The latest Eurozone economic data is dampening expectations of growth, writes Fawad Razaqzada....
12/11/2008 12:10 pm EST
Although it’s definitely beginning to feel a lot like Christmas, with decorations, mega-sales, and incoming well-wishes from friends, the gloomy economy is making holiday cheer a lot harder to come by this year.
Last week, the dismal jobs report in the US, reflecting a bigger-than-expected 533,000 cuts in November, cast a distinct pall over holiday joy. This report was followed by new announcements of mega-layoffs around the world from companies like telecom giant AT&T (12,000 jobs), Swiss banker Credit Suisse (5,300 jobs), and electronics behemoth Sony (16,000 jobs).
The only bright spot—and I’m not sure I would really call it that—is the near-certainty that Congress will come up with some sort of plan for the bailout of the US auto industry. The markets will probably like it, but the cost to taxpayers—along with the recent and future bailouts—will be enormous and long-lasting.
But I guess Americans shouldn’t feel too lonely. After all, the rest of the world is busy bailing out their economies, too!
As expected, the Bank of England slashed its key interest rate by one percent, to 2%, while the European Central Bank cut its rate by 0.75%, to 2.5%. Both are still much higher than the 1% US federal funds rate, which the Federal Open Market Committee may cut at its December meeting next week.
Still, the hope that bailouts and interest rate cuts will fuel a market rebound has fizzled. After some nice rallies, we seem to be going sideways on most exchanges.
On Wednesday, the FTSE dropped 0.3%, while the FTSEurofirst 300 index lost 0.05% and now is down 43% so far this year.
Meanwhile, Japan’s Nikkei index closed Wednesday up 3.2% to a one-month high, on hopes for a US auto industry bailout. In Reuters’ recently-released poll, 18 analysts and fund managers forecast that the Japanese market may climb 13% by the end of 2009.
Hong Kong also jumped some 5.6%, closing at almost a two-month high on expectations that China’s leaders will announce huge new stimulus measures this week. They might include the green light for the so-called “through train”—allowing mainland Chinese to invest directly in stocks traded in Hong Kong. If enacted, that long-debated plan may help boost China’s markets, which have rallied over the past few days.
India has joined the stimulus craze, announcing a two-pronged plan that will cost $8 billion, and promising even more money down the road. The country’s export growth fell 12.1% in the second quarter, pressured by a collapsing textile industry, which accounts for 17% of its exports. Consumer spending dropped dramatically, too, and analysts expect the global economic slowdown to cut India’s gross domestic product growth to 7% next year.
Given all the uncertainties in global markets and the speculation about more bailouts ahead, it’s no surprise that safety continues to be on the minds of investors—and in the writings of our advisors.
Vad Yazvinski, chief investment officer at Jordan Capital and current participant in the MSN Strategy Lab, joined us for our Q&A this week and said he is buying global telecoms, but also looking for safety in corporate bonds and preferred stocks.
Nick Lanyi, editor of High-Yield International, is also focusing on yields and offered a couple of recommendations from Taiwan. And both John Snowden, editor of The IRS Report and Roger Conrad, editor of Canadian Edge, picked high yields for their recent investment reports.
I’m hearing a lot of rumblings about market bottoms from the financial community, but even if those advisors turn out to be prescient, it’s still prudent to tiptoe back into the markets, stay diversified, and maintain a lot of cash. Who knows what will happen next?
Nancy Zambell edits Global Investing for MoneyShow.com. Her opinions are her own and not necessarily the views of InterShow or MoneyShow.com.
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