So where did the boom of the past couple of years get to?
Did Mr Bear really eat it, or was it some other mythical creature?
The CDO perhaps, or the creature from the subprime swamp?
Inflation is a worry, no matter the type of economy. Oil prices are rising and acting like a demand eater, just as rising interest rates have been doing here.
Oil surged over $US146 a barrel, then eased, stocks swooned, interest rates rose in Europe.
The Lex column in today’s Financial Times warned:
"In the anatomy of this bear, however, the cycle of earnings downgrades has barely begun. Globally, trailing earnings are down barely 5 per cent from a lofty peak – against the average historical slump of 25 per cent – and the damage remains concentrated in the beleaguered financial sector."
A re-rating of resources shares here, seen yesterday in the market, is a big danger to our already battered bourse.
Central banks like the Reserve Bank here are now looking and waiting for the surge in oil prices to strangle economic growth, demand and eventually inflation. Judging by the above graph, surging oil is belting stock prices around the world.
As we learned this week, there’s no need for a rate rise here from 7.25%, even if inflation may brush 5% soon. The surging price of oil is doing the job for the RBA, and other central banks.
It will be brutal, it will be bearish and it is bad for stocks. But there are bargains, if you have the long view, the cash and the nerve.
What the subprime mess started more than a year ago in the US, will end next year in a slump or stagnation globally.
Not even the still burning economies of China, Brazil, and to a lesser extent, India or Russia, will be enough to keep the world from sliding south.
That will mean a surge in unemployment: no wonder the OECD (Organisation for Economic Co-Operation and Development) is forecasting a 9% rise in jobless numbers in its 30 member countries over the next year.
No wonder it is saying unemployment rates in many countries will have a ‘6’ in front of them in 2009.
The US housing slump is likely to be extended and “continues to pose a considerable downside risk to the US economy” according to US Treasury Secretary, Hank Paulson.
He said in London that “We should not be surprised at continued reports of falling home prices."
In other words, the primary cause of all the problems: the US housing slump, isn’t going away, quite yet.
It’s been more than five years since we have seen a market correction/mauling of the sort of we have witnessed in the past month.
The slump from Mid-May on all markets here and around the globe, has been nothing short of breath-taking, with a string of unwanted records and not so notable firsts revealed.
The Australian stockmarket fell below 5,000 points for the first time in nearly two years yesterday as investors again took their lead from ailing markets in the US, Asia and Europe.
Our market opened lower and weakened after what was a depressing and at times ugly night of trading, except for commodities which again surged. The ASX 200 closed down 1.9% at 4998, the All Ords off 2.3% at 5098.
But not even the rise in copper, gold and oil was enough to offset the hammering from nervy investors.
After the misery that was 2008, the 2009 financial year has opened with a thud: a 5% plus fall in three days.
The Dow Wednesday became the second major US index to enter a bear market, crossing the critical threshold of a 20% fall from its peak, following the Nasdaq in February. The broader S&P 500 is a little more than half a percent from the same fate.
In fact the Standard & Poor’s 500 is within 12 points of where it stood in 1998. So much for the biggest boom ever!
In Tokyo, the Nikkei Index opened lower for an 11th day in a row, adding to its longest losing streak in 40 years.
It’s lower close yesterday made the losing streak the longest since 1953. Another unwanted record.
Oil prices jumped past $US146 a barrel On Nymex ion New York, touching $US146.30 in European Trading.
It was the first time oil prices have been past $US146 a barrel. The eased back in US trading to around $US145.03.
Oil prices are up more than 50% this year. It’s no wonder the Reserve Bank is so worried about their impact and is treating the rises like a couple of interest rate increases.
Figures out yesterday showed the Australian services sector of the economy contracted last month and activity is now at a five year low. The sector has been in trouble since April, but the extent of June’s squeeze surprised.
Copper hit a new record price in New York of $US4.06335 a pound: out of nowhere before it eased in Asian trading.It then lost all the gains in the US overnight Thursday.
Corn and wheat were dragged higher as soybean prices hit a second successive record on the Chicago Board of Trade of $US16.3225 a pound. Gold rose and the Australian dollar firmed past 96.20 USc in local trading. It eased back to 96 US cents Friday morning.
Economists now wonder about the damage a rate rise from the ECB will do. Fire up the bears might be one outcome. But the euro fell and the US dollar rose, except for oil commodities eased.
And investors in the US and Europe are starting to worry about easing coal prices: with the prices of steel and coal companies falling sharply this week. That’s partly why our market took a pounding Thursday.
Could the boom be fading and the likes of BHP, Rio and others be about to join the rest of the market at lower levels?
Denmark
