CRASH 2: NOW IT’S JUST A MATTER OF TIME
Stock markets, oil, IPOs, index futures all down.
Acceptance of ‘very long recovery’ spreads globally.
Gold options at $1500, Swiss Franc rises as safe havens sought by investors.
With the Yen gaining yet more value and the Nikkei crashing by 3% overnight, the Japanese Government is in array today as a leadership struggle threatens to split the governing Party. All around the world, stock markets took their lead from this – and of course the widespread expectation that the US recovery has blown itself out. The Chicago purchasing managers’ index slumped from 62.3 to 57, August versus July.
For the first time in living memory, as at 2.30pm BST today, all 26 European and the other 9 major global markets continued to fall. In the last 20 days, $2 trillion have been wiped off the value of shares worldwide. The Global share index is 4.5% adrift for the month of August.
In concert with this, oil prices fell sharply in Asia, as did the US futures index. And as one would now expect, the Swiss Franc rose against all its competitors, while analysts in all markets were optioning gold for December 2010 at a price of around $1500. As I write, that metal is sitting steady at $1237 per ounce.
Other signs represent very big writing on crumbling walls. More than half the European IPO listings are currently trading at below the issue price. Overpricing is causing investor anger towards the investment banks busy talking up average issues.“Investors are sick to the back teeth of being treated like idiots,” Dan Nickols, head of mid- and small-cap equities at Old Mutual Asset Managers told the FT, “Companies have been too greedy – or misunderstood what the right price for their float is.” But the reality is that investor confidence is weak heading towards shattered.
Bullishness about gold has spread to some major players in the investment Establishment. One of the biggest buyers has been Soros Fund Management LLC, which oversees about $25 billion. Soros made $1 billion breaking the Bank of England’s defence of the pound in 1992. Yesterday he described gold as “the ultimate asset bubble” but added enthusiastically, “buying at the start of a bubble is rational”. And Deutsche Bank analyst in London Dan Brebner (the most accurate forecaster of gold so far this year – after The Slog) says the metal may reach $1,550 over the next six months.
Crude oil supplies rose 1.55 million barrels, or 0.4 percent, in the seven days ending August 27th. This reflect lower ordering in expectation of an output slump – and actual falling consumption during manufacturing processes. The data have only one meaning: expectations are poor,and the reality isn’t much different.
The Wall St Journal’s Marketwatch supplement carries large feature today, quoting markets guru Jeremy Grantham as saying that, “…it is unrealistic to expect to overcome the several problems facing most developed countries, including the U.S., in fewer than several years….You’d be a fool to trust your money with Wall Street during the lean years till 2016 because another 20% of your investment will vanish.”
Earlier forecasts from Grantham have been spot on. He called Wall Street’s 2008 meltdown in late 2006….oddly enough, two months before The Slog’s predecessor nby said the same thing.
Respected ABC financial journalist Satyjit Das concurs. In a devastating piece entitled Delusions of Safety on ABC’s website yesterday, he wrote:
‘In truth, there was no choice but to pass the [the eurobanks in the stress test] as money must be made available to enable Greece to continue to function. Despite progress, that economy is slipping into a deep recession, impeding the recovery plan. Similar scenarios, albeit less urgent, are playing out in Spain, Portugal and Ireland. Slowing growth in North America and China also complicate the problems.
Negative or low growth, savage budget cuts and economic restructuring will need to continue for years. The plan requires these countries to run a four-minute mile over and over again for years on a lower than subsistence calorie intake. It remains to be seen whether this is feasible. The willingness of government to impose and citizens to bear the decline in living standards necessary to avoid a debt restructuring remains uncertain.
The bank stress tests proved that the EU and ECB believe in Father Christmas, the Easter Bunny and other munificent deities’.