Posted October 31, 2008
Investors began to make tentative moves back into the stock market and riskier investments. The US and Britain markets rose while Japan is still struggling with their response to the crisis.
To be, or not to be: that is the question: Whether 'tis nobler in the mind to suffer the slings and arrows of outrageous fortune…
If anything describes the financial markets best right now it is the words “slings and arrows”. Investors must duck as new economic stimulus information comes their way, because there is no way to determine what impact it will have. Many of the actions being taken are just like the proverbial shots in the dark.
The fact the US banks are taking the first of the “Troubled Asset Relief Program” funding and doing exactly what they want with it is a bit troubling for some investors. What they want to do is buy smaller banks rather than lend to other banks. They are also talking about using the money to pay shareholder dividends and paying top executives. It is like they don’t believe the crisis really happened.
Yet credit is beginning to ease and that is making US investors happy. Other news making investors happy is the announcement the Gross Domestic Product (GDP) in the USA did not fall as much as predicted. It was expected to decline by .5% but instead fell .3%. The decline is the actual proof it is hard to get credit right now. US consumer spending dropped 3.1%. Another bit of news which pleased US investors was the fact the numbers showed a surprising increase in exports. In addition, the US jobless claims for 25/October/2008 held steady compared to the previous week.
All of this good news resulted in an increase in the Dow Jones Industrial Average (DJIA). It closed up by 189.73 points to 9,180.69. The FTSE also closed up at 4,291.65. The NIKKEI, on the other hand, closed down by 123.76 points to finish the day at 8.806.00.
Japan is still struggling to deal with the impact of the global crisis. The Bank of Japan is getting ready to inject capital into the market. The Japanese government is also expected to cut interest rates. Investors are still waiting to move until they see actual action and will respond accordingly. In the meantime, the uncertainty in Japan is causing the NIKKEI to fall as investors look for safe investments where they can park their money.
The emerging markets were calmed today because the US Federal Reserve has agreed to extend emergency currency swap lines to South Korea, Mexico, Brazil and Singapore. This single agreement did a lot to restore confidence in these economies, because the swap lines stabilized currencies.
The US dollar weakened again against all major currencies except for the Japan yen and the Swiss franc. In US dollars, the euro closed at $1.2980; the Great Britain pound closed at $1.6467; the Canadian dollar closed at $.8259; the Australian dollar closed at $.6819; the New Zealand dollar closed at $.5939. The Japanese yen weakened to $.0101 and the Swiss franc weakened to $.8792.
The really good news is that investors have quit dumping stock without regard for value. The desperate attempt to escape further losses seems to have slowed. This is not to say there will be no more wide swings, because much volatility does still exist. But investing has become more rational again.
There are still a lot of slings and arrows, and outrageous fortunes, in the financial markets. But at least they are coming a little slower now so you can make an attempt to duck.