Posted November 10, 2008
The economic news is coming fast and furious which is having almost immediate impacts on the financial markets. The US is now being faced with requests for huge bailouts from multiple industries experiencing severe financial problems.
With the election of Barack Obama as the next US president, the financial markets began trying to predict the impact his economic policies will have on stock and currency values. This is proving very difficult to do despite his many promises to deal with the economy immediately. There is a 90 day period that began on election day where President Bush became a lameduck president still responsible for making decisions which will have an impact well into Obama's presidency.
For example, US businesses are now coming out of the woodwork asking for financial assistance. The most recent industry requesting to be included in the bailout is the auto industry. But the credit card companies, insurance providers and now some retail businesses are also standing there with hands out. Conservatives had predicted this would be the natural result of the initial bailout initiated by President Bush and Treasury Secretary Paulsen, while others said the US had no choice. The question now becomes whether a lameduck president should be making these kinds of decisions because they will impact the long term financial status of the US.
This concern is one the European financial markets have also. There is agreement the entire financial regulatory system needs to be overhauled, but the European leaders are feeling as if President Bush will not be proactive in this area. There is a summit scheduled for 15/November/2008 which will include representatives from 20 major developed nations and also emerging markets.
After the recent financial meltdown, the emerging markets are making it clear they expect to be included in all discussions concerning global financial regulations and early warning systems. In fact, French President Nicolas Sarkozy is recommending that emerging economies be included as members of the Group of Eight club which currently only includes industrialized nations. The emerging market countries such as Brazil want to have representation in the IMF and World Bank also. By including these countries in the financial monitoring systems, currency and stock markets could achieve more stability.
There was a lot of financial news around the world affecting stock prices. The giant global company AIG bailout has now increased to $150 billion and the government's assurance it will continue to assist the insurance company resulted in an increase in stock prices. China announced a $586 billion bailout plan which also caused stock prices to increase. Fannie Mae posted a record $29 billion loss for the quarter ending 30/September/2008 because of mortgage asset loss write downs. The US icon auto company, General Motors, reported a $2.5 billion 3rd quarter loss as of 30/September/2008.
The unemployment numbers reported by the US Labor department revealed over 240,000 jobs were lost in October. The current US unemployment rate has risen to a 14 year high and now stands at 6.5%. The forecast is that the US is going to experience the deepest US recession it has experienced since 1982.
And so the news go on and on an on……and on and on with it sometimes coming so fast it is hard to keep up with it.
Yet the DJIA rose as investors continue to see government willingness to bail out companies and economies as a positive factor. In addition, the current low stock prices are just too hard for buyers to resist. On Friday, 7/November/2008, the DJIA closed up by 248.02 points to reach 8,943.81. The FTSE closed at 4,364.96 and the NEKKEI closed at 8,583. The markets are expected to continue their rise as long as there are bargains to be had.
In the currency markets, the movements were slow and mixed. In terms of US dollars, the dollar weakened against the euro ($1.2800), the Canadian dollar ($.8466), and the Australian dollar ($.6724). The dollar strengthened against the Great Britain pound ($1.5647), the Japanese yen ($.0101) and the New Zealand dollar ($.5896).
President-elect Obama has many serious issues to address and he has already stated the US economy is the number one priority. Now it just remains to be seen how much input he is allowed between now and January 20, 2009 when he assumes office. In the meantime, all investors can do is take it one day at a time.