News round-up: 27 Oct 2008

The set-up for this morning is anything but good. We are looking at another ugly day as global equity markets have plummeted. We would be lucky to escape this with a 300-point loss like Friday.

Market News
In Asia, the Nikkei in Japan hit a 26-year low! That’s right, the lowest levels since 1982 — very ugly. The Hang Seng was down 12%. The Phillipines was closed due to market losses.

In Europe, as of 745ET, the CAC-40 in Paris was down 180 points or 5.7%, the Dax in Germany was down 160 pointsor 3.7% and the FTSE was down 156 points or 4%.

The futures market is pointing to large losses when markets open in the U.S. Like Friday, we will need an intra-day rally to prevent an Armageddon loss scenario here.

The G7 is worried about currencies, especially the rise in the Yen. (see Sydney Morning Herald article here) The currency markets are really volatile these days and this trend has continued. (see Bloomberg charts here)

As for commodities, Gold was rising in Asian trading after getting killed over the past few weeks but oil has fallen below $63 a barrel. Now gold has joined in the commodities rout. ALl commodities are etting crushed. (see Bloomberg charts here)

Bill Fleckenstein says “the Oracle of Omaha is a better investor than you or I. But don’t let his optimism lead you to dive into the market at this time. He can afford to take more risks than we can.” I’m bullish on some sectors: you heard me talking about Valero, which is about to release probably awful earnings. But, Bill has a point about this treacherous market. (See MSN article here)

Economic News

• Across Asia, we see cash hoarding and that has money market rates rising. This was exactly the problem we just witnessed in the U.S. and Europe weeks ago. This state of affairs led to the massive bailouts and turmoil we have witnessed over the past few weeks. Not good. (see Sydney Morning Herald article here)
• In South Korea, the monetary policy board held an emergency meeting in order to cut interest rates 75 basis points as the crisis has hit Korea very, very hard. (See Finance24 article)
• Meanwhile, also in Asia, the RBA, Australia’s central bank has admitted to trying to prop up the Australian Dollar, which has been crushed as the carry trade has unwound. Good luck. (See Sydney Morning Herald story here.)
• The Ukraine has received a $16 billion loan from the IMF in order to avoid an Icelandic future. The strings attached to that loan include significant budget cuts and getting the current account in order.
• Hungary was able to get in on the bailout action too. Apparently, it has also agreed to an IMF rescue package. If you remember 1997 and 1998, it looks like we are having the same outcome in Eastern Europe as we had in Asia then. (see Reuters article)
• In Sweden, Swedbank is raising 12 Billion Swedish kronor in preferred shares, just to be well-capitalised. If you believe that, then you are more naive than I thought. Everyone knows that Swedbank is overexposed to the Baltics, which are imploding. They need the capital because many writedowns are coming. (see story here in Swedish from Dagens Nyheter)
• In Denmark, apparently farmers were at it too — speculating in Eastern Europe. I caught an article in Berlingske Tidene which said that the financial crisis was putting the brakes on Danish farmers’ expansion into Eastern Europe. “Today, approximately 1,500 Danish farmers, who have been enticed by the cheap prices of land and the old worn Eastern European farms have invested about three billion kroner in the “wild east”. Sounds like a recipe for disaster to me. (Article in Danish here)
• The credit crisis has moved to the Middle East as well with a Kuwaiti Bank needing to be bailed out. (story from the FT)
• In Germany, everyone is sick of the losses at WestLB and it looks like the bank will be carved up, combining parts of the bank with Deka-Bank. (Der Spiegel reports in German)
• In Belgium, the government has put 3.5 billion Euros into KBC Bank. (see article in Dutch from NRC Handelsblad here). It seems the Belgians are doing a lot of bailouts these days. Remember Fortis?
• Goldman Sachs tried to hook up with Citigroup. This is a surprising revelation given this would have given Citi a majority stake in the deal. I guarantee you that would have been a culture clash to rival Morgan Stanley and Dean Witter’s tie up — a big money loser. (see the FT’s article here)
• In politics in the states, Barack Obama is crushing. He has got yet another prominent endorsement from a well-known Republican, this time former Senator Larry Pressler of South Dakota. (see Politico article). It’s not looking good for McCain.
• U.S. Congressman John Murtha of Pennsylvania should keep his mouth shut. You may have seen the video of him calling his OWN constituents racist rednecks. John, when you’re running for re-election, you might wan to avoid that kind of thing. (see Politico story)

For some good comic relief, you can read John Hempton’s take on newspapers, particularly the NY Times. My favorite “modern” paper is the Guardian. They recently broke ranks with the industry and moved to full RSS feeds just yesterday. Good move. I will be getting my news there from here on out (see story here).

I have also heard that AC/DC doing well is a bad sign. Apparently, they have gone to no. 1 during each of the last few major recessions since 1973. Who knew. (Check out the Guardian’s article.)

Happy Monday.