Posted November 13, 2008
The British pound fell below $1.50 and the euro has dropped to a record low. The stock markets took a beating again as investors seek safer places to invest.
You keep hearing it is a buyer’s market in the stock markets, because the stock prices of perfectly sound companies have fallen to ridiculously low prices. But if it is such a buyer’s market, why are so many people selling?
Good question. Stocks go up some and then drop by 3-digit points.
One of the problems is the fact that the continued input of government financial backing into the private sector simply does not seem to be working. In fact, US Treasury Secretary Paulsen today said the bailout plan was going to be revised. Actually, the revisions are being called a “major shift”, because the remainder of the $700 billion bailout money will be used to bolster consumer lending rather than giving it to banks.
Since the banks don’t seem interested in using the bailout money they have received to relieve the credit crunch, the shift in focus may be a smart move.
And that is precisely why the stock markets are tumbling. The US government move may be smart, but it also indicates what everyone suspects. Simply put, the financial experts just don’t seem to know how to slow the movement toward recession nor is there any real confidence new actions will work to relieve credit and spur consumer spending. This is creating investor nervousness, and when investors get nervous, they look for safe places to park their money.
The Dow Jones Industrial Average fell 411.3 points to 8,282.66. Is it really possible it can eventually fall below 8,000? Maybe it will. It is certainly not beyond the realm of possibilities. The FTSE dropped to 4,182.02 or 64.67 points. The NIKKEI fell by 445.46 points to 8,250.05. The fact the US government must now look at continuing to put money into the market is seen to indicate there is still no stability established yet.
The UK Bank of England said on 13/November/2008 that it will continue to lower interest rates as necessary. The British pound fell below $1.50 which is the first time that has happened in 6 years. Sterling was reported at $1.4957 at the close of US markets. The pound has fallen to a record low against the euro with the euro ending the day at $1.2513. It also fell against the Japanese yen and the Swiss franc on reports the UK economy is continuing to deteriorate.
The United Kingdom is experiencing the same grim news day after day like the news the US is hearing. The unemployment rate in the UK was reported to have risen to its highest rate since 2001. The forecast is that the economy will shrink by 1.8% during the first quarter of 2009.
The US dollar continued to strengthen against most currencies in terms of US dollars except for the Japanese yen and the Swiss franc. The yen strengthened to $.0104 which is one of the largest increases seen in a while. The Swiss franc, on the other hand, rose from $.8427 to $.8428. Other major currencies fell. The Canadian dollar fell to $.8081; the Australian dollar fell to $$.6387; and the New Zealand dollar fell to $.5599.
The investors do not have confidence in the world economy at this point. By economic definition, a recession has not begun technically. But in reality, a recession is probably in full swing. The economists may have to change the official definition before this is all over. In the meantime, the projection is a recession is going to last at least half of 2009.
Of course, if the governments do not figure out how to loosen up credit markets soon, the recession could last a whole lot longer.