World Economy: Stock Markets Worldwide Crash…Again

Singapore, 16 Oct. Now we know the answer to Monday’s question: No, the markets will not hold their recovery. It seems almost futile to watch the markets on a micro level as one day they make record recoveries and another they tank.

Singapore, 16 Oct. Now we know the answer to Monday’s question: No, the markets will not hold their recovery. It seems almost futile to watch the markets on a micro level as one day they make record recoveries and another they tank.

With the recent near-record losses and likely over-correction, investors thought there was value for the taking, and the EU’s collective announcements to liquidate cash seemed further reason. But let’s stop trying to make correlations to what central banks say or do, because yesterday the US Treasury just bought up $250 billion in the nine largest banks. And things got worse.

Pretty much none of the Asian markets came out unscathed. Everybody who realized recent gains sold off to grab what quick earnings they had. These gains, albeit large, obviously did not equate to full restoration in confidence. Stock markets crashed worldwide.

Japan’s Nikkei lost 10%, Hong Kong’s Hang Seng and Korea’s KOSPI 6.5%, Australia’s All Ordinaries 6%, and the Shanghai Composite 3%. The Dow Jones dropped 7.9% (733 points, not far off 29 September’s 777 points), the Nasdaq 8.5%, and the S&P 9%.

The FTSE 100 slumped 7.16%, and the Paris CAC 40 shed 6.82%. The DAX 30 in Germany was down 6.49%.

This is right after an announcement of US retail figures being the worst in three years, and an increase in UK unemployment. Others have said US unemployment will rise but no official figures have been released. Predictions of recessions in Europe and the UK have also been made. Recently Singapore announced it was in a recession too, after having posted two consecutive quarters of declining GDP growth.

The EU is still working to solidify plans for its financial institutions. Leaders from the 27 EU nations are meeting now. Initiatives include bank deposit guarantees, as has been the practice of the FDIC in the US, and existing plans by Britain, Germany, France, the Netherlands, Spain and Austria to purchase shares of ailing banks as the US Treasury is doing.

British Prime Minister Gordon Brown urged all EU nations to take part in the bailout plan, but various Eastern European nations complained that they lacked the financial strength to make guarantees like the UK and Germany can. Further Brown hinted at organizing a global summit to address these issues.

European Commission head Jose Manuel Barroso said some nations are not supportive of the synchronized, unified approach which is being planned. Also, he is said more oversight and control over private equity and hedge funds is needed, and pushed for moves against perverse incentives” and “short-termism”, in an effort to quell volatility.

As Hiroko Mirafiori commented in her 14 October piece, “Sometimes the smartest investor does nothing amid such turbulence, content in the knowledge that he can ride it out while everyone else panics.” If everybody took her advice, we would not see such volatility. What is the point of struggling with something you cannot control?

No matter what, this is the same old story over and over again. Government announcements to restore liquidity, confidence, and cash, while the markets surge and crash, day in and day out.

Hector Sim, EconomyWatch.com