Running for the exits

The New York Times has an article about the anticipated losses in the stock market:

Global stock markets tumbled as investor pessimism about the outlook for the United States and European economies was deepened by weak data for the euro zone and a grim assessment from the Federal Reserve.
“Today, we really seem to be stuck in a negative spiral,” said Matthias Jasper, head of equities at WGZ Bank in Düsseldorf. “Investors just want to keep their exposure low and watch from the sidelines.”
In the opening minutes of Wall Street trading, the Dow Jones industrial average was down 301.06, or 2.7 percent, 10.823.78. The Standard & Poor’s five-hundred-stock index lost 2.6 percent, and the Nasdaq composite was down 2.7 percent.
In afternoon trading in Europe, the benchmark Euro Stoxx 50 index, the FTSE 100 in London, and the CAC-40 in Paris were all down between four and five percent.
As well as fears about the economic outlook on both sides of the Atlantic, investors have been unnerved by the failure of policy makers in the seventeen-nation euro zone to resolve the region’s debt crisis.
The Fed recently said a complete economic recovery was still years away, adding that the United States economy has “significant downside risks to the economic outlook, including strains in global financial markets.” It also said it would buy long-term Treasury bonds and sell short-term bonds to help stimulate lending and growth.
Meanwhile, a closely watched economic report from the euro zone— the composite purchasing managers’ index— fell to 49.2 in September from 50.7 in August, according to Markit, a financial data provider. The reading was below the consensus forecast of 49.8. Both the manufacturing and services indexes declined.
“The initial and follow-up reaction from the equity market is likely the realization that the Fed has little left to offer, that Washington is a mess, and their only hope is to “ride it out” over a long period of time,” said Kevin H. Giddis, the executive managing director and president for fixed-income capital markets at Morgan Keegan & Company. “This is about to get ugly and there is very little anyone can do about it,” he added in a research note.
Stocks had fallen in the United States two percent or more on Wednesday after the Federal Reserve announcement. On Thursday, the yield on ten-year United States Treasury securities hit a new low of 1.76 percent in London. After the markets opened in the United States, the benchmark bond yield was 1.77 percent. Commodities fell. Comex gold futures were down nearly four percent at about $1,737 just before Wall Street opened, while crude oil futures traded in New York were down more than six percent, at $80.57 a barrel.
The Fed pointed to a number of long-term problems in the American economy, including high unemployment and a depressed housing market. In addition, Moody’s Investors Service downgraded ratings on three big American banks— Bank of America, Wells Fargo, and Citigroup— saying government support had become less likely in the event of financial trouble.
The Fed’s statement “continued to suggest that the Fed funds rate will remain on hold until at least mid-2013,” said Rob Carnell, an analyst at ING in London. He added that quantitative easing could be introduced as early as November.
Analysts said the fall in the euro-area index reflected a combination of slowing global growth, significant belt-tightening in the euro area and growing concern about the escalating sovereign debt crisis. “Whether or not the economy dips into another recession largely depends on whether governments move to contain the crisis,” said Nick Kounis, head of research at ABN AMRO in Amsterdam. “These surveys suggest that the window of opportunity is closing fast.”
“Clearly the risks of recession are elevated,” he added.
The weak economic backdrop appeared to give added importance to a series of meetings in Washington at the International Monetary Fund and the World Bank.
Jasper of WGZ Bank said the gloomy economic backdrop belied the fact that many companies in Europe are in fact in a positive position in terms of their order books, profit margins, and cash positions. “We’re in a politics-driven market, and it’s hard to see light at the end of the tunnel until we have a workable solution for Greece and stabilization of the situation in Italy and Spain,” he said
In Europe there was still uncertainty about the fiscal outlook for Greece and Italy. Greece announced a new set of austerity measures, aiming to convince international creditors to release a tranche of €8 billion in loans needed by mid-October to avoid bankruptcy. The measures included cuts in civil servants’ wages, lower pensions, and a broader tax base. But, before releasing the payments, the creditors will probably want to see the measures approved by Parliament and to know more about a new set of privatizations, the details of which are still to be spelled out by the government. According to local media, a parliamentary vote will be held in the next few days.
Speaking to reporters, Greek Finance Minister Evangelos Venizelos said the government’s priority was to keep its commitments to foreign creditors to avoid a similar experience to that of Argentina, which defaulted on its debt in 2001 and 2002. “The crisis is not what we are living today, namely cuts to wages, pensions and income,” he said. “That is our effort to avert the crisis. The real crisis will be like that of Argentina’s in 2000: a total collapse of the economy, of institutions, of the social fabric and productive forces of the country.” Noting that situation “is critical,” he stressed the importance of “being absolutely consistent in fulfilling our obligations so that no arguments or excuses can be used against us.”
In Italy, the government lowered its forecasts for economic growth, but stuck to its goal of balancing the budget in 2013, amid local media reports that the government is moving toward announcing yet another batch of austerity measures.
Economists at Barclays Capital said the government would have to find additional savings of nine billion to ten billion euros “to increase the chances of reaching a budget that is close to balanced by 2013.”
Analysts said the declines in Asian markets showed that investors were unsure that the Fed’s action would fully address the economic slowdown in the United States. The Hang Seng index in Hong Kong led declines in Asia, diving 4.8 percent. The Nikkei 225 index in Tokyo closed 2.1 percent lower, the Kospi in South Korea fell 2.9 percent, and the S&P/ASX 200 in Australia dropped 2.6 percent.
The export-driven economies in Asia, such as South Korea, are most vulnerable to the European and American economic challenges, said Tim Condon, head of Asia research at ING Group in Hong Kong. Durable goods like automobiles and ships will be hurt most, he said.
Additionally, investors were beginning to worry that China’s rate of growth may slow, said Dariusz Kowalczyk, senior economist and strategist at Crédit Agricole CIB in Hong Kong.
The aversion to riskier assets helped prop up the dollar in foreign exchange markets. The euro was trading at $1.3477, down from $1.3573 late New York trading.
“It really comes down to political immaturity in both the US and Europe,” said Stephen Davies, chief executive of Javelin Wealth Management in Singapore. “The increasing chance of a US recession and European implosion has shortened the odds of an overall second recession.”

Rico says it will affect people like his father, who has a big portfolio, but not Rico, who doesn't, as the ex-wife got what little he had... (Rico is sorry not to help, but he won't be buying any automobiles or ships, either.)