When Will the Global Gloom Lift?
10/16/2008 2:54 pm EST
Six months ago, anyone who predicted the Dow Jones Industrial Average would fall to 7,000 would have been dismissed as a crank. Now, with the Dow trading below 9,000, it’s certainly possible. At this stage, no matter what the governments of the world come up with, investors need to be prepared for a nasty recession.
The relief after the US Congress passed the bailout bill quickly deflated, and the markets have been mostly in a tailspin since. World governments are scrambling to find a fix. European central banks just pumped more than $250 billion into financial markets. And Russia is readying a release of $87 billion from its cash reserve of $560 billion to bail out its highly leveraged oligarchs, whose publicly traded holdings have lost more than $200 billion of their value.
This week, Asian central banks took emergency actions to stabilize their economies. The Reserve Bank of India is attempting to pump as much as Rs200 billion ($4.16 billion) into its banks. And banks in Hong Kong, Japan, Australia, New Zealand, Taiwan, and Indonesia took steps to increase and extend guarantees of bank deposits. Japan and Australia are taking additional stimulus measures to boost liquidity for businesses and relieve consumer distress.
It’s easy to see why world governments are taking these unprecedented steps. Great Britain is predicting that by Christmas, more than two million of its citizens will be unemployed, with the jobless rate rising its fastest since 1991. Iceland’s banking system collapsed last week, its inflation rate is 14%, and it is still trying to borrow money from Russia and the International Monetary Fund to keep the country afloat.
No one’s been left out. Receding metals prices are killing mining stocks. And forecasted falling demand from emerging markets has decimated commodity stocks. Earnings reports from companies around the globe have been bleak. So, it’s no surprise that stock exchanges throughout the world are being hit hard.
The little good news, including continually falling oil prices (now at less than $75 per barrel), a new report of a flat reading on the Consumer Price Index, and lower than expected US unemployment claims, has done nothing to stop the bleeding.
For those who haven’t yanked their money from the bank and put it in their mattresses, it’s a time to stay calm and plan for the ultimate recovery when it comes.
And our featured advisors have a few offerings for that time. Chris Gilchrist, editor of Every Investor, discusses the merits of high dividend-paying stocks.
Paul Goodwin, editor of Cabot China & Emerging Markets Report, looks at an Irish medical company and Yiannis Mostrous, editor of the Silk Road Investor, thinks a few Asian banks are interesting.
If nothing else, here in the US, we can at least find something to chuckle about in the bickering between our presidential candidates as they vie for the top spot in the upcoming election. As for the markets, we’ll just have to wait for better days ahead.
Nancy Zambell edits Global Investing for MoneyShow.com. Her opinions are her own and not necessarily the views of InterShow or MoneyShow.com.