The headline risk here, folks, is that if you wait for your central banker to give you insight into ...
The Dawn of a New Era?
01/22/2009 10:59 am EST
Tuesday’s inauguration of Barack Obama—the first black President of the US—was greeted with cheers by a good part of the world. Government heads, military leaders, and people in general spoke of their hopes that his tenure would bring a period of greater global understanding and cooperation.
I, too, thrilled in the moment and was very proud of our nation.
But now that the pomp and circumstance is behind us and it’s time to get to work. No honeymoon for President Obama!
Unfortunately, US stock markets were party poopers, as the Dow Jones Industrial Average tumbled more than 332 points on fresh news of more banking losses. However, Wednesday’s markets saw a nice recovery—the Dow jumped 227 points—on better results from a handful of banking institutions and a good earnings report from IBM (NYSE: IBM).
Not so in Europe, though. The FTSE 100 index closed down 17.07 points, having fallen more than 7% so far this year, after a 31% drop in 2008. The banking sector was the culprit there, too, as shares of Royal Bank of Scotland (NYSE: RBS) plummeted almost 70% Monday, following its announcement that its yearly loss could be as much as £28 billion (nearly $40 billion)—the largest loss ever among British corporations.
The folks in Britain aren’t too happy, either, with the news that nationalized bank Northern Rock is set to pay a 10% bonus to its staff. The largesse amounts to some £8.8 million—a reward for repaying one-half of the £26 billion loan granted by the government to keep it afloat. You may recall the lines snaking through the streets of London when account holders tried to withdraw their money in September 2007. Now, after laying off 225,000 employees, the bank is handing out a chunk of the government’s money to its current staff members. Sound familiar?
Some good news for the UK: Inflation took a nosedive in December, the largest drop since the early 1990s. The Office for National Statistics reported that the Consumer Prices Index dropped from 4.1% to 3.1%, due to declining oil prices, sales discounts and the recent temporary cut in the VAT (value-added tax) rate from 17.5% to 15%.
But there is good news for US travelers going to the UK. Wednesday, the pound hit its lowest point against the dollar since 1985, dropping as low as $1.3622. That’s quite a decline, after hitting more than $2.00 last summer.
In Europe, the FTSEurofirst 300 index, also dropped, falling 0.7%, and closing at its lowest level in two months. That was the tenth session of losses out of the last 11 trading days, due to big declines in the energy and drug sectors. Banking woes also sent the Nikkei down 164 points, to its lowest close since December 2nd.
Further afield in Asia, Singapore’s government revised its 2009 growth estimates—from an expansion of 1%-2%, to a contraction of 2%-5%. The country is also in the midst of a deep recession and has seen its exports fall off a cliff. South Korea is in the same boat, announcing a 28.9% decline in its exports the first few weeks of this year.
One result of these economically difficult times is the financial fraud being brought to light around the world. Here in the US, we have seen the stunning revelations about Bernie Madoff and other alleged fraudsters. And Indian investors are dealing with the fallout from Satyam’s scandal.
But there is actually good news as a result of this turmoil. The Securities and Exchange Board of India just announced measures to compel controlling shareholders in Indian companies to disclose any loans against their personal shares. That’s a good first step towards greater transparency, which is badly needed in India.
Another country at which investors just couldn’t throw enough money a couple of years ago is Russia. I asked John Connor, founder and portfolio manager of the Third Millennium Russia Fund, to bring us up to date on all things Russian in this week’s Q&A.
Chris Gilchrist, editorial director of Everyinvestor, added his thoughts on the re-emergence of emerging markets, while Yiannis Mostrous, editor of The Silk Road Investor, zeroed in on a Hong Kong retail stock.
And Timothy Lutts, publisher of the Cabot Wealth Advisory and Michael Cintolo, editor of the Cabot Top Ten Report, joined forces to recommend a global insurance company.
I hope your January is off to a good start. We are snowed-in here in Tennessee, and I, for one, am ready to go to Orlando, Florida, for The World Money Show Orlando next month. I hope to see you there!
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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