World News Blog

US market 'fear index' high

Going into the earnings season next week, the "fear gauge," a measurement of investor jitters is at an all-time high.

The Chicago Board Options Exchange Volatility Index (VIX) measures investor fear by the cost of insurance options bought to protect against declines in the S&P 500.

On Friday, the VIX closed at 69.95, the highest point in its 18-year history. That represented a 9.434% increase over Thursday's close, which was also broke the previous record.

Value for VIX:IND


Chart the Performance of VIX:IND

http://www.bloomberg.com/apps/quote?ticker=VIX%3AIND

The lack of a strong coordinated response at the G-7 meeting is also worrying investors. There was a lack of agreement among members although there is some growing consensus on a recapitalization of major banks.

One problem is that an uncoordinated response could cause damaging fluctuations in the market. For example, when Ireland unilaterally guaranteed bank deposits, people in Britain began withdrawing their savings in British banks and transferring them to Irish banks.

Many are worried that Britain's decision to guarantee inter-bank loans could have the same effect of siphoning off money from other nations without such protection in place.

Labels: banks, fear gauge, g-7, inter-bank lending, vix, volatility index, wall street

Coming week could bring new market jitters

After closing with a record point loss for the week, the US stock market may have new fears to contend with next week with earning reports expected.

October is a traditionally ominous as the stock market crashes of 1929 and 1987 both hit during this month. Financial and high tech companies will report their earnings next week.

There will also be inflation reports on Wednesday and Thursday. Declining oil and real estate prices might have depressed inflation, but we have to consider the sudden increase in money supply. Also, OPEC has called an emergency meeting in mid-November probably aimed at reducing oil production.

A number of other important economic indicators will be announced on Wednesday and Thursday.

Wall Street Braces For Earnings Season
Forbes, NY - Oct 6, 2008

Earnings season kicks off Tuesday with traditional leader Alcoa (nyse: AA - news - people ) reporting, along with fast-food conglomerate YUM! ...
Commodities Continue Slide; GE Trips South Of $20 Barron's Blogs
Anticipating The Alcoa Reaction; Disney Doubter Barron's Blogs

Labels: earnings season, october, stock markets, wall street

Comment: Do bailouts actually prolong downturns?

There is probably no better historical example to examine this question as the Great Depression, when the government intervened for more than a decade trying to prop up the financial system.

Although the Great Depression is generally seen as starting at the stock market crash of 1929 from at least 1929, small banks and farms had been floundering severely. However, it was not until 1931, when the government started a massive bailout program with the National Credit Corporation (NCC) that things started going downhill very quickly.

In 1932, the NCC was replaced with the Reconstruction Finance Corporation (RFC) and things continued to spiral downward reaching the lowest point during the Depression in 1933.

Yet, the RFC continued its bailout program mostly unsuccessfully until America's entry into World War II, generally seen as the point when shortly afterward the Depression ended completely. During the war, the RFC continued to operate giving out $2 billion a year. From 1932 until 1941, the RFC gave out $9.465 billion, a lot of money in those days.

When the war started, the government drafted many of the employed workers, and hired and trained large numbers of unskilled workers, at its own expense, to work in wartime factories. These policies together with rationing and a greater worker discipline helped the country work out of the lingering unemployment that still plagued the country. The stock market did not recover its pre-crash position though until 1954.

Some groups of economists, like those of the Austrian School, who believe that government intervention only prolonged the problems in the economy. Others, like the Monetarists, believe the Federal Reserve did not act quickly and strongly enough to address the crisis.

During the Depression, the Fed followed a deflationary strategy that kept interest rates high. The current Fed chief, Ben Bernanke, believes more in an low interest rate strategy, an attempt to ease credit, but in effect putting upward pressure on inflation.

Bernanke's views may account for today's cut in interest rates, another attempt by the government to bend over backward in accommodating the credit markets. However, as with the Great Depression, it is impossible to deny that easy credit is responsible for the current economic crisis.

Attempts at propping up the easy credit market, then, only reinforce the causative factors according to one school of thought.

The fact that the stock markets have not reacted positively to the torrent of government measures aimed at propping up the easy credit system probably indicates some doubt over the policy.

Labels: austrian school, bailouts, easy credit, financial bailout, financial crisis, great depression, historical lessons, interest rates, monetarist school, wall street

Wall St. stocks surge on bailout expectations

Stocks are surging on Wall St. despite bad employment numbers on hopes that the House will approve a bailout plan today. Markets are also hoping for a cut in interest rates to help jumpstart the economy.

The payroll drop also caused treasury prices to slide downward.

Wall Street Journal

Commentary: Bailout should treat the root cause, not the symptoms
CNN - 2 hours ago
Jackson voted against the bailout plan presented in the House on Monday. For a different view, read this commentary. Rep. Jesse Jackson Jr. says the bailout ...
Bailout package passed in US Senate eTaiwan News
* Focus on US House after Senate passes bailout guardian.co.uk
House Takes Up Sweetened Senate Bailout BillNPR

Live-Blogging the House’s Bailout Debate
New York Times, United States - 1 hour ago
By Catherine Rampell Today the House of Representatives is debating, and potentially voting, on the bailout package it unexpectedly rejected on Monday ...

House set for fresh bail-out vote BBC News
Bail-out bill: Congress sceptics won over ahead of House of ... Telegraph.co.uk

Video: Bush warns bailout must be passed - 29 Sep 08 AlJazeeraEnglish

Labels: financial bailout, stock market, wall street

Comment: Bailout Smoke and Mirrors

The administration told people first that it had 24 hours to approve their $700 billion bailout package or the apocalypse would ensue.

Then it was by the end of the week to prevent absolute Armageddon. Now, supposedly lawmakers have until Sunday before Asian markets open on Monday to approve the whopper bailout or else...

Now this bailout, they claim, will calm things down and "save" the American, or even the world, financial system. But that's what they claimed when they sold earlier bailout claims for Bear and Stearns and AIG. Well, those bailouts did not appear to have much effect.

What is happening is that the same folk who got everyone into this mess are now the "experts" telling lawmakers they need to act and they need to act now! Obviously they neither know whether their plan will actually work or how soon it is needed to stop whatever gloomy consequences they are envisioning.

I have stated before that some type of plan will pass simply because the government has to at least look like it's trying to solve the situation.

So why not help those who really need help like the families struggling to pay their adjustable rate mortgages on their single dwelling homes? These families do not lose track of the number of homes they own unlike financial corporation executives, since they only own one -- the one they live in.

A grassroots relief plan has as much chance as solving the problem as any other. There are still tens of millions of mortgages that are expected to fail over the coming years regardless of any corporate bailout. These failures will drive down prices of surrounding homes in their neighborhoods creating much more of the same damage that is causing the current crisis.

These families faced with tough financial times tend to cut back on their spending and some even stash money away in shoeboxes for rainy days because they have lost trust in the system. There are so many ways that their financial decisions can impact the overall economy. Without assistance,for example, they may have to scrap plans to send their kids to college, which can have further repercussions on the workforce in the future.

Trying to mend things from the bottom up might not work either, but at least the government, in passing a sure-thing response to the crisis, is giving aid to those who really need it.

Labels: financial bailout, grassroots, main street, mortgage crisis, wall street

FBI to investigate financial firms

No details but the Associated Press is saying the FBI is investigating Fannie Mae, Freddie Mac, Lehman Brothers and AIG.

This comes after Congressional hearings today on what basically amounts to a government attempt to prop up the stock market and prevent a "run on the banks."

Times Online

Stocks tumble on bailout woes
CNN - 44 minutes ago
NEW YORK (CNNMoney.com) -- Stocks slumped Tuesday, as the heated debate in Congress on the proposed $700 billion bank bailout dampened hopes that the ...
In search of an answer: Why is the Bush/Wall Street bailout so ... Los Angeles Times
Bailout extends to foreign banks, small and regional institutions Bizjournals.com
The other bailout: Main StreetChristian Science Monitor

Voice of America

Bailout plan under fire
CNNMoney.com - 2 hours ago
NEW YORK (CNNMoney.com) -- The debate over whether Washington should enact an extraordinary bailout of the nation's financial system reached a fever pitch ...
Why Congress Objects To The Bailout Plan NPR
Senate attack on bailout lacks explicit threat Reuters
Bailout plan sparks wide debate in Congress MSNBC