In a Bad Mood

Posted November 21, 2008

The Dow Jones Industrial Average plummeted for the second day in a row. Investors around the world have no confidence bailouts are working.


Well…well…well….aren't we in a bad mood?  The "we" in that question are investors.  They threw a tantrum once again and went into a panic selling frenzy yesterday.   When investors throw a tantrum it is not good for the equity markets.  After the screaming and crying was over at the close of the bell on Wall Street, the Dow Jones Industrial Average closed at 7,552.29 which was a 444.99 point drop from the day before.  This was the second triple digit loss in a row. 

The FTSE did not fare a whole lot better, though British investors are not pitching a fit at quite the same level.  The FTSE dropped by 130.69 points to close at 3,874.99 at the end of the Wall Street trading day.  The NIKKEI dropped also to 7,703.4.  This is not just a bear market… is a roaring bear that is confused, angry and scared.  If you have ever seen a scared bear, you know the bite is painful and the claws are sharp and ready to dig deep.  The DJIA is down 43.07% year to date.  That is a lot of digging and biting.  

Of course, all this panic selling is driving equity prices down so the market will probably go up again today as investors get hungry for bargains.  The US stock market continues to take deep hits because there is still no confidence the Treasury Secretary and the Federal Reserve bailout plans are going to succeed in 2009.  Both Paulsen and Bernanke claim that credit markets are easing, but the signs this is happening are weak at best.  In fact, there is talk the credit market is tightening again instead of unthawing. 

So what is going on with the US Treasury department?  Treasury Secretary Paulsen is continuing to hold firm in his belief that none of the $700 billion bailout package should be used to save bad mortgages or to help the auto industry.  Congress is making a big show about not helping the auto makers unless they come up with a plan for long term financial stability.   Making an educated guess though - an auto bailout package will be passed within the next few weeks.  A lot of what is going on is posturing meant to impress voters.  The insider whispers indicate there is already a bi-partisan agreement formed to make additional loans to the big three US automakers. 

Speaking of weak….the US labor markets are continuing to weaken also.  The jobless data reported by the US Department of Labor shows unemployment rose to 4.01 million people.  Every day, the news reports announce more layoffs in both US and global operations.  

And yet even more talk of weak….  The financial and energy stocks tumbled.  The auto industry is still begging for a bailout that is twice as large as the original amount promised.  Crop prices are falling which is impacting farmers.  Retailers are projecting a sad holiday season with low sales as consumers continue to cut back.   

These problems are not unique to the US either.  When you read the headlines, you get a doom-and-gloom snapshot of a financial world in chaos.  Hong Kong and Tokyo financial institutions are laying off hundreds of employees.  Oil has dropped below $50 a barrel.  Chinese automakers are in trouble.  European financial markets remain unstable.  Emerging markets are precarious at best with countries like Iceland still struggling to prevent a total financial collapse.  Asian stock markets are declining.   

And so the world watches and waits to see if the US will be able to gain control of its economy. 

In the currency markets, the US dollar continued to strengthen against all major currencies except the Japanese yen.  The yen significantly strengthened to $.0105.  The euro weakened to $1.2503; the British pound weakened to $1.4809; the Canadian dollar weakened to $.7785; the Australian dollar weakened to $.6131; the New Zealand dollar weakened to $.5266; and the Swiss franc weakened to $.8175. 

Weak…weak…weak…that is the economic word for the day.  No wonder investors are in such a bad mood.  You can't really blame them when you look at the condition of world economies.