Black Monday facing stock markets as Ireland and China bite
Posted on 13 November 2010 with 8 comments from readers
Stock markets sold off sharply on Friday with Shanghai tumbling over five per cent bringing global equities down from a two-year high and five-week mini-rally.
On Monday we will see if this party is really over. The omens are not good. The hype that preceded QE2 has evaporated into doubts about its likely effectiveness, given the failure of QE1, and worries about its impact on inflation.
China crisis
Nowhere is this more apparent than in China where interest rate rises to contain growing food price inflation look imminent. This has sobered up participants in the runaway construction and real estate boom whose shares crashed yesterday.
But given that China has been the motor of global economic recovery any slowdown in the middle kingdom has global repercussions, particularly for commodity producers, and those countries like Germany that have been replacing US exports with Chinese orders.
Meanwhile, the debt problems of Ireland have resurfaced with a vengeance over the past week, and bond yields have also ballooned again in the other Eurozone debtor countries Portugal, Spain, Italy and Greece.
The very real possibility that some or all of these countries will default on their debt is now being considered again, and like the Chinese response to QE2 this is bad for interest rates whatever actually happens. Stock markets do not generally respond positively to higher rates.
Indeed, the ultimate irony is that QE2 is supposed to be all about keeping US rates low. The Fed cannot lower the actual interest rate any further, or it would be negative. Thus it is going about buying $600 billion in bonds as a way to suppress interest rates.
If this now backfires the Fed can only have itself to blame for taking a risky strategy that everybody knows comes with the price tag of higher global inflation and almost by necessity higher interest rates. For China to let food prices rip would be to court social disaster, although bursting its real estate bubble is not exactly going to be painless either.
Irish debt crisis
Ireland already has a burst real estate bubble and is living with the debt overhang that follows. Its dilemma is whether to push this burden onto the bond holders who also took a risk in their lending, or to make the people pay through austerity.
The trouble here is that austerity does not work as a medicine if it kills the patient. For economic austerity beyond a certain point undermines the capacity of the economy to deliver repayments, and Ireland seems to be at that so-called tipping point. The other PIGS nations are not far behind.
With major stock market negatives emerging in Asia and Europe over the past week, the global economic recovery suddenly looks very fragile and the lacklustre conclusion to the G20 might be enough to push them over the edge on Monday.
GM’s return
The Fed’s market support team will be working overtime this weekend, unless they also think a stock market correction is overdue and will save their money for later interventions. They may want to make a success of the GM return to the stock market next week, although these shares are mainly already placed and overloading the market with a stock no bank wants on its books for long may accelerate the downturn.
This will of course strengthen the dollar, precisely the reverse of what is expected from QE2 and be bad for US exports. Gold and silver also fell back on Friday and will get caught up in the stock market sell-off.
8 Comments posted by readers:
mr obama said in seoul look at the stock markets are up. only
thing up and the rest heading down and the stock market is the new bubble by fed and amercian banks and funds to rob the world by this bubble lets hope all this countries put up exchance controls so us banks and funds cant take all the money in one go which would set
rest of the back by 5 years.stop this looting of the world by us banks
and funds .
Three comments here:
1. Excellent Commentary, Peter!
For just a one page commentary, you’ve made a “broad sweep” of many things that are out of whack in the markets today (stocks, bonds, commodities, derivatives, etc.).
2. @manmohansinh:
Your main point, i.e. that the world is being looted by the US banks, is absolutely correct. What most people around the world do not realize is that these big banks are manipulating EVERYTHING, as I’ve stated several times on this blog. “Everything” means everything; not only stocks, bonds, commodities (yes, even coffee and sugar!) but also the daily manipulation of other currencies around the world! As an American citizen, I am ashamed of the US banksters and their continuous and unmitigated greed; I am also ashamed of the US government for encouraging this corruption, greed, and subsequent cover-up.
3.Here’s A Good Idea to Hurt the US Banks:
The US banks have been very adept at exporting this massive fraud to other banks around the world. We who are citizens of the world can strike back at the banks in a very, very big way, through coordinated attacks. The big question is HOW”? Let’s start with just one commodity that has been heavily manipulated by JP Morgan and the “gang” for many, many years; that commodity is silver.
Buy Just One Silver Coin in November 2010:
If just 10% of the world’s population decided to buy one silver coin (e.g. a Canadian Silver Maple Leaf, or an Austrian Silver Harmonic, or a US Silver Eagle, or a one oz. silver bar at a cost of approx. US $26 to $29), it would result in the complete bankruptcy of JP Morgan (JPM), who happens to be the biggest naked short of silver on the planet (at last count, they have a net naked short position of over 200 million oz.). As of last week, JPM had endured losses (through margin calls) of approx. $1.5 billion. That’s a huge loss, and I strongly suspect that, in addition to the rationale identified in Peter’s commentary above, another reason for this past week’s commodities price declines was due to the coordinated commodity pricing actions of the global banking cartel.
Buy One Oz. of Silver – Destroy JPM:
So if citizens of the world could somehow unite (i.e. via spreading the word to as many folks as possible, then launching a coordinated attack!), this would drive JPM to its knees, and cause them to declare bankruptcy.
There is a plan that is currently spreading across the US; go here for more info.
http://www.zerohedge.com/article/max-keiser-buy-silver-coin-destroy-jp-morgan
Obewon,
While I share your sentiment of wishing retribution to J.P Morgan and their ilk, I’m afraid they are certified members of the “too big to fail” and the Fed will not let them fail.
So save your cash to buy silver after the modest correction. The day of Silver will come my friend but not for a year or two! That will happen once Gold crosses the USD 2000 mark.
Excuse my ignorance but what does ‘GM’s Return’ refer to ?
Ed note: the return of General Motors to the stock market this week with a big share placing…
Thank you Ed.I hadn’t realised GM had been temporarily delisted.
See this: http://www.freep.com/article/20101114/COL07/11140437/Old-GM-stock-worthless-for-IPO-purposes-agency-warns
90% of world people are good people who would like to see poor of the world have food, housing and medical , but for the few US/uk bankers, hedge funds mainly US/UK have now sunk so low that the food prices around the world (soft commds) have goen up so much
that poor people of the world are doomed, working people now new poor of world and middleclass new working class,just to save the banksters of the world , so it is ok to kill the poor for western countries, lets hope god rewards all the greedy just rewards.
It looks like we are going to have a negative economic domino effect all over Eurozone… At first Greece, then Ireland… Who is next? Portugal or Spain or…? I think the political support for bail outs is vanishing as well as Germans for example would at some point get fed up and stop carrying other countries on their backs…
It’s clear that the government of Ireland misjudged its crisis early on even ignored the vital signs… Another example of government failure, excess spending addiction that resulted in economic collapse… This trend is noticeable everywhere (at different levels) across the EU… Ireland’s national 2010 deficit will climb to a staggering 32% percent of GDP!!! This is a recipe for a (future) disaster!
What’s next for Ireland? More cuts? And who is going to be the next for IMF and EU bailout list?
@David:
Your points are well taken, and this “Extend-and-Pretend” kind of nonsense by US and EURO leaders will end very badly.
In the meantime, you’ve got power-hungry politicians (e.g. those in Ireland!!!) who are “afraid of telling the truth” to their people. If they seek aid from Euroland, then they’ll be condemning their own citizens to considerable hardhship, and their people will oust them. In their continued lust for power, they lie, and can’t face the truth. For example, Ireland’s leaders have flatly said “they have sufficient funds” . . . when in reality, they’re sinking very fast. Once they fall, the “string of dominoes” will quickly fall with Ireland.
This will all end very, very badly.