Crisis wreaks havoc on shares

The effect of the global bank crisis became clear this weak. Friday the shares decreased around the world.

For example in London, the FTSE 100 closed down with 5 percent, The markets of Germany and France fell down with 4.96 percent and 3.5 percent. But also Asia got swept away. The Nikkei fell down with 9.6 percent.

Not only the shares were hit by the crisis but also the currencies. The cause of this problem is the fear for the global recession.
But also bleak outlook for corporate earnings played their role.

On the currency market the yen was the biggest winner. Investors want to invest in currencies with a low interest rate. And the yen is one of them. They jumped 8 percent against the pound, 6.5 percent against the euro and 4.7 percent against the dollar.

Ashraf Laida, the chief currency strategist at CMC Markets said that the magnitude of such historical market moves in currencies could only be the result of imploding hedge funds leading to massive liquidations.

According to Marco Annunziata, chief economist at UniCredit said that we need some drastic steps to restore the confidence. The European Central Bank and the Bank of England staid too long optimistic about the economic growth and they need to act fast in slashing the interest rate. The ECB cut their interest by another half percentage point at 3.25 percent.

The Eurozone purchasing managers’ indices showed the strongest fall since the survey’s start in 1998.


According to me the financial crisis is almost over, we have had the worst on the markets. Now we can see an evolution in the currencies and it’s the task of ECB and the Bank of England to act to the point and on time.
They know that their will be hard times now and it’s their chance to act on time. They have to restore the confidence, when this happened the worst of the crisis is over.
I think Asia is one of the markets who suffered not so hard as Europe. Especially now with the financial crisis because in Asia you got a lot of countries like China where the banks are nationalized. The banks of Asia don’t have to cut their interest rate and that’s why a lot of investors invest in the yen. But I think it’s now time for actions of the ECB and the Bank of England so they can restore the confidence.

Source: http://www.ft.com/cms/s/0/5130339a-a202-11dd-a32f-000077b07658.html

Dow Drops 5.7% Despite Signs of Thawing Credit

Stock investors still fears the recession in our economy. It was visible on Wednesday when all stock markets lost their gains they had won in the last week. The stock markets had some profits because of the intervention governments made worldwide in their bank-systems. But now everything is gone again.

It all began when big companies of different sectors announced they had bad profits in their last quarter. The reason of those bad profits were the defensive decisions companies made to save money.

Another reason for the fell of the stock market was the lower price for oil. Since there are less demands for oil, the price dropped down. So consumers have more money to consume, but oil companies have less profit. That results in a drop of their stocks.

In the meanwhile the dollar became stronger again. The reason is that investors think the American economy will recover faster than the European.

According to me the financial crisis will still last a long time. Banks and stock markets will need time to recover. When everything stays quiet for a long period the confidence in the financial sector will return and our economy will recover. At this moment investing in stock is risky, but it could lead to large profits when the market recover. So with a lot of patience and a period with a stable economy, everything will return like it was in the past.

source:
http://www.nytimes.com/2008/10/23/business/23markets.html?scp=2&sq=stocks&st=cse

China calls for cooperation on financial crisis

Chinese President Hu Jintao is concerned about the poor situation of the financial system in America. Because China holds hundreds of billions of dollars in U.S. government bonds, they have been taking several actions to stimulate economic growth and they are trying to protect their export, that is suffering under the bad economy in America and Europe. China is a growing economy the current problems in the global economy have slowed this growth down. Hu hopes that the measures taken by the government will soon have their effect on the economy and the investors’ confidence. And he also said that there should be a better cooperation between the international governments to stabilize the situation. His Vice President Xi Jinping said that the China government is closely following and evaluating the developments of the financial markets. He also stipulated the fact that governments need to work more closely together.

Later this week there will be an international meeting in Beijing where the economic problems will be discussed. According to spokesman Qin Gang this meeting is an opportunity for the leaders to come up with a good solution. Nicolas Sarkozy will use the meeting to convince the other leaders to redraw the rule book for international capitalism, he wants a global system of regulation to prevent a repeat of the current problems. The banks of China, however, haven’t suffered a lot under the crisis. Because they are well protected by the government and strict credit controls. And the government is now looking what actions it can take against the slowdown of the economic growth. It is possible that the government will decide to boost the export tax rebates for labor-intensive products. And they will also boost their investments in building public housing and roads and also the rebuilding of the region devastated by the May 12 earthquake in central China.

The financial crisis started in America but now we can see that also China will be getting involved into the crisis. Thanks to the strict regulation of the Chinese government and the credit controls, the Chinese banks stay out of the line of fire for the moment. But how long will it last before the trouble starts there as well? The Chinese government is now mostly concentrating its actions to protect the national economy and especially the export. I really support the idea of President Hu to work on a better cooperation between the different countries.
I hope the meeting will be very productive, because we really need a good plan now. There has been taken a lot of actions by several governments but until now we haven’t seen a lot of improvement. Also the idea of French President Nicolas Sarkozy to build up a global system of regulation could help a lot, but I think it will be very hard to develop. But the most important thing to do now is to find a way to bring back some stability to the market and repair the confidence of the investors.

Source: CNN: China calls for cooperation on financial crisis

http://edition.cnn.com/2008/BUSINESS/10/22/china.us.ap/index.html

Shareholders lose dividends under banking bail-out plan

The banking bail-out plan of the governments is a good thing for the banks themselves, but not for all the small shareholders. They will not receive any dividends from their investments, not only this year but also the next couple of years they will receive nothing.

In the past years, banks have been paying about one fifth of their total profits. Several banks were planning of doing the same this year. But because of the bail-out plan, all profits of the banks have to be used to repay their debts to the taxpayer and not go towards the shareholders. A second reason to cut the dividends is that there is a lot of pressure on the banks in order to raise their capital.

For the small shareholders this is very bad news. A lot of shareholders are retired and now they lose a part of their income. For the people who invested on the long term, the loss of dividend is nothing compared with the loss they would have had if the banks went bankrupt.
This will also have an influence on the shareholders of funds which have bank shares. Some funds already removed the bankshares, some cannot do that because they have too much shares in banks.


After all what the shareholders of the banks have been through, now they have to deal with this new problem. I can understand that for the shareholders who are retired, this is even more severe. They probably bought shares so they could receive an extra income above their pension.
I agree when specialists say that the cut is nothing compared to the loss in case of bankruptcy. They lose their dividends during a few years, but if the banks go bankrupt, they don’t get any dividends at all and they lose the money they invested in the banks. I think that it’s better to use the money for more important things such as to pay back their biggest debts.

Source: The guardian - Shareholders lose dividends under banking bail-out plan

http://www.guardian.co.uk/money/2008/oct/13/banks-shares

Russia to Spend Billions Buying Shares on Stock Exchanges to Bolster Confidence

The Russian government has made a plan to support their stock exchange . They will invest 6.7 billion dollars into their suffering market by buying shares. But on Friday the Russian stock markets stayed closed because the Asian and European markets were getting very poor results.

The government and the central bank of Russia will both lend 18 billion dollar to the more commercial banks. With those lending the commercial banks would have enough money to ensure their liquidity.

Another possibility to gain extra money is to shore up the prices of their agricultural products. The money the government gains could be invested into the suffering banks and stock markets.
Russia has gained a lot of money out of their oil fields. Now they are investing their profits very good. They invest everything into their stock market and into their banks.

I think the Russian government is on the good way to help their economy. Using their profits from their oil fields could be an good investment on the long term. Once the financial crises is done they will recover their money. Russia takes a lot of clear measures to help their financial market. That could help to regain the confidence of investors.

Source: http://www.nytimes.com/2008/10/11/business/worldbusiness/11ruble.html?_r=1&scp=5&sq=stock%20exchange&st=cse&oref=slogin