Global Market Comments for October 27, 2008
1) Another Asia melt down hit the markets. Hong Kong was down 12% to 11,000. Japan was down 6.4%, hitting a new 24 year low. The euro made it to $1.23. Iceland’s stock market is now down 90% from its top. The Great Global Deleverage continues. Futures markets are increasing margin requirements. Prime brokers are increasing collateral requirements from 10% to 30%. This is all happening while hedge funds and mutual funds are seeing record redemptions. Fear is rampant. October has so far shown the worst stock market loss since 1938, down 25%. It all adds up to: ‘Sell!’
2) From 1929 to 1932 US Steel (X) crashed 91% from $262 to $22. It took a decline in US GDP of 70% and a factory utilization rate of only 12% to knock the stock down that much. In the past five months the same exact stock fell 85% from $196 to $30, and that is while Steel’s capacity utilization rate has stayed at 100% and is facing a GDP decline of only 5-7%.?? X and many other stocks have already discounted a depression that isn’t going to happen. X was one of the most widely own stocks by hedge funds looking for a commodity play. Something is wrong with this picture.
3) I expect the Fed to cut interest rates from 1.5% to 1% on Wednesday. Rates will likely stay there for a couple of years. The commercial paper market reopened today with a government guaranteed rate of 2.88%. The Treasury is flooding the system with liquidity there, taking on all comers.
4) Bookies in Ireland are giving ten to one odds on a McCain win. The weekend polls show Obama ahead 53% to 40%. Democrats are looking at their biggest non incumbent win since 1932. Echoes of The USS Potomac.
5) Great headline in Barron’s over the weekend: ‘Can a Horror Movie Have a Happy Ending?’ The loss in market value of global equities in the past year has been $20 trillion, $12 trillion from the US alone. Real estate and commodities may have been another $20 trillion. Mind boggling numbers of Great Depression proportions.
6) The lobster market has collapsed. Dockside prices in New England have fallen 50% from $4.40/lb to $2.20/lb in the past year and is now cheaper than baloney. The export business has seized up because of the inability to obtain letters of credit, and domestic demand has plummeted. Communities are holding lobster bakes to eat up excess inventory and help distressed fishermen. A sign of the times.
QUOTE OF THE DAY
‘It could be structured by cows and we would still rate it’, a Moody’s staffer.