Update on Market Crisis

Fear is driving the Market

Fear and sentiment seems to be driving the market downturn, at the moment there is global selling which is causing a “Bear” market to occur, what has to be remembered is that Australia is a strong economy. Consumer confidence has taken a huge hit, however our building and export economy is still very strong. Any clients considering accessing their retirement savings as a result of the latest global stock market crash should be very calm. Mr Swan says that worried investors should remember the Australian economy was in a stronger position than others. The markets liked to see governments with firm fiscal policy, such as the federal government's commitment to return the budget to surplus, he said. 'What I would say to them is be very calm and methodical in assessing these events,' Mr Swan told ABC Radio on Tuesday. 'The fact is that this economy is strong, the investments that you have are in very good financial institutions, strong institutions.' Australian shares are expected to resume a five-day slide on Tuesday. It is the market that is deteriorating and not the economy…

We have to remember our LONG TERM goals with this, there is opportunity NOW to invest in the market to purchase at a low, however anyone holding shares/managed funds at the moment should remain calm and remember that it is time in the market that will count.

Shares in free fall amid global panic

Australian stocks are being hammered as they re-join the global plunge in equity markets, losing about $65 billion in value, as investor fears show little sign of easing. Mid-morning, with losses accelerating, the benchmark S&P/ASX200 index was down 216.3 points, or 5.4 per cent, to 3769.8, while the All Ordinaries index slumped 224 points, or 5.5 per cent, to 3832.7.

Panic selling shaves $32bn off Australian stocks

Panicked investors shaved about $32 billion from the value of the Australian share market, sending it to a two-year low on fears of a volatile Wall Street in the aftermath of the first ever downgrading of US sovereign debt. Monday was the fifth consecutive trading session that the domestic bourse closed in the red and added to the $95 billion that was wiped from the value of the local market last week.

The benchmark S&P/ASX200 index closed down 119.3 points, or 2.91 per cent, to below the psychologically significant 4,000-point mark at 3,986.1 points. The broader All Ordinaries index slumped 113 points, or 2.71 per cent, to 4,056.7 points. Investor confidence had been battered by a stream of negative offshore news but the selloff had been overdone.

"Investors are moving from crisis resolution to the next disaster without pausing for breath," he said. "Last week, the market was taken by concerns about the US economic recovery, the concern being that it was stalling and bringing the rest of the world into a further recession. "On Friday night, we saw jobs data (in the US) that directly contradicted that idea.

"So overall, the numbers are not suggesting that there is a recession coming. ".... and we're seeing corporate earnings coming through around the globe that are not consistent with the idea that the market is going backwards." Mr McCarthy said there had been a big surge in trading volumes on Monday, with more than double the usual contracts traded on the futures exchange. He said the futures market had flipped around wildly all day. The gold price hit a fresh all-time intraday high of $US1,704.30 an ounce in Hong Kong trade, as Asian stocks tumbled in the aftermath of the downgrading of US sovereign debt by Standard & Poor's. The price of gold in Sydney closed at a record high at $US1,710.18 per fine ounce, up $US52.57 from Friday's close at $US1,657.61.

Wall Street calls a code blue

Alan Kohler

Last night’s 500 point fall on the Dow Jones and shocking 6.6 per cent fall by the S&P 500 were not primarily caused by S&P’s downgrade of US debt. That debt itself continues to rise in price, not fall. The Dow has corrected 15 per cent and the ASX 200 by 18 per cent because investors have discovered the limitations of artificial stimulus on the economy. The Great Reflation has run its course but the patient is fading.

S&P’s gratuitous and probably self-serving action on the weekend merely highlighted the problem that is staring everyone in the face: America has reached its debt limit and must start cutting back just as the economy is apparently getting weaker. Something similar is happening in Europe and Australia. Ironically it is politics, not economics, that is the source of the problem. The bond market is telling the US Treasury that it can, and should, continue to borrow but it’s the right-wing politicians holding the balance of power in the House of Representatives that have demanded fiscal consolidation now – supported by S&P.

The Federal Reserve, having closed off QE2, is mute, balance sheet bloated like the stomach of a character from the film La Grande Bouffe. The market is pleading for QE3, but so far nothing. Likewise Europe has stimulus ammunition available, but politics stands in the way, along with Jean-Claude Trichet, the famously tight president of the European Central Bank. Germany continues to enforce fiscal and monetary orthodoxy when the logic of monetary union demands that it and the other surplus states must stimulate demand to offset the austerity programmes being imposed on the peripheral states by bond markets and the EU and IMF bureaucrats. The ECB has said it will buy Italian and Spanish bonds, but it’s too little, too late. What’s required now is a European version of quantitative easing, flooding the eurozone with cash: any intervention now must be massive to convince markets that the authorities are serious.

Politics is also imposing fiscal consolidation on Australia at precisely the wrong time. The Australian government is tightening fiscal policy by about 2 per cent of GDP to meet an unnecessary, politically constructed deadline of 2013 for returning to surplus, with one quarter of negative GDP already under our belt and another one threatening. No wonder share markets are falling and gold is at $US1700. It seems the past three years of grinding tentative recuperation from the crisis that came from the massive injection of fiscal and monetary adrenaline in late 2008 and early 2009 have come to nothing. The patient is slipping back into a coma.