Politicking While Rome Burns
10/02/2008 11:00 am EST
While the politicians politick and Americans protest Treasury Secretary Henry Paulson's US financial bailout package, the early defeat of that plan in the House of Representatives sent world markets reeling.
In a day of the kind we haven't seen since the 1987 market crash, the Dow Jones Industrial Average took a 778-point dive on Monday, spreading panic around the globe and sending worldwide stock exchanges plunging. The Dow and other exchanges recovered a good bit of that loss Tuesday as prospects improved for Congressional approval of a bailout bill, which passed the US Senate 74-25 on Wednesday night.
And the good news just keeps coming.
Hot-off-the-presses reports continue to reflect the dismal state of manufacturing around the globe. In the Euro zone, factory activity was the weakest since right after the 9/11 attacks. Production in the UK is at a 17-year low, and Japan's Tankan index of big manufacturing companies turned negative for the first time in five years. (US manufacturing activity also registered a seven-year low last month.)
The lone holdout was China, which actually showed an increase in factory activity after the Beijing Olympics, although demand for raw materials appears to be slowing.
The credit morass is now enveloping Europe in a big way. The government of Germany-along with several of its large banks-just drafted a 35-billion-euro plan to bail out Hypo Real Estate (Frankfurt: HRX.F), a German lender that ran out of money to fund its short-term needs.
France's government plans to ask the big European Union countries for a 300-billion-euro rescue package for its financial industry, when they meet this coming Saturday in Paris. And the government of Ireland will guarantee as much as 400 billion euro in debt, borrowings, and deposits in the country's largest banks.
And huge banks in Japan are seeking bargains, pumping money into US financial companies. Last week, Nomura Holdings (NYSE: NMR), the country's leading brokerage, spent a reported $225 million to take over Lehman Bros.' Asian operations.
Next, according to financial daily Nikkei, Sumitomo Mitsui Financial Group (Tokyo: 8316.T), Japan's third-largest bank, was said to be mulling over a major investment in Goldman Sachs (NYSE: GS). And Mitsubishi UFJ Financial Group (NYSE: MTU), Japan's biggest bank, announced it is buying a 10% to 20% stake in Morgan Stanley (NYSE: MS).
But there's some good news for the economy: oil prices have continued to fall, helped by the increase by 4.3 million barrels in the US's oil inventories, and crude is now trading below $100 a barrel.
Although this volatility mandates that investors continue choosing their investments wisely, many advisors are beginning to find some bargains.
Allan Nichols, editor of Morningstar InternationalInvestor, joined us for a Q&A this week that addressed the global pharmaceutical, communications and financial industries.
Eoin Treacy, editor at FullerMoney.com, analyzed financial sectors around the globe in his Global Strategies piece. Gordon Pape, editor of the Canada Report, recommended a Canadian grain producer and Nick Lanyi, editor of High-Yield International, offered a couple of high-dividend-paying picks.
Here's hoping that the week will end on a high note, with the US House of Representatives finding common ground on the bailout bill. We could all use a little something to calm the markets-and our nerves!
Nancy Zambell edits Global Investing for MoneyShow.com. Her opinions are her own and not necessarily the views of InterShow or MoneyShow.com.