Good Morning,
In a disturbing replay of prior such events (1987, 9/11) world stock markets melted down as collective fear gripped investors on practically every exchange. Declines of between 5 and 9 percent made for several markets officially entering 'bear' status as investors mobbed the exit doors of practically any asset but cash. A 752-point loss in the Nikkei, yesterday's 605-point drop in the TSX - the list goes on - has raised numerous possibilities of the less than benign kind for various markets and asset classes. If this was a vote of confidence on last week's subprime-triggered recession aversion package by the Bush administration, we hate to see what a gesture of disapproval looks like...
Gold prices took their own liquidation hit, dropping some $30 at one point overnight, and breaking important support at $856 to freefall as low as $849.50 per ounce. Repeat: margin calls take no hostages. Maybe gold's reverse hedge attributes could be called into play after all, and result in a fall of lesser magnitude than other assets. But, a fall is a fall - at a time when conventional wisdom would have the metal blasting through $1,000 per ounce. Surely, you recall, we have been promised that in the event of a bonfire in stocks.
New York spot bullion opened $18.00 lower -indicated at $864.00 bid - and was seen hard at work attempting to find its bearings and maintain decorum amid what resembles sheer panic out there. It would be a lot better not to try to guess where the trading day will leave the Dow, gold, oil, base metals, etc. Just pull up a chair and watch those screens. If you are in already in cash and some bullion, watching the show may be less painful. Silver shed 54 cents to open at $15.55 while platinum dropped $5 to $1539.00 per ounce.
Amid pre-market opening calls by the Treasury's Mr. Paulson for the stimulus action plan's speedy approval stock futures, and the US dollar were darting all over the place, unsure of how investors would receive such possible actions or where on the scale the instant value adjustment would bring stocks to in the US. To be sure, a day to spectate this will be. I actually expect a possible bounce from these levels, but cannot give any sense of certainty or magnitude until well after the Dow is open and trading.
BULLETIN
The following is an excerpt from a US Federal Reserve statement issued this morning before the US stock markets were set to begin trading and was added after the above commentary had been written:
"The Federal Open Market Committee has decided to lower its target for the federal funds rate 75 basis points to 3-1/2 percent.
The Committee took this action in view of a weakening of the economic outlook and increasing downside risks to growth.
While strains in short-term funding markets have eased somewhat, broader financial market conditions have continued to deteriorate and credit has tightened further for some businesses and households. Moreover, incoming information indicates a deepening of the housing contraction as well as some softening in labor markets.
The Committee expects inflation to moderate in coming quarters, but it will be necessary to continue to monitor inflation developments carefully. Appreciable downside risks to growth remain. The Committee will continue to assess the effects of financial and other developments on economic prospects and will act in a timely manner as needed to address those risks."
