ability to keep its own house in order remain, along with concerns about the robustness of global growth. Many investors are sitting on the sidelines until the way forward becomes clearer.''
Japan's Nikkei 225 Stock Average sank 1.2 per cent, as Finance Minister Naoto Kan warned that the economy continues to be in a deflationary state minutes after a government economic growth report missed estimates. Australia's S&P/ASX 200 Index lost 0.5 per cent. South Korea's Kospi Index fell 0.5 per cent.
China, Hong Kong
China's Shanghai Composite Index sank 0.4 per cent, after earlier rising 0.8 per cent. Hong Kong's Hang Seng Index was little changed. Singapore's Straits Times Index dropped 0.4 per cent even after a government report showed the city-state's economy grew at a faster pace than initially estimated.
Futures on the Standard & Poor's 500 Index gained 0.3 per cent. The index slid 0.5 per cent yesterday as Germany's trading restrictions and a jump in mortgage foreclosures to a record triggered a flight from equities.
German regulators banned investors from naked short sales of 10 banks and insurers, as well as naked credit-default swaps on euro-area government bonds, starting yesterday.
Short sellers borrow assets and sell them, betting the price will fall and they'll be able to buy them later, return them to the lender and pocket the difference. In naked short- selling, traders never borrow the assets so betting is unlimited.
Free repairs
Canon declined 2.9 per cent to 3815 yen in Tokyo, while Nintendo, a Japanese maker of game consoles that gets 34 per cent of its revenue in Europe, dropped 3.3 per cent to 25,970 yen in Osaka. Billabong slumped 5.1 per cent to $10.25.
Toyota, the world's largest automaker, fell 2.1 per cent to 3435 yen, the biggest drag on the MSCI Asia Pacific Index. The company will offer free repairs from tomorrow for an engine fault affecting 22,300 Passo subcompact models in Japan, according to Toyota spokeswoman Mieko Iwasaki.
Japan's Nikkei 225 Stock Average had the steepest decline among key stock gauges in the Asia Pacific region. A government report showed the country's economy expanded slower than economists expected in the first quarter, with more than half of growth coming from trade, and consumer spending contributing less than one-fifth.
Chinese interest rates
Finance Minister Kan said that he expects the Bank of Japan to support the economy with flexible policy and that officials must be cautious about calling the recovery self-sustaining. The BOJ starts a two-day policy meeting today.
Property stocks in Hong Kong rose after the state-run China Securities Journal said in a front-page editorial today that the nation can wait until the second half of 2010 or next year to raise benchmark rates as economic growth slows.
Chinese measures to rein in the country's real-estate prices contributed to the MSCI Asia Pacific Index's slump since April. Companies in the measure trade at an average 14.4 times estimated earnings, near the lowest level since December 2008.
'Face reality'
Hang Lung Properties, which received 40 per cent of its fiscal 2009 revenue from China, gained 1.3 per cent to $HK27.90 in Hong Kong. China Overseas Land & Investment, controlled by the nation's construction ministry, rose 0.7 per cent to $HK14.52. Bank of China, the nation's third- largest lender, climbed 0.5 per cent to $HK3.96.
''Most economists will have to face reality and postpone their expected timing of the first rate hike, especially after the breakout of the European debt crisis,'' Lu Ting, a Hong Kong-based economist at Bank of America-Merrill Lynch, said in an e-mailed report.
Energy companies in Asia advanced as oil futures in New York climbed 1 per cent to $US70.60 a barrel, extending yesterday's 0.7 per cent increase. Cnooc, China's largest offshore oil producer, gained 1.8 per cent to $HK12.36. Cosmo Oil jumped 4.2 per cent to 251 yen in Tokyo.
Oil & Natural Gas, India's largest state-owned oil explorer, surged 9 per cent to 1116.9 rupees after the country's government agreed to more than double the price of gas produced from fields awarded to state companies.
Bloomberg
Source: theage.com.au
http://www.smh.com.au/business/markets/asian-stocks-fall-on-japan-deflation-warnings-20100520-vhio.html
May 20, 2010 - 2:54PM
Asian stocks fell, dragging the MSCI Asia Pacific Index to its lowest in more than six months, after Japan's finance minister warned about continuing deflation and concern grew about Europe's debt crisis.
Canon Inc., a camera maker that counts Europe as its biggest market by revenue, lost 2.9 per cent in Tokyo. Surfwear maker Billabong International, which gets 23 per cent of its sales in Europe, slumped 5.1 per cent in Sydney. Toyota sank 2 per cent as the carmaker offered repairs for an engine fault in its Passo subcompact models.
The MSCI Asia Pacific Index fell 1 per cent in Tokyo, set to close at its lowest level since Sept. 4. The gauge has tumbled 12 per cent from its high this year on April 15 amid concern debt problems in countries from Greece to Spain will spill over into other European nations. Germany this week introduced a temporary ban on naked short selling to calm the region's financial markets.
''With the volatility at present it's difficult for investors to swim against the tide,'' said Tim Schroeders, who helps manage about $US1.1 billion at Pengana Capital in Melbourne. ''Doubts over Europe's ability to keep its own house in order remain, along with concerns about the robustness of global growth. Many investors are sitting on the sidelines until the way forward becomes clearer.''
Japan's Nikkei 225 Stock Average sank 1.2 per cent, as Finance Minister Naoto Kan warned that the economy continues to be in a deflationary state minutes after a government economic growth report missed estimates. Australia's S&P/ASX 200 Index lost 0.5 per cent. South Korea's Kospi Index fell 0.5 per cent.
China, Hong Kong
China's Shanghai Composite Index sank 0.4 per cent, after earlier rising 0.8 per cent. Hong Kong's Hang Seng Index was little changed. Singapore's Straits Times Index dropped 0.4 per cent even after a government report showed the city-state's economy grew at a faster pace than initially estimated.
Futures on the Standard & Poor's 500 Index gained 0.3 per cent. The index slid 0.5 per cent yesterday as Germany's trading restrictions and a jump in mortgage foreclosures to a record triggered a flight from equities.
German regulators banned investors from naked short sales of 10 banks and insurers, as well as naked credit-default swaps on euro-area government bonds, starting yesterday.
Short sellers borrow assets and sell them, betting the price will fall and they'll be able to buy them later, return them to the lender and pocket the difference. In naked short- selling, traders never borrow the assets so betting is unlimited.
Free repairs
Canon declined 2.9 per cent to 3815 yen in Tokyo, while Nintendo, a Japanese maker of game consoles that gets 34 per cent of its revenue in Europe, dropped 3.3 per cent to 25,970 yen in Osaka. Billabong slumped 5.1 per cent to $10.25.
Toyota, the world's largest automaker, fell 2.1 per cent to 3435 yen, the biggest drag on the MSCI Asia Pacific Index. The company will offer free repairs from tomorrow for an engine fault affecting 22,300 Passo subcompact models in Japan, according to Toyota spokeswoman Mieko Iwasaki.
Japan's Nikkei 225 Stock Average had the steepest decline among key stock gauges in the Asia Pacific region. A government report showed the country's economy expanded slower than economists expected in the first quarter, with more than half of growth coming from trade, and consumer spending contributing less than one-fifth.
Chinese interest rates
Finance Minister Kan said that he expects the Bank of Japan to support the economy with flexible policy and that officials must be cautious about calling the recovery self-sustaining. The BOJ starts a two-day policy meeting today.
Property stocks in Hong Kong rose after the state-run China Securities Journal said in a front-page editorial today that the nation can wait until the second half of 2010 or next year to raise benchmark rates as economic growth slows.
Chinese measures to rein in the country's real-estate prices contributed to the MSCI Asia Pacific Index's slump since April. Companies in the measure trade at an average 14.4 times estimated earnings, near the lowest level since December 2008.
'Face reality'
Hang Lung Properties, which received 40 per cent of its fiscal 2009 revenue from China, gained 1.3 per cent to $HK27.90 in Hong Kong. China Overseas Land & Investment, controlled by the nation's construction ministry, rose 0.7 per cent to $HK14.52. Bank of China, the nation's third- largest lender, climbed 0.5 per cent to $HK3.96.
''Most economists will have to face reality and postpone their expected timing of the first rate hike, especially after the breakout of the European debt crisis,'' Lu Ting, a Hong Kong-based economist at Bank of America-Merrill Lynch, said in an e-mailed report.
Energy companies in Asia advanced as oil futures in New York climbed 1 per cent to $US70.60 a barrel, extending yesterday's 0.7 per cent increase. Cnooc, China's largest offshore oil producer, gained 1.8 per cent to $HK12.36. Cosmo Oil jumped 4.2 per cent to 251 yen in Tokyo.
Oil & Natural Gas, India's largest state-owned oil explorer, surged 9 per cent to 1116.9 rupees after the country's government agreed to more than double the price of gas produced from fields awarded to state companies.
Bloomberg
Source: theage.com.au
http://www.smh.com.au/business/markets/asian-stocks-fall-on-japan-deflation-warnings-20100520-vhio.html
Global stockmarkets slumped overnight
Global stockmarkets slumped overnight, as the surprise German strike against speculative trading panicked nervous investors instead of reassuring them.
Top economist Nouriel Roubini, who was one of the few experts to predict the global financial crisis, warned that the debt drama set off by Greece was likely only the tip of the iceberg.
A fresh crisis could occur "not just in the eurozone but in the UK, US, or Japan," Roubini said in a speech at the London School of Economics.
"The next stage of the crisis could be a sovereign debt crisis that could lead to a double-dip recession."
In Asian trade on Wednesday, Tokyo lost 0.5 per cent with Hong Kong down 1.8 per cent while Sydney fell to its lowest level in nine months, giving up 1.9 per cent.
AFP
http://www.smh.com.au/business/markets/angelas-ashes-desperate-merkel-fuels-slump-in-global-markets-20100520-vfl2.html
Top economist Nouriel Roubini, who was one of the few experts to predict the global financial crisis, warned that the debt drama set off by Greece was likely only the tip of the iceberg.
A fresh crisis could occur "not just in the eurozone but in the UK, US, or Japan," Roubini said in a speech at the London School of Economics.
"The next stage of the crisis could be a sovereign debt crisis that could lead to a double-dip recession."
In Asian trade on Wednesday, Tokyo lost 0.5 per cent with Hong Kong down 1.8 per cent while Sydney fell to its lowest level in nine months, giving up 1.9 per cent.
AFP
http://www.smh.com.au/business/markets/angelas-ashes-desperate-merkel-fuels-slump-in-global-markets-20100520-vfl2.html
Behind the drama in Europe lies a global crisis
Behind the drama in Europe lies a global crisis
The euro is under threat – along with our entire free-market system, warns Edmund Conway.
The euro is under threat – along with our entire free-market system, warns Edmund Conway.
Angela Merkel, the German Chancellor, followed the unilateral German shorting ban with a warning that the euro was in danger, urging the EU speed up supervision of financial markets.Photo: Getty
It is now accepted, even by Angela Merkel, that as Europe battles its financial crisis, the very fate of the euro is at stake. Her belated discovery of this home truth is welcome, but she does not go far enough. The real concern is that the crisis bubbling on the other side of the Channel represents a make-or-break moment for globalisation.
If that sounds rather exotic, consider two apparently separate events from the past couple of days. The first features George Osborne. While things have gone pretty well back home for the new Chancellor, he is already having trouble in Europe, where the Commission has been fighting not only to de-claw the hedge fund industry – against British wishes – but also to impose new rules on its member states.
The Commission's latest idea is that every European finance minister (including Osborne) should be compelled to send his Budget plans to Brussels for approval before announcing them to his own MPs and citizens. The rationale is that if there is to be a central bail-out fund for stricken European nations, there should be someone in the middle making sure no one misbehaves. Osborne, understandably, was having none of it, using his inaugural European summit to insist that when it came to a country's budget, "the national parliament must be absolutely paramount".
The second event took place a few thousand miles away in Washington, where the US Senate voted 94:0 to prevent the International Monetary Fund from using its cash to help countries that are inextricably trapped in a debt spiral. Though barely reported on this side of the Atlantic, this vote could have enormous consequences – such as preventing the fund from providing its share of the grand European bail-out package announced with such fanfare last week, which amounts to a third of the trillion-dollar total.
Though superficially unconnected, the two events share a similar theme: for the first time in many years, the technocrats who run our economies are realising that the main barrier to resolving a crisis and reinstating business-as-usual is not so much our ability to afford it, but our populations' willingness to pay.
As long as things were going well, economies were growing rapidly, and affluence was increasing, it was easy for politicians to pretend that when it came to economics, national borders didn't much matter any more. But now the chips are down, nationalism is back.
The rule of thumb here is as follows: of the three aims we have been striving towards in recent history – democracy, national sovereignty and global free trade – you cannot have any more than two at any one time.
- Want to run your country as an independent state, open to the whims and volatility of the free markets? The voters will punish you at the ballot box.
- Insist that your nation has full control of its own affairs? Then you have to jettison any plans to play a full part in the global economy.
- Want democracy and globalisation? Then you have to suborn your sovereignty.
This is what Professor Dani Rodrik of Harvard University calls the "policy trilemma", and it is what lay behind the breakdown of the last era of globalisation, which coincided with the Industrial Revolution. Under the British Empire, free trade flourished, reinforced by the gold standard (in some senses a precursor to the euro) and the Royal Navy.
However, this only came about because most politicians were able to ignore their citizens' protectionist impulses. The first decades of the 20th century brought not only the First World War but also a mass electorate; when Churchill tried to revive the gold standard in the 1920s, at the cost of deflation and depression in the UK, the public revolted. Churchill called the blunder his "worst ever mistake".
Scarred by the beggar-thy-neighbour policies of the 1930s, John Maynard Keynes could only contemplate a "globalisation-lite" as he rebuilt the world's economic structure after the Second World War. But the Bretton Woods system, which intentionally suppressed the free market through capital controls, lasted only so long. Liberalisation went into overdrive with the fall of the Berlin Wall and the opening-up of China. Yet the resulting system is actually something of a patchwork. Europe exemplifies the problem: the continent is a hodge-podge of nations trying to disguise itself as a completely liberalised market. Unfortunately, its people have different ideas: the Germans are furious about the Greek bail-out; the British insist on remaining on the sidelines.
Perhaps recognising the danger of alienating her voters, Mrs Merkel has now taken what might be a first step towards curtailing economic globalisation, by banning the short-selling of German banks. Some worry that a return to capital controls is the next step in the European effort to prevent meltdown. Others suspect that the European Central Bank has already intervened in the markets to prop up the euro.
Quite what the real plan is remains to be seen. Most likely, there isn't one – yet. But unless they intend to embrace totalitarianism, Europe's members will eventually have to abandon either their national sovereignty or globalisation itself. Given the continent's size, and our reliance on it as our largest trading partner, this is not a drama we can afford to ignore.
http://www.telegraph.co.uk/finance/comment/edmundconway/7742164/Behind-the-drama-in-Europe-lies-a-global-crisis.html
http://www.telegraph.co.uk/finance/comment/edmundconway/7742164/Behind-the-drama-in-Europe-lies-a-global-crisis.html
Wednesday 19 May 2010
Professor tells investors to sell shares and bonds
Professor tells investors to sell shares and bonds
The New York University professor, Nassim Taleb, who made his name predicting the credit crunch, has told investors to dump equities and government bonds and buy 'hard assets'.
By James Phillips, citywire.co.uk
Published: 10:55PM BST 18 May 2010
The New York University professor, Nassim Taleb, who made his name predicting the credit crunch, has told investors to dump equities and government bonds and buy 'hard assets'.
He has poured scorn on the economic recovery, claiming that the global economy is in worse shape than it was during the subprime crisis and warns that the US could yet lurch into a Greek-style meltdown.
In an interview with Bloomberg TV, Taleb said the fragility in the banking system that he spotted in 2007 is still there and the bail-out of the financial sector has encouraged bankers to continue their 'casino' operations by increasing moral hazard.
"Look at all of the money they made with our backing- it is like they spat in our faces," he said.
His main concern is that the transferal of debt from the private to the public sector has seen the risks within the financial system increase and 'take a much more vicious form.'
Western governments have been issuing record levels of debt to keep the recovery afloat, but Taleb says that it is inevitable that at some point they will struggle to find buyers of these assets.
"It is clearer than ever that we are going to have a failed auction [of government bonds here in the US that will cause contagion," he said. "There will not be enough buyers of Treasuries and the government will have to print money and before you know it you wake up with hyperinflation without having had any inflation."
So how should investors position their portfolios for such a doomsday scenario? Taleb, who made millions betting against financials during the credit crunch, recommends investors dump long-term government bonds and only hold short-dated debt. He also warns against viewing the dollar as a hedge against the ailing euro, pointing out that both currencies face the same underlying problems.
He dismisses the stockmarket, which would be expected to perform badly in a period of hyperinflation, completely,
"I recommend not thinking about the stockmarket," he said. "It is a big hoax that has disappointed people over the last decade making their retirement plans, thinking it would appreciate."
"Use it as something to play with for entertainment and nothing more."
He favours moving into hard assets and advises investors to build exposure to a basket of metals rather than try and second guess which individual hard commodity will outperform. He also likes agricultural land, but said avoid 'speculative real estate'.
Taleb is certainly a controversial figure in investment circles, but he is always intriguing and even if you do not agree with his outlook, he is difficult to ignore.
http://www.telegraph.co.uk/finance/personalfinance/investing/7737050/Professor-tells-investors-to-sell-shares-and-bonds.html
The New York University professor, Nassim Taleb, who made his name predicting the credit crunch, has told investors to dump equities and government bonds and buy 'hard assets'.
By James Phillips, citywire.co.uk
Published: 10:55PM BST 18 May 2010
The New York University professor, Nassim Taleb, who made his name predicting the credit crunch, has told investors to dump equities and government bonds and buy 'hard assets'.
He has poured scorn on the economic recovery, claiming that the global economy is in worse shape than it was during the subprime crisis and warns that the US could yet lurch into a Greek-style meltdown.
In an interview with Bloomberg TV, Taleb said the fragility in the banking system that he spotted in 2007 is still there and the bail-out of the financial sector has encouraged bankers to continue their 'casino' operations by increasing moral hazard.
"Look at all of the money they made with our backing- it is like they spat in our faces," he said.
His main concern is that the transferal of debt from the private to the public sector has seen the risks within the financial system increase and 'take a much more vicious form.'
Western governments have been issuing record levels of debt to keep the recovery afloat, but Taleb says that it is inevitable that at some point they will struggle to find buyers of these assets.
"It is clearer than ever that we are going to have a failed auction [of government bonds here in the US that will cause contagion," he said. "There will not be enough buyers of Treasuries and the government will have to print money and before you know it you wake up with hyperinflation without having had any inflation."
So how should investors position their portfolios for such a doomsday scenario? Taleb, who made millions betting against financials during the credit crunch, recommends investors dump long-term government bonds and only hold short-dated debt. He also warns against viewing the dollar as a hedge against the ailing euro, pointing out that both currencies face the same underlying problems.
He dismisses the stockmarket, which would be expected to perform badly in a period of hyperinflation, completely,
"I recommend not thinking about the stockmarket," he said. "It is a big hoax that has disappointed people over the last decade making their retirement plans, thinking it would appreciate."
"Use it as something to play with for entertainment and nothing more."
He favours moving into hard assets and advises investors to build exposure to a basket of metals rather than try and second guess which individual hard commodity will outperform. He also likes agricultural land, but said avoid 'speculative real estate'.
Taleb is certainly a controversial figure in investment circles, but he is always intriguing and even if you do not agree with his outlook, he is difficult to ignore.
http://www.telegraph.co.uk/finance/personalfinance/investing/7737050/Professor-tells-investors-to-sell-shares-and-bonds.html
Friday 14 May 2010
Financial Crisis, Round II: Is it coming soon?
Financial Crisis, Round II: Is it coming soon?
March 26, 2010
Several successful entrepreneurs have recently told me they're keeping their investments locked up in cash, fearful the financial crisis is set to return very soon, only this time it'll be worse. Much worse. And with banking reform in the US almost non-existent and countries like Greece keeping the world on edge, they might be right. So, I asked seven financial thinkers for their forecasts.
Harry S. Dent, Jr. is the author of The Great Depression Ahead. He believes the US government's debt of $12 trillion is just the tip of the iceberg. When private debt and unfunded liabilities are added, "the total US debt is more like $102 trillion or seven times GDP, more than triple that at the top of the Roaring 20s which led to the Great Depression." He's expecting stocks to crash sometime between July and September - only this time China will not be immune. He's convinced it'll "collapse when the Western world falls again," and predicts a global depression that will last well into 2012.
Investment expert, Noel Whittaker, is optimistic. He told me he's spent 50 years in the finance industry, "and there wasn't once in that period that some 'guru' wasn't forecasting financial Armageddon. Obviously, there is concern about the level of debt around the world but the economies of many countries are starting to pick up and the private sector is taking over the spending that was done by governments as part of their stimulus packages. Furthermore, the rise of the Asian countries is continuing and will continue to do so."
But Canadian economic commentator, Sheldon Filger, disagrees. He predicted the global financial crisis two years before it occurred. "Policymakers in major advanced economies have made a gamble; absorbing massive levels of public debt to backstop insolvent banks and fund stimulus spending... They will lose this gamble, I am convinced, sparking a massive sovereign debt crisis in these economies, especially the US and UK, unleashing a synchronised global depression. What is unfolding now in Greece and the other PIIGS is but a harbinger of what is to come. I predict that round two will unfold by 2012."
Phil Ruthven is an economic forecaster and Chairman of IBISWorld. He's not really worried. "There's no doubt there's a second dip coming, but not a second crisis. Governments around the world have pumped $9 trillion into the finance system. That's roughly 3 per cent of the world's finances, which is what we lost during the GFC. Also, the PIIGS group is a small part of Europe and I really cannot see that being a great danger. There is a risk there will be another decline as distinct from a recession, but that's likely to be in two to three years' time rather than in the foreseeable future."
Professor Todd Knoop from the Department of Economics and Business at Cornell College concurs. "I am not worried that another financial crisis is around the corner. History has shown us that crashes are always proceeded by booms, and while leverage ratios and lending are above where they were a year ago, they are not at the historic levels they were at before the 2009 crisis."
Margaret Lomas, the head of Destiny Financial Services and the Property Investment Professionals of Australia, has a different view. "I am of the definite opinion that the US has only just felt the beginning of what is to become a more major crisis for them. Confidence in the President is low and the sheer amount of national debt is simply a bigger version of the subprime crisis - there is little hope of them being able to even meet the interest bill on such a debt and the fallout may well be similar to that of Argentina - formerly an economically strong country now in the grips of severe financial depression."
Economist Professor Ian Harper said that deleveraging across the economy could result in a second dip or delay the recovery from the first one. There's a similar risk involved with excessive government debt but he cautioned that, "Whether the second round is more severe than the first is more difficult to predict. Governments tend to have more room to move compared with the private sector, given their powers to tax and print money. So while rising public indebtedness is certainly an issue, it need not precipitate a deeper crisis, even though it will slow recovery from the first dip, especially in the most affected countries."
Well, that's what the economic gurus foresee. What do you think? Is the global financial crisis set to return, only with more ferocity than before?
-------------------------------
http://blogs.theage.com.au/small-business/workinprogress/2010/03/26/financialcrisi.html
March 26, 2010
Several successful entrepreneurs have recently told me they're keeping their investments locked up in cash, fearful the financial crisis is set to return very soon, only this time it'll be worse. Much worse. And with banking reform in the US almost non-existent and countries like Greece keeping the world on edge, they might be right. So, I asked seven financial thinkers for their forecasts.
Harry S. Dent, Jr. is the author of The Great Depression Ahead. He believes the US government's debt of $12 trillion is just the tip of the iceberg. When private debt and unfunded liabilities are added, "the total US debt is more like $102 trillion or seven times GDP, more than triple that at the top of the Roaring 20s which led to the Great Depression." He's expecting stocks to crash sometime between July and September - only this time China will not be immune. He's convinced it'll "collapse when the Western world falls again," and predicts a global depression that will last well into 2012.
Investment expert, Noel Whittaker, is optimistic. He told me he's spent 50 years in the finance industry, "and there wasn't once in that period that some 'guru' wasn't forecasting financial Armageddon. Obviously, there is concern about the level of debt around the world but the economies of many countries are starting to pick up and the private sector is taking over the spending that was done by governments as part of their stimulus packages. Furthermore, the rise of the Asian countries is continuing and will continue to do so."
But Canadian economic commentator, Sheldon Filger, disagrees. He predicted the global financial crisis two years before it occurred. "Policymakers in major advanced economies have made a gamble; absorbing massive levels of public debt to backstop insolvent banks and fund stimulus spending... They will lose this gamble, I am convinced, sparking a massive sovereign debt crisis in these economies, especially the US and UK, unleashing a synchronised global depression. What is unfolding now in Greece and the other PIIGS is but a harbinger of what is to come. I predict that round two will unfold by 2012."
Phil Ruthven is an economic forecaster and Chairman of IBISWorld. He's not really worried. "There's no doubt there's a second dip coming, but not a second crisis. Governments around the world have pumped $9 trillion into the finance system. That's roughly 3 per cent of the world's finances, which is what we lost during the GFC. Also, the PIIGS group is a small part of Europe and I really cannot see that being a great danger. There is a risk there will be another decline as distinct from a recession, but that's likely to be in two to three years' time rather than in the foreseeable future."
Professor Todd Knoop from the Department of Economics and Business at Cornell College concurs. "I am not worried that another financial crisis is around the corner. History has shown us that crashes are always proceeded by booms, and while leverage ratios and lending are above where they were a year ago, they are not at the historic levels they were at before the 2009 crisis."
Margaret Lomas, the head of Destiny Financial Services and the Property Investment Professionals of Australia, has a different view. "I am of the definite opinion that the US has only just felt the beginning of what is to become a more major crisis for them. Confidence in the President is low and the sheer amount of national debt is simply a bigger version of the subprime crisis - there is little hope of them being able to even meet the interest bill on such a debt and the fallout may well be similar to that of Argentina - formerly an economically strong country now in the grips of severe financial depression."
Economist Professor Ian Harper said that deleveraging across the economy could result in a second dip or delay the recovery from the first one. There's a similar risk involved with excessive government debt but he cautioned that, "Whether the second round is more severe than the first is more difficult to predict. Governments tend to have more room to move compared with the private sector, given their powers to tax and print money. So while rising public indebtedness is certainly an issue, it need not precipitate a deeper crisis, even though it will slow recovery from the first dip, especially in the most affected countries."
Well, that's what the economic gurus foresee. What do you think? Is the global financial crisis set to return, only with more ferocity than before?
-------------------------------
http://blogs.theage.com.au/small-business/workinprogress/2010/03/26/financialcrisi.html
Monday 10 May 2010
Global Financial Crisis II
Fears that the Greek debt crisis could drag down the world economy
More market turmoil looms
PHILIP WEN
May 10, 2010
AFTER a horror week during which $90 billion was wiped off the Australian sharemarket, investors are bracing themselves for more financial market turmoil over the mounting debt crisis in Europe.
Australian stocks fell 7 per cent last week, the worst weekly loss since November 2008. And the worst may not be over, with the SPI futures index pointing to further losses today, following more losses across all major global indices.
With markets worldwide taking a battering, European leaders have scrambled into action as fears intensify that the spread of the region's debt woes could pitch the world back into a recession.
''The problem now is contagion risk and where will it stop,'' said credit markets expert Philip Bayley, of ADCM Services. ''The markets fear that we are now entering the second leg of the global financial crisis - GFC II.''
Fears that a debt default by Greece could paralyse the world's financial system - just as the collapse of Lehman Brothers did two years ago - sparked another wave of heavy selling on European and US markets on Friday.
Treasurer Wayne Swan said Australia was better placed than any other advanced economy to deal with any global slowdown caused by the sovereign debt crisis in Greece. Mr Swan will hand down his third budget tomorrow.
His comments followed the Reserve Bank of Australia last week cautioning that the economy could be buffeted by global fallout.
The market plunge could have serious ripple effects through its impact on confidence.
Some of the nation's major banks were believed to be looking over the weekend at measures to keep holdings of liquid assets topped up given increased risk on European credit markets.
Even home buyers appeared to be responding to global jitters. Melbourne's property market recorded its second lowest auction clearance rate so far this year, the figure dropping to 78 per cent on the weekend.
REIV chief executive Enzo Raimondo said the six rate rises, affordability concerns and the unseasonably high stock levels were all having an impact on demand. On Friday, euro zone governments approved the $A160 billion Greek bailout package, in a last-ditch effort to keep the nation afloat.
But markets were unconvinced. The Dow Jones shrugged off stronger than expected US jobs data to close 1.3 per cent lower.
In Britain, shares fell 2.6 per cent - a result exacerbated by uncertainty over the British general election.
The cost of protecting European bank debt against default has reached levels not seen since the height of the global financial crisis. Bond yields soared in Portugal and Spain, while the failure to constrain the debt crisis led to the euro plunging 4.3 per cent last week. Portugal, Ireland, Italy, Greece and Spain collectively owe $US3.9 trillion ($A4.39 trillion) to other countries.
Apart from Australian banks' $A56.4 billion in exposure to Europe at the end of December, most analysts say the economy has few other direct links to the troubled region.
US President Barack Obama admitted he was ''very concerned'' about the debt crisis. Understandably so, given the extreme volatility in US markets last week, including an extraordinary 10 per cent intra-day plunge on Thursday. The Dow Jones index retreated 6.4 per cent last week, the heaviest decline since March 2009. Wall Street's so-called ''fear gauge'', the CBOE volatility index, jumped 25 per cent in the same period.
ADCM's Mr Bayley said markets were pointing to a Greek debt default as an ''all but foregone conclusion'', with the rescue package likely to have little impact.
With NATALIE PUCHALSKI
Source: The Age
http://www.smh.com.au/business/more-market-turmoil-looms-20100509-ulse.html
More market turmoil looms
PHILIP WEN
May 10, 2010
AFTER a horror week during which $90 billion was wiped off the Australian sharemarket, investors are bracing themselves for more financial market turmoil over the mounting debt crisis in Europe.
Australian stocks fell 7 per cent last week, the worst weekly loss since November 2008. And the worst may not be over, with the SPI futures index pointing to further losses today, following more losses across all major global indices.
With markets worldwide taking a battering, European leaders have scrambled into action as fears intensify that the spread of the region's debt woes could pitch the world back into a recession.
''The problem now is contagion risk and where will it stop,'' said credit markets expert Philip Bayley, of ADCM Services. ''The markets fear that we are now entering the second leg of the global financial crisis - GFC II.''
Fears that a debt default by Greece could paralyse the world's financial system - just as the collapse of Lehman Brothers did two years ago - sparked another wave of heavy selling on European and US markets on Friday.
Treasurer Wayne Swan said Australia was better placed than any other advanced economy to deal with any global slowdown caused by the sovereign debt crisis in Greece. Mr Swan will hand down his third budget tomorrow.
His comments followed the Reserve Bank of Australia last week cautioning that the economy could be buffeted by global fallout.
The market plunge could have serious ripple effects through its impact on confidence.
Some of the nation's major banks were believed to be looking over the weekend at measures to keep holdings of liquid assets topped up given increased risk on European credit markets.
Even home buyers appeared to be responding to global jitters. Melbourne's property market recorded its second lowest auction clearance rate so far this year, the figure dropping to 78 per cent on the weekend.
REIV chief executive Enzo Raimondo said the six rate rises, affordability concerns and the unseasonably high stock levels were all having an impact on demand. On Friday, euro zone governments approved the $A160 billion Greek bailout package, in a last-ditch effort to keep the nation afloat.
But markets were unconvinced. The Dow Jones shrugged off stronger than expected US jobs data to close 1.3 per cent lower.
In Britain, shares fell 2.6 per cent - a result exacerbated by uncertainty over the British general election.
The cost of protecting European bank debt against default has reached levels not seen since the height of the global financial crisis. Bond yields soared in Portugal and Spain, while the failure to constrain the debt crisis led to the euro plunging 4.3 per cent last week. Portugal, Ireland, Italy, Greece and Spain collectively owe $US3.9 trillion ($A4.39 trillion) to other countries.
Apart from Australian banks' $A56.4 billion in exposure to Europe at the end of December, most analysts say the economy has few other direct links to the troubled region.
US President Barack Obama admitted he was ''very concerned'' about the debt crisis. Understandably so, given the extreme volatility in US markets last week, including an extraordinary 10 per cent intra-day plunge on Thursday. The Dow Jones index retreated 6.4 per cent last week, the heaviest decline since March 2009. Wall Street's so-called ''fear gauge'', the CBOE volatility index, jumped 25 per cent in the same period.
ADCM's Mr Bayley said markets were pointing to a Greek debt default as an ''all but foregone conclusion'', with the rescue package likely to have little impact.
With NATALIE PUCHALSKI
Source: The Age
http://www.smh.com.au/business/more-market-turmoil-looms-20100509-ulse.html
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