The Darkest Hour is Before the Dawn
11/20/2008 11:34 am EST
The G20 meeting has come and gone, and so far, I don’t see any mega-solutions emerging. It looks like a lot of talk and failure to agree on specific points, especially market regulation and global trade protectionism. However, one point of concurrence was the attendee nations’ promise to continue joining together to exercise whatever fiscal stimulus was necessary to get the global ball rolling again. Unfortunately, the lack of specifics is not helping global markets or economies right now.
Oil is trading at less than $54 a barrel, and that precipitous drop has shown up in plunging consumer prices here in the US. October’s 1% drop was the largest one-month decline since February 1947, when records began, and was twice the estimated figure.
Prices were also slashed for clothing, autos, and airlines as well (although I haven’t seen any evidence of that as I try to find a cheap flight to Florida!). And those cost cuts should continue as we approach the expected less-than-stellar holiday shopping period.
England’s official measure of consumer prices also dropped, 0.7% to a less-than-estimated 4.5%, and was the first drop in inflation in 15 months.
Of course, someone has to pay for these cuts, and—across the globe—we see mounting evidence of gloom.
In the UK, three surveys did not offer even a glimmer of hope for better days ahead. Manufacturer’s organization EEF said 25% of its members who had negotiated a pay deal during third quarter, reported that they had either frozen pay or deferred a decision.
The CBI (Confederation of British Industry) Industrial Trends Survey indicated that 53% of manufacturers reported a below normal order book, 16%, above normal, for a rounded balance of -38%, all pointing to the worst contraction in almost 30 years.
And lastly, the Agents’ Survey from the Bank of England, indicated that companies had cut their investment budgets to the bare essential expenditures.
With those statistics, don’t be surprised to see another big rate cut coming from the UK.
Germany, Europe’s largest economy, saw its gross domestic product decline by 0.5% in third quarter, much more swiftly than expected, with pundits proclaiming an official recession in that country now.
That fits into the latest Eurozone data that indicated its 15-country region has entered a technical recession. Analysts are forecasting a drop in third quarter GDP of about 0.3%, on the heels of the 0.2% contraction in second quarter.
Markets continue to roil, with the UK’s FTSE 100 dropping 4.8% on Wednesday, adding up to a 38% loss so far this year. The FTSEurofirst 300 also nose-dived by 4%, bringing its Y-T-D losses to 45%.
Also falling, Japan’s Nikkei average shaved off 0.7%, but the bright spot was Shanghai, which gained 6.1%, on anticipation of a fuel tax to prop up margins at refiners.
So, we continue to wait for a real bottom in the markets. This week, our advisors have a decidedly-Asian focus.
Our Q&A guest this week, Charles De Vaulx, partner and portfolio manager of International Value Advisers, gave us an overview of his thinking in today’s markets.
Andrew McHattie, editor of Investment Trust Newsletter, took us around the globe in terms of investment trusts.
It’s easy to be discouraged during these uncertain times, but those of us who have seen many investment cycles know that this, too shall pass. History show that when there’s not a glimmer of sunshine, the turn for the better is right around the corner. As for me, I’m holding steady and looking forward to the next round—which, I hope, won’t be too long in coming!
Nancy Zambell edits Global Investing for MoneyShow.com. Her opinions are her own and not necessarily the views of InterShow or MoneyShow.com.