Daily Market Reports | Dec 19 2008
By Greg Peel
The Dow closed down 219 points or 2.5% while the S&P lost 2.1% and the Nasdaq 1.7%.
Wall Street wasn’t much interested in playing at least until lunch time last night. On very light volume, weakness hit when ratings agency Standard & Poor’s decided to maintain Dow component General Electric’s AAA rating but put the company on negative watch. As GE is somewhat of an economic bellwether, despite being basically a finance company, sellers moved in and found no buyers.
Had there been any buyers about, they probably would have pointed out that S&P no longer has one iota of credibility on Wall Street.
In other news, General Motors has reopened merger talks with Chrysler as the latter announced it would close all of its factories for all of January. Ford countered by announcing it would close most of its assembly plants for an extra week in January.
The real action was in the currency market. Having been at US$1.37 prior to the Fed rate cut on Tuesday, the euro hit US$1.40 late Tuesday, $1.43 on Wednesday and last night traded up to US$1.47. But faced with a surging euro undermining an already shattered European export industry, the European Central Bank decided to act to stem the flow of US dollars across the pond. The ECB cut its deposit rate to 1% below the base rate, and raised its lending rate to 1% above. The euro immediately fell to US$1.41 before settling back to around US$1.425.
The result was a US dollar that was markedly stronger on the day following a week of weakness. This is usually bad news for commodities, but then commodities have failed to bounce on the US dollar’s sudden slide. If a weak US dollar didn’t help then a strong dollar certainly wasn’t going to, and oil crashed through the US$40 mark, falling 10% or US$3.84 to US$36.22/bbl.
That’s a 2004 price.
While most base metals were quietly weaker on low volume in London, copper and lead took oil’s lead by falling 6% and 9% respectively. Having peaked at around US$4.20/lb earlier in the year, copper is now US$1.28/lb. That’s also a 2004 price.
After several days of rally it was time for gold to give some back, and it fell $13.10 to US$854.90/oz. Aussie dollar traders had obviously gotten themselves a bit long, as having kissed US$0.70 the Aussie dropped over two and a half cents to US$6773.
The SPI Overnight fell 37 points.
Is there any good news out there? From the same day in 2007 the Dow is down 35%. The good news, perhaps, is that it was down 44% at the November low and has since rallied back 16% in what many believe is a consolidation pattern. The ASX 200 – which began 2008 blissfully “immune” to the US economy – is down 43% as of yesterday having been down 46%. It has only managed a 7% rally, weighed down by commodities.
That was the year that was. And I think a story emerging overnight is just the perfect cap for a miserable twelve months.
As investment bankers across the globe resign to the fact there will not be any Christmas bonuses this year (indeed, just having a job in January will be a bonus), Credit Suisse has announced that it will definitely be paying bonuses this year. Did CS have a great year in spite of everyone else? No. Is CS simply flaunting public anger? No.
This year Credit Suisse will pay bonuses from its portfolio of mortgage-backed securities.
I think that’s the most brilliant thing I’ve heard all year. You guys bought ’em, the board has said, so here you are – you can have ’em. There must have been a few wry smiles around the trading room as employees digested the irony. The thing is, these “bonuses” may even pay well one day – very well – when the global credit market resumes some semblance of normalcy. When might that be? Well CS employees are now tied into waiting to find out. If they leave, they forgo the bonus.
I think that sums up 2008 beautifully.
FNArena will close for the year on December 24 and return on January 14. But that’s it from me. I will be taking my first break in twelve months from today and will return on January 27. I have been involved in financial markets since 1986 and I have never experienced a year that comes close to this one. Not even 1987, when I was but a dumbstruck greenhorn trading index futures. To say it has been a busy year does not come close, as FNArena has attempted to manage its own development and growth while trying to stay on top of the turmoil and hopefully ahead of the curve. Unlike some of our competitors we have been determined to exploit our independence and tell it like it is, with no one behind us saying “you cannot be negative, it’s bad for subscriptions”.
I hope we have achieved that, even it has meant being doomsayers for most of the year. My thanks go to our loyal subscribers, our new subscribers, and our regular readers who make it worthwhile with their appreciation of FNArena stories. Thanks also to the many correspondents over the year who have been tremendously supportive, occasionally critical, but always valuable.
I wish everyone a very Merry Christmas and a Happy New Year. I’m sure 2009 – while perhaps not exciting – will bring better things. All the best.
Greg Peel
