Bernard Hickey details the key news overnight in 90 seconds at 9 am in association with Bank of New Zealand, including news the Dow Jones Industrial Average closed down 634 points or 5.5% and the S&P 500 fell 6.66% as global stock markets plunged after the weekend downgrade of America's credit rating to AA+ by Standard and Poor's.
Investors are worried the world's largest economy will slump back into recession and fears of a European Sovereign Debt meltdown.
This caps the biggest bear market seen since 2008. See more here at Reuters.
Bank of America shares fell 20% as bank stocks were hit hardest. There is speculation Bank of America may need to raise fresh capital and doubts about the bad debts on its books. See more here at Bloomberg.
Despite the downgrade of their creditworthiness, US Treasury bonds rallied sharply as investors desperate for safe havens raced to the safest thing they knew.
Prices rose and yields fell to record lows. The 2 year Treasury yield fell to 0.23%.
Other investors jumped for gold, which rose 3.6% to a fresh record high of US$1,712/oz.
The VIX index measuring volatility, sometimes called the fear index, rose 50% to 48, its biggest rise since February 2007.
The New Zealand dollar fell to 79.75 USc by 2.30pm from as high as 83.4 USc around 5am as investors moved out of riskier currencies and commodity prices slumped. The NZX 50 fell 3.7%. Hong Kong stocks fell more than 7% and Korean stocks fell as much as 10%. The Nikkei 225 fell more than 4.4% by early afternoon.
The New Zealand rebounded to 82 USc by the end of the day as the ASX 200 rebounded more than 1% in late trade.
The oil price fell to US$77.6/bbl. See more here at Reuters.
All eyes will now be on the US Federal Reserve's Federal Open Markets Committee (FOMC), which is due to make an announcement on monetary policy tomorrow. It is widely thought to be preparing some sort of stimulus, including the potential for a third round of quantitative easing or money printing.
Many expect the Fed to prolong its pledge of 'exceptionally low interest rates' at 0% for an 'extended period'.
The fallout from the S&P downgrade continue overnight. S&P downgraded various US government backed entities. See more here at FTAlphaville.
Meanwhile, riots and looting spread across London overnight.
Initial riots in Tottenham have spread to Brixton and Croydon. Prime Minister David Cameron is returning home from holiday early to deal with the crisis.
(Updated with market closes, NZ$ moves, NZX moves, QE III talk)
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56 Comments
Yep Growth projections of 4 % are perfectly valid - Australia managed 3 % in the best of times.
Government not growing and now ~ 50 % of the economy so private sector's going to grow at 8 %
JK's just acting as Pollies do - Trust me all is well !
Life will carry on - maybe not just as we had anticipated.
When NZ's total foreign debt is around 200 billion and the government is borrowing about 300 million a week,despite record commodity prices, how can we be on target or doing relatively OK?
This idea that NZ is in "relatively" good shape compared with many other countries, is of little comfort when in reality we are going downhill rapidly.
It would be great if the comparisons with the really sick economies stopped and we started comparing ourselves to how a sustainable economy should be.
Sitting here in London, having just cancelled a big business event scheduled for tomorrow, I can tell you than NZ looks in increasingly fantastic shape, no matter what happens in the economy!
Just might need some gold and silver to buy one of the last tickets outa here one day (who's been watching the shannanigans in silver as the shorts desperately try to hold the price down?)
"Despite the downgrade of their creditworthiness, US Treasury bonds rallied sharply as investors desperate for safe havens raced to the safest thing they knew. Prices rose and yields fell to record lows. The 2 year Treasury yield fell to 0.23%."
That about sums it up: No one with money on the table is worried about the solvency of the US government.
The same thing happened when Moody's began downgrading Japan's 'credit' rating:
"In November 1998, the day after the Japanese Government announced a large-scale fiscal stimulus to its ailing economy, Moody’s Investors Service began the first of a series of downgradings of the Japanese Government’s yen-denominated bonds, by taking the Aaa rating away. The next major Moody’s downgrade occurred on September 8, 2000.
Then, in December 2001, Moody’s further downgraded the Japan Governments yen-denominated bond rating to Aa3 from Aa2. On May 31, 2002, Moody’s Investors Service cut Japan’s long-term credit rating by a further two grades to A2, or below that given to Botswana, Chile and Hungary.
In a statement at the time, Moody’s said that its decision “reflects the conclusion that the Japanese government’s current and anticipated economic policies will be insufficient to prevent continued deterioration in Japan’s domestic debt position … Japan’s general government indebtedness, however measured, will approach levels unprecedented in the postwar era in the developed world, and as such Japan will be entering ‘uncharted territory’.”
The then Japanese Finance Minister responded (with some foresight):
They’re doing it for business. Just because they do such things we won’t change our policies … The market doesn’t seem to be paying attention.
Indeed, the Government continued to have no problems finding buyers for their debt, which is all yen-denominated and sold mainly to domestic investors.
In the New York Times (July 6, 2002) the logic of the rating decision was questioned:
How … could a country that receives foreign aid from Japan have a better rating than Japan itself? Japan, with an economy almost 1,000 times the size of Botswana’s, has the world’s largest foreign reserves, $446 billion; the world’s largest domestic savings, $11.4 trillion; and about $1 trillion in overseas investments. And 95 percent of the debt is held by Japanese people …
Former Moody’s President, John Bohn Jr. had in 1995 claimed that: “We’re in the integrity business: People pay us to be objective, to be independent and to forcefully tell it like it is.” (Reference: Ratings Trouble, Institutional Investor, October 1995: 245).
Later the agencies were forced to admit to the US Congress (at the height of the recent crisis) that they took money from firms in return for their AAA corporate rating. Many of the products the agencies gave top ratings to collapsed as worthless assets in the crisis. The agencies are one of the greatest cons around and can never be considered independent."
S&P decision is irrelevant
Vanderlei..They are seeking a new direction in faecal forensics....picking through the matter in order to confirm the sum of the parts is indeed equal to the hole......... it must pass through......
a New Stool of learning lays ahead.
On the other hand maybe just got the cheap shot in early trying for distance because ...........................They know how bad this is........causing the ol' "Don't stand so close to me" as a rear guard action into play.!...eh..?
Logic tells you that reality sooner or later trumps wishful-thinking. It can be later via can-kicking, and/or via spin, but show up it will.
It that has to be acknowledged by some rating agency at some point, there will be a 'first'.
Can't be any other way. So maybe they're not so unique. They have the advantage (a bit like Real Estate floggers) of being able to operate in a declining market. Till it stops paying for their services, either to keep the populace in the dark, or because things are so shaky that it becomes irrelevant.
From the noise the EU is making about the ratings agencies and now the US will I expect do the same I wouldnt be surprised if they get "regulated" fairly quickly....
I assume there will also be congressional commities set up to go through their decision with a fine tooth comb....blood will be wanted....probably pounds of flesh as well.
Witch hunt time....
regards
Yes....but for me this downgrade should have happened long ago, but when you are steeped in a) the right wing rhetoric, b) self belief in free markets c) America is great, no matter the logic / rational you will ignore it. Its simple for me, here in NZ and indeed many other countires we are trying to fix things, the US on the other hand has no intention yet of doing so, indeed they seem hell bent on making it worse....with their voodoo economics.
I wonder how long before moodys follows suit...I find it hard to believe they wont also downgrade the US.
regards
simple really, we are told what the poeple who govern us want us to believe, sucker all of us who believe the unbelievable.
the US is going to print a shit load more money, not because they believe it will work, but because they have no other options, unless they face up to the real facts and tell the poeple what they dont want to here or believe.
on a positive note the US has amazing power to investigate financail tranaction's, they will leave no stone unturned investigating the individual poeple and families invovled in the s&p decision to downgrade the US rating. Dont forget the dow had a surprizing drop of 500 point's 2 day's before the officail announcment.
the US will do anything to discredit this decision and it will be no surprise if they find plenty.
Last nights Closeup was brilliant. Does Mark Wheldon realise how self interested he comes across? He has no critical analysis other than to talk up how resilient the NZ market is, how the NZ market would be the best investment and by the way, compulsory Kiwisaver would be great so I can make some more money clipping the ticket... Brilliant, he is obviously NZ's best and brightest.
Well I picked 1000 point fall on the Dow today, so I was a little bit off. Still going to call below 10000 for the Dow by the end of the week. Will be interested to see what knee jerk reactions we get from governments to stabilise the markets, the speculators are calling out for QEIII to make all their problems go away. If you recall the Dow was around 10000 about May-June last year, so really all we had was a QE inflated bubble of speculative money.
it is a shame though.....i mean if we must have a global superpower i'd rather it was the usa than china, but they've had decades of washington disfunction and it's really screwed them.
unfortunately if this is what it takes to unplug the vampire squid, then so be it.
that said, i bet the squid has somehow shorted all this and will make even more money...
"that said, i bet the squid has somehow shorted all this and will make even more money..."
Yeah, perhaps staging a war with China under the false flag pretense that they engineered all this.
It's the internationalists and their minions we need to watch most (including JK?) - they've been at this game for over two centuries.
US corporates heading back to the taxpayer teet. Freddie Mac to ask for an additional US$1.5 billion from US taxpayers due to losses stemming from the weak housing market. - http://www.reuters.com/article/2011/08/08/us-financial-freddiemac-idUST…
Double dip time?
http://advisorperspectives.com/dshort/updates/Gasoline-Update.php
Good Morning Chaps and Chapesses,
I hope everyone is feeling rather jolly this morning.
I must say I am, as this transfer of wealth plan, me and my ol' boy network have in place is doing remarkably well, damn fine in fact !
I was just speaking to my broker in Manhattan and we are currently "shorting" the market .... some excellent transactions to be had out there. All with a great cash flow for moi !! ... and that is what is most important, remember :)
I do say the lads at S&P did a remarkable job of "spooking" the market. My connections in Europe and the Hamptons were most pleased, as was I.
Anyway must fly, have to catch the 11 to Honolulu ....must say they do a remarkable hearty breakfast at the Koru Lounge .... thank you Rob.
toodle pip
Well done, in you and the boys, getting Glencore away at the end of May, Charlie. Up 30% in a few weeks. Who coulda seen this coming.....
(Founded in 1974 by Marc Rich, a trading sensation who fell foul of US authorities, but who was controversially pardoned by President Clinton on his last day in office in 2000...the Swiss-based Glencore, famous for its fiercely guarded tradition of secrecy, has now drawn the line under four decades as a private company....)
Champers me old squid.......having a hard time of it at the mo old thing....wondered if you might pick up my tab at the Northern...Gerry says he can't let it slide no more....the foie gras became a bit rich if you follow my meaning and I have no recollection of drinking that case of Glenfiddich 50yo.....dear ,oh dear... how quickly they desert you when the New Headboy de-listed exporters as viable industry...anyhoo enough about me.
Enjoy your breakfast.
Christov me ol chump, how art thou ?
I have not spotted you down at the Northern Club of late? I'm sure one of my many contacts at the Club, will only be too willing to oblige to pick up your tab. Anyway, just say to Gerry "CC Ok'd it" Damn fine drop that 50yo Scotch by the way.
Just been on a little sabbatical to London and Paris and caught up with a few of the "ol' squadron" haw haw ... things are going swimmingly well, in the circles over there ol' chap.
I see our compadre JK is doing his part to keep our interests on the positive side of the ledger ... sit back and do nothing and just smile and wave. Works for us, say what. Exporters pfft .. who are they anyway?
Back to the fine first class sleeper seats and a few zzzz's on the way to happy Hawaii.
toodle pip ol thing
sent from my iphone8 ........always ahead of the crowd haw haw
Seeing a comment that this might be ***just*** one or two very large hedge fund(s) selling off...
http://brontecapital.blogspot.com/2011/08/who-has-got-margin-call.html?…
regards
All it will take is a whiff of a rumour about QEII and we could see the markets rocket up in a jiffy. It's crazy that they downgrade the USA, and not the UK, France, and Italy etc when all those other countries have a far worse debt-to-GDP ratio than the USA.
It will be interesting to see if this is a 'panic' which will resolve itself at the end of the year or the resumption of a bear market.
What was the time span between the GFC start and QE I? time span between QE I and QEII? time span to QEIII? Also teh size of the QEing...
Looks to me like there is compression going on, soon QE5-6-7-8-9 will be rolled into QE4 which will come a week after QE3 ends....ie QEing will never end...until there is a huge "pop" and we are left with a hole known as a depression we have to dig our way out of....and it will take many years.
regards
If the yields on US 10 year bonds fell overnight , i.e. the bonds went up in value , not down , then this correction has nothing to do with uncertainty over the US credit rating .
.. Sure , S&P kicked the correction off , with their bizarre report ( a little matter of a $US 2 trillion error they made in that report , too , to support their argument ...... oooops ! )
But really , this market correction is connected to pessimistic views of the US economy , for the months & years ahead .
... And as the " baby is being thrown out with the bathwater " , as they say , this is a golden opportunity for investors to scour the world's stockmarkets , and to pick up bargains in those jurisdictions where financial commonsense prevail ( basically , not in the EU , nor in America , or Venezuela ) .
Yipppppeeeeeeeeeeeee ! ...... " Pig-out " time for the Gummster , hoo yeah , baby !!!
"pessimistic views of the US economy" What do they have to export? Then the US is 1/2 the energy efficiency in terms of % of GDP that the EU is...they have a totally dis-functioanl Govn at the State and Federal level.
"Pig-out" feel free.....but Im curious as to just where is left to buy shares...I assume you include Japan as well?
Not much left really...in fact I cant see anywhere....
regards
October 2011 is the 10th anniversary of the invasion of Afghanistan and the beginning of the 2012 federal austerity budget. It is time to light the spark that sets off a true democratic, nonviolent transition to a world in which people are freed to create just and sustainable solutions.
http://www.youtube.com/watch?v=SaCufTW9ID4
You're right. Timing is key. But it's also the most difficult thing to get just right.
oops I should have added, I’m so please all our brilliant economists predicted this current bout of share market mayhem. You've got to hand it to those guys, they really know there stuff. They never fail to deliver. Where would we be without them!
Doh!
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