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The Alphaville sandwich board: the end is nigh

sandwichboardA cavalcade of bad news hitting the market today - in the form of various analyst notes. The sense being that having spent months writing about the oncoming recession, we’re now actually dealing with it.

S&P analysts noted today that world equity indices lost $3 trillion in June. With only three of 52 actually up - all of them emerging.

All of the developed markets fell in June, losing 8.18% for the month, 2.49% for the second quarter and 7.90% year-to-date.

Barcap equity strategist Tim Bond, meanwhile, is warning of a global financial storm. Oh, and the collapse of the Federal Reserve’s credibility thanks to an inflation shock. Bond expects the US headline figure to be 5.5 per cent by August.

This is the first test for central banks in 30 years and they have fluffed it. They have zero credibility, and the Fed is negative if that’s possible. It has lost all credibility.

Global unemployment, meanwhile, has risen 9 per cent. And the Oil prices continues to soar; pushing countries to “tipping point” according to Dominique Strauss-Kahn. All eyes on Iran.

In the UK, bellwether stock M&S has been trading down around 18 per cent all morning, while it’s a bloodbath in the housebuilding sector. Taylor Wimpey leading the pack, down 50 per cent. Barratt down 28 per cent.

First corporate pains of a recession? David Owen at Dresdner Kleinwort thinks we’re “staring recession in the face” in the UK. As he notes:

With house prices collapsing and manufacturing orders declining to their lowest level since 1998, can the UK avoid recession? Contrary to expectations, the saving ratio fell in Q1 from 3% to only 1.1%, the lowest figure on record. This helped keep the show on the road, but surely cannot continue, particularly with survey evidence now suggesting a marked deterioration in the labour market. 

The economy is running on empty.

And skip across the pond, for the subject of a Merrill Lynch note just through:

…bankruptcy is not impossible if the market continues to deteriorate and significant incremental capital is not raised.

The company in question? General Motors.

___

This entry was posted by Sam Jones on Wednesday, July 2nd, 2008 at 11:21 and is filed under Capital markets, People. Tagged with . You can follow any responses to this entry through the RSS 2.0 feed. Responses are currently closed, but you can trackback from your own site.

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Comments

  1. Jul 05   6:32 Posted by Peter J. Cooper [report]

    Yes all this is true. But the art of investment is not listing negatives. You need to find the contrarian or hedge to this list. It is not easy, except that the list of negatives is now so long that only a few assets shine out.

    Precious metals have been the laggard in the current commodities boom - up barely four-fold compared with oil’s 14-fold ascent since 1999. Yet what have we seen in the past week with equities diving into bear market territory? Both gold and silver have made strong gains, and the chart position of an exit from a head-and-shoulders could not be better.

    Would it not be sage to at least increase the precious metal position in any portfolio? Russian oil funds indicated they might this week. Hong Kong futures traders will have a gold instrument back again this autumn.

    For retail investors it is a fair question to ask the best way to invest in gold and silver, and for a more detailed view see my blog post today: http://arabianmoney.net/2008/07/05/equities-falling-gold-rises-to-950-silver-past-18/

  2. Jul 02   15:04 Posted by burnt quant [report]

    @ pengu

    I couldn’t agree more with your comment - in two sentences I think you’ve pretty much provided a complete review of the state of modern central banking.

    It’s great to be in the company of fellow doom-mongers!

  3. Jul 02   14:51 Posted by Michael Fowke [report]

    All is well.

  4. Jul 02   13:57 Posted by S FLOODF [report]

    We need a recession. The unprecedented levels of cash that have been injected into the global system have created an enormous misallocation of capital. The free for all of the last ten years meant that everyone from taxi drivers to hedge fund managers could borrow at will, re-leverage and bid up the price of everything from penny stocks to Costa del Sol apartments. Witness the rise and soon to fall rise of private equity! The Tsunami of cash propelled the market further and further, making the taxi driver and his hedge fund manager passenger feeling like kings. This cash is the result of a fragmented and non regulated global fractional banking system, throw in securitization and you have the mother of all money creation machines.

    A recession will drive these amateurs’ out of the market and reallocate capital correctly - to active parts of the economy that actually produce real product and provide real service and real add value. We need to wash away the waste and get back to the knitting. This has been one of the most inflationary periods of the last two hundred years, the problem is that it coincided with globalisation and we imported deflation from Asia - thus we masked the true nature and folly of our economic policy. Without going through the necessary pain of a recession we can not reallocate the capital. The longer the banks spend hiding the true nature of their losses the longer we will continue in this malaise. No Pain, No Gain (I hate this phrase but it seems apt given our current circumstance). Stephen Flood – goldassets.co.uk

  5. Jul 02   13:44 Posted by pegnu [report]

    what amazes me was all the self congratulatory nonsense that was being spouted over the past few years about how Central Banks had learned from the past and had perfected monetary policy. Suddenly we discover they haven’t, it was an illusion, and that during the period everyone was congratulating them they were planting the seeds for current disaster.

  6. Jul 02   13:14 Posted by Anonymous [report]

    wasn’t that GM commenting on Merrill Lynch…?

  7. Jul 02   13:11 Posted by Anonymous [report]

    I am not surprised. The world central banks were not concerned about the huge increases in money supply and increased the liquidity to enormous levels during the last 7 years. Bed is made and it is now time to lie in it.

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