Since the beginning of the century, we have witnessed far more crises than anyone in the world expected. We all remember the dotcom bubble, September 11 events, the collapse of the housing market, the failure of Wall Street brokerage firms (Bear Stearns and Lehman Brothers), the failure of Freddie Mac and Fannie Mae, the failure of AIG or the bankruptcy of General Motors. Despite all these heavy challenges and mounting losses, the global financial system managed to stay afloat. A key role in holding the system together could be attributed to the government bailouts and central bank interventions. Nonetheless, a potential commodity crisis especially a near-term food crisis could bring the global financial system to its knees. Continue reading ‘Food Prices – Danger Ahead’
Archive for the 'World Markets' Category
The Austrian central bank is attempting to calm the financial markets that are increasingly worried about the regional banking system as two major events shocked the markets for two consecutive days. On Monday, the central bank nationalized Hypo Alpe Adria – Austria’s sixth-largest bank, a unit of German public-sector bank BayernLB — a move designed to prevent the bank from sliding into a bankruptcy fueled in part by bad loans, most of them originated in Eastern Europe. Today, Austrian daily Die Presse reported that the Austrian National Bank (ANB) and financial market watchdog FMA had put Volksbanken on a watchlist for endangered financial institutes. At 1530 GMT, shares in key Austrian banks were underperforming the wider Austrian market. Erste Group Bank was off 3.8%, while Raiffeisen Bank was down 6.1%. Continue reading ‘Austria – EU’s Weakest Link’
Many of us are wondering how is US able to borrow trillions and trillions of dollars. Who is willing to lend them money, especially under current circumstances? The total US national debt is approaching $11.2 trillion. That is 11,200,000,000,000 US dollars. The Congressional Budget Office recently released a report in which they claimed that the total debt could reach $17.2 trillion dollars by 2019. What is mind-boggling is the amount of money that the US government pays every year to service this debt. For instance, the interest payments on the debt cost $452 billion last year, the largest federal spending category after Medicare-Medicaid, Social Security, and national defense. Continue reading ‘It Is Good To Be King’
The New York Stock Exchange (NYSE) has withstood a number of financial shocks during the last century. We have read about the Great Depression when the world economy went through a long and painful recession. We have learned about the 1973 oil crisis and the resulting dramatic spike in inflation. I have personally witnessed the September 11 events, when NYSE has been closed for four business days. However, the greatest one-day crash in the history of the Dow Jones happened 22 years ago on “Black Monday”. On October 19th, 1987, the Dow index plummeted 508 points to close at 1,738 points. That fall represented a total drop of 22.6%, which is still to this day the biggest one-day percentage drop in the history of the Dow Jones. Continue reading ‘Black Monday – Deja Vu’
On December 29, 1989, the Nikkei-225 hit an intra-day all-time high of 38,957 yen. The Nikkei-225 (N225) is a stock market index that contains 225 of Japan’s largest publicly traded companies, including the likes of Toyota, Honda, Mitsubishi, Sony, Panasonic and Toshiba. From 1985 to 1989, the N225 grew exponentially, trading from around 10,000 to an unbelievable 38,916 in just a few years. The 1990s – referred to as the “Lost Decade”, were characterized by massive losses across both the real estate and stock markets, while the economic growth was nowhere to be found. Japan took on an enormous amount of debt in an attempt to stimulate the economy – however, these efforts were largely in vain, as the economy endured a long, L-shaped depression. According to World Bank’s statistics, Japan had a GDP of $3.57 trillion in 1990 and $4.49 trillion in 2008. On March 10, 2009, the Nikkei-225 was trading at 7,055 yen. While the GDP has increased by 26%, N225 lost around 82% of its 1989 peak value. Could that be a possible scenario down the road for US and EU? Continue reading ‘Nothing New Under The Sun’
Not surprisingly, the rating agencies – Moody’s, Standard & Poor’s and Fitch, are currently tormented by a deep credibility crisis after it had been established that they awarded top ratings to scores of billions of dollars worth of sub-prime mortgage-related securities. The investors involved with these complex structured assets have relied on the agencies but they might never trust them again. The scariest thing is that the rating agencies have a serious accountability issue in admitting their flaws. For instance, I remember Moody’s claiming that employees, not the company’s practices, were to blame. Hence, they started firing the structured finance department people. Ultimately what they did was purely looking for scapegoats. What a lame excuse! Continue reading ‘The Machiavellian Watchdogs’
In the post-Depression economics, Tim Geithner – US Treasury Secretary, has initiated a plan to inject $2.5 trillion of Public-Private Investment Fund (PPIF) into US banks to get rid of the toxic assets. On one side, nationalizing top-tier banks may be politically acceptable in places like Norway, Sweden, Chile, Iceland, Ireland and even Japan and the UK, but it is still inconceivable in New York and Washington. On the other side, American taxpayers are saturated with huge Wall Street bailouts and overpaid bankers. Consequently, taxpayers would never approve another open-ended injection of public capital into banks. Since the enactment of the Troubled Assets Relief Program (TARP) in October 2008, more than 360 US banks have received at least $353 billion of funds from the Treasury. This includes: Continue reading ‘US Taxpayer – The Universal Savior’
On Sep 11th 2009, US administration has decided to impose excessive import duties of 35% on Chinese passenger and light truck tires, as a result of a surge of Chinese tire exports that have dented the US tire industry. Just two days after, the Chinese ministry of commerce responded that the Chinese officials were investigating US automotive and poultry product imports following complaints from local industries that some of these products are being dumped in the Chinese market or are benefiting from subsidies, seriously affecting domestic industries. Who will end-up hurt more severely from this mounting trade dispute? Continue reading ‘The Next Big Thing’
Friday we witnessed another big gain for the S&P 500 index. Markets have risen a long way over the past five months. Back in March 2009, when the markets reached a 12-year low (i.e., on March 6th S&P traded at 666), there were plenty of analysts that had predicted a total collapse of the global financial markets. The bearish sentiment triggered a panic-driven sell-off with investors expecting the worst scenario with S&P index down to 500-point level. In their defense, they had some valid points: 1) a further 15% decline in home prices, 2) a worldwide-spread recession, 3) significant future earnings declines and 4) a considerably trimmed down debt market.
Continue reading ‘From Panic to Euphoria’
Greed – The Name Of The Game
Since October 2008, more than 360 US banks have received at least $360 billion of Troubled Asset Relief program (TARP) funds from the Treasury. Of this, more than half went to the top fifteen banks in the country. This includes $145 billion of capital injections awarded to Citigroup, Bank of America, JP Morgan and Wells Fargo, the top four US commercial banks and another $10 billion each for Goldman Sachs and Morgan Stanley. There was also $40 billion in capital injections and $113 billion in credit in AIG, the insurance company that pioneered a whole new “too crook to fail” rule. In addition, by now US banks have also received at least $1.8 trillion of federal loan guarantees and $870 billion in federal loans. Believe it or not, the same day PNC Financial Group received $7.6 billion in TARP money, they acquired the rival bank National City for $5.6 billion. Continue reading ‘Greed – The Name Of The Game’