Down From the Summit, Fighting for Air
04/09/2009 12:00 am EST
After the feast, thankfully, neither a famine nor a crucifixion-more like a tall stack of dirty dishes and a hefty catering bill.
The G20 summit held with so much fanfare last week added an exclamation point to the March market rally, even if many long-suffering investors would have preferred no punctuation at all. Like stocks, the summit benefited from extraordinarily low expectations. Like the rally, it put a brave face on the sweat-soaked aftermath of a financial collapse. And like the market revival, the pep talk from on high went only so far.
It wasn't long before the summit's signature accomplishment-the reported $1.1-trillion reinforcement of the International Monetary Fund-began depreciating faster than an unfinished Miami condo. Some of the money had been double-counted, some not yet raised, and some would translate into less new lending than supposed, The New York Times reported.
And yet even this proved too much for European Central Bank (ECB) board member Juergen Stark, speaking on behalf of every inflation-hating German. "That is pure money creation," he grumbled.
"That is helicopter money for the globe."
Take that, Ben Bernanke!
The Germans used to be Europe's paymasters, with the last word on money matters. But on a day when the continent learned of a plunge in retail sales and a 1.6% haircut to its fourth-quarter GDP, different voices drove bond buyers. Greece's central banker said the ECB could cut rates below 1% and buy corporate debt to stem the tide. "We are the living witnesses to the most dramatic collapse in the world financial order since 1929," Ireland's finance minister told his Parliament, warning that the slump would take an 8% bite out of the onetime Celtic tiger's hide this year. The euro lost ground to the chopper-hopping dollar and the similarly debased yen. Slump-ridden Japan ordered up a $100 billion stimulus and a $370-billion corporate credit infusion, rising bond rates be damned.
In the summit's rosy afterglow, HSBC (NYSE: HBC) snuck in a successful $19-billion equity offering bolstering the bank's capital and independence. But there were not enough willing contributors this week during the latest attempt by the Royal Bank of Scotland (NYSE: RBS) to pass around the hat, leaving the British government as a 70% owner and fully responsible for the additional 9,000 workers about to be let go by the bank. Meanwhile, the triumphantly strengthened IMF warned that bad debts around the world could add up to $4 trillion, much higher than it previously guessed.
No wonder London stocks fell 5% over the last five days. After hitting a three-month peak Monday, Tokyo has retrenched 3%. Red-hot Shanghai cooled off nearly 4% on Wednesday from its best level since August.
Many emerging markets have held up much better than developed ones since last fall. But as Carlton Delfeld points out in this week's Global Perspectives, the hot-money investor inflows into China and Brazil may have gotten ahead of the economic fundamentals.
Many heavily discounted shares in developed markets promise a payoff even if growth doesn't revive soon. For a German utility with a juicy yield and the Canadian movie-theater chain selling cheap escapes from all the bad news, life goes on. After our near-death experience, that sounds pretty good.