Daily Market Reports | Dec 16 2008
By Greg Peel
The Dow fell 65 points or 0.8% while the S&P fell 1.3% and the Nasdaq 2.1%. The Nasdaq was paticularly weak following Goldman Sach’s downgrade of Apple. Apparently Christmas demand for iPhones, iPods et al is not up to expectation.
Dominating the news last night was the ongoing fallout from exposure to fund manager Bernard Madoff’s Ponzi scheme which has suckered banks across the globe into US$50bn in lost investment. In the 1920s one Charles Ponzi gave his name to a scheme whereby investors are lured into a fund by apparently high returns. The high returns are simply a result of feeding a proportion of new fund investments back to previous investors and calling it profit. The longer “high returns” are made, the more investors are lured, providing more funds to pay back to earlier investors. As no profit is ever really made, the house of cards must eventually fall down.
It just goes to show that human beings will never, ever learn the lesson that if it looks too good to be true, it is.
While Wall Street feared just who else might be added to the list of Madoff suckers, the real attention was given to speculation as to what might happen tonight. Tonight sees the final Fed rate decision for 2008, the November CPI, and fourth quarter earnings from Goldman Sachs. Wednesday sees the OPEC oil meeting.
Volume was even lighter than usual as traders argued the case for a cut from 1.0% to 0.5% or even 0.25%. Ahead of the decision will be interest in the CPI. Will it drop dramatically? That will have a bearing on the Fed’s mindset. Wall Street is also still waiting to here just what President Bush – who yesterday showed just what the “duck” meant in “lame duck” – is willing to concede to Congress for the auto industry bail-out.
So it’s all a bit of a waiting game in what is the last meaningful week of trading before Christmas. The Dow gave back only what it gained on Friday, although it did pull back from down 160 at its lows in the last hour. Anticipation of a Fed cut had the US dollar again sliding against all major currencies.
The fall in oil did not stop oil traders squaring up ahead of the OPEC meeting. Oil fell US$1.77 to US$44.51/bbl. But gold did the right thing and added another US$15.10 to US$837.10/oz. The Aussie was a bit higher at US$0.6671.
Base metals were mixed in London, the only notable moves being copper down 2% and previously high-flying nickel down 5%.
Last night the US released its November industrial production, which was down 0.6% but surprisingly a lesser fall than expected. But the real industrial production news in the last 24 hours was China’s latest figure. Year to November Chinese IP registered 5.4% growth. That’s down from the 17% numbers registered earlier in the year and much worse than expected. Energy consumption was down 10% which is the biggest drop in 30 years.
This news took a bit of the gloss off yesterday’s local rally which had been previously supported by some pretty accommodating emission control targets.
The SPI Overnight fell 30 points.
