Driving The Market Down

Posted November 12, 2008

Global stock markets and currencies dropped as the worldwide recession continues to deepen. The US and the UK continue to grapple with failing businesses and declining economic activity.


In the United States, the driver’s seat at the General Motors corporation is about to be repossessed.  There is a raging discussion currently going on concerning whether the US government should bail out the company.  On the one side are those pointing out that up to 2.5 million Americans could lose their jobs if the company goes bankrupt.  On the other side of the argument are analysts who say the company has been mismanaged and should not be bailed out.

This dilemma is typical of what is happening in the financial world today.  For every company or bank that claims it needs immediate financial assistance, there are those who support and those who disagree with continued government capital injections.  The initial bailout money of $700 billion, of which half is now committed, was suppose to be just enough to get credit markets kick-started again.  Instead, banks are busy buying each other up with the funds and credit remains tight.  In fact, the decision as to whether GM should be allowed to go bankrupt is tied to the fact that the credit crunch has made financing options almost nonexistent.

But do you let millions of people lose their jobs which would only deepen the recession further? 

These are the kinds of major and agonizing decisions that have to be made every day around the world.  The United Kingdom is in as bad an economic condition as the US.  In the UK, retail sales fell sharply in October leading to concerns the holiday season is going to be very grim for both retailers and consumers.  Home purchases also fell in October to record lows.  This bad economic news had led to the sterling reaching a 12 year low as foreign investors begin to pull their money out of British assets.

It is yet another run for safe haven investments.  The global currencies continued their fall against the dollar on 11/November/2008.  The euro fell to $1.2539; the Great Britain pound fell to $1.5413; the Canadian dollar fell to $.8316; the Australian dollar fell to $.6593; the New Zealand dollar fell to $.5755; and the Swiss franc fell to $.8427.  Only the Japanese yen held firm at $.0102.

The price of a barrel of oil has dropped to a 20 month low also with the price dropping below $60.  The price of oil per barrel is currently $58.84.  Though this helps consumers in terms of lower gas prices, the oil producing countries are in a bit of a financial shock as they watch much of their profits dwindle. 

But then if US consumers can’t afford to buy cars, they won’t need the gas.

What a mess!  That is not a very official sounding description, but it sure is accurate.  The US is still dealing with the problem of foreclosures too.  The newest government proposal by Fannie Mae and Freddie Mac is to restructure certain consumer loans to make them affordable.  The problem is the proposal does not eliminate principals on loans for overstated housing values, but rather adds a balloon payment at the end of the loan while reducing interest rates.  Citigroup is also modifying 500,000 mortgages in an attempt to prevent foreclosures.

Of course, you can modify a mortgage all you want, but if you don’t have a job a mortgage payment is difficult to meet no matter how low it goes.

So how did the stock markets react to the financial news?  They dropped.  The Dow Jones Industrial Average closed down 176.58 points to hit 8,693.96.  The FTSE fell 157.23 points to 4,246.69.  The NIKKEI fell by 26.82 points to 8,782.48.  The markets fell because of continued reports that corporate earnings are dropping.

As economic conditions continue to worsen, and the amount of bailout grows, you have to wonder exactly who is in the driver’s seat.  Whoever it is needs to get back on course soon.