Heart Stopping Market Action

Posted October 23, 2008

Stock markets around the world declined as investors continue to respond to fears of a global recession. The dollar strengthened against all major currencies except the yen.


It’s tempting to close your eyes and just skip over the currency and stock market news right now.  For many investors, the treacherous condition of the markets is heart stopping.  Those with large amounts of money have lost money, but it is the average working class consumer around the world who is suffering the most.  In the US alone, it is estimated that trillions of dollars have been lost in retirement accounts.  When you think about the long term consequences of this fact, it becomes much easier to understand the sense of panic which continues to pervade the markets.

Governments around the world continue to virtually beg consumers to sit tight and stop selling their equity positions.  From the government’s viewpoint, the economy needs to be given time to respond to the injection of capital into the financial markets.  It is not something that will happen overnight.  Yet one mildly bad economic report and traders are off and running like race horses chasing a rabbit on a circular track. 

The most recent panic selling has been occurring on the emerging currency markets.  As stable currencies are no longer available for loans in these countries, investors are pulling out of the equity markets.  It is creating a rapid spiral downward in market value in countries with few options.

But it is not just emerging currency markets which are feeling the pinch.  The US dollar strengthened against all major currencies except for the Japanese yen.  The euro has fallen to its lowest level against the US dollar since 2006, closing at $1.2862 at the end of the day on 22/October/2008.  The other currencies which fell against the US dollar include the Canadian dollar ($.7988); the Australian dollar ($.6721); the New Zealand dollar ($.5898); and the Switzerland franc ($.8614).

Then there was the British pound.  The pound fell also to $1.6335 against the US dollar.  One of the reasons it fell is because of speculation the European Central Banks are going to cut interest rates again to help the various economies.   In addition, UK consumer spending continues to decline.

The Libor dropped again to 3.54% which is actually a sign there is some slight easing of the credit crunch.  But good news is not having much of an effect on the market right now.  It is the only the bad news which seems to promote quick responses.

The stock markets took a real beating today.  The Dow Jones Industrial Average (DJIA) lost 5.7% falling to 8,519.21.  News reports were actually speculating that the US stock market could eventually fall below 8,000.  Yesterday, 22/October/2008, all 30 of the stocks making up the DJIA declined.

Wow!  It’s enough to make a poor investor want to carry a defibrillator in the nearest pocket.

The DJIA was not alone either in its trek downward.  The FTSE fell by 4.4% to 4,040.89, and the NEKKEI fell by 5.52% to 8,195.74.  The strengthening of the Japanese yen against the dollar means Japanese exports are getting more expensive which will negatively impact sales.  In addition the losses in the equity positions of traders are also cutting into profits.

If you think you are taking your last gasp of air in this sick market…think again.  The word on the street….the street being the government offices….is the economic slowdown is just beginning.  Some predictions are saying the global recession will last 3 quarters.  That sounds like a very long time. 

It seems that if you are a currency trader right now, the best thing you can have available is plenty of oxygen.  You are going to need it as you watch the markets rise and fall.