Is it just me, or is it not even news anymore that there was a huge drop/rally in the market on a given day? Now that we've broken all the records in the last century, it's hard to be fazed by big swings in the market. I think my next threshold is if (or is it when?) the Dow hits the 7000s.
But anyway, the global market went on another roller coaster ride this week, ending with a big drop on Friday. Asia in particular took a big hit. On the Hong Kong stock exchange, HSBC, the darling of all stocks there, fell by 10% to $88, a 4 year low. I personally could not remember HSBC being below $100.... ever. People are shocked and heartbroken. I don't blame them. The HSBC stock to HK investors is like how Louis Vuittons is to Japanese women- everyone owns at least one or aspires to own one. To see the value of such an entrenched brand go down must be a very traumatizing experience indeed. Who knew that Morgan Stanley slashing the price by 25%, would have such a profound effect?
Back to the rest of the world, developed and emerging markets alike are hit due to slumping currencies and higher financing cost. ING is is latest "big gun" to be bailed out with a $13.5 billion Dutch government injection. And countries such as Iceland, Pakistan and Turkey are in talks with the IMF for help.
In the US, experts have placed the blame on hedge fund of funds. Since investors can pull money out of hedge fund of funds anytime they want i.e. now, this has in turn put pressure on hedge funds to pull out of the market and thus the crazy selling and shorting to cover losses. The mounting layoffs *yikes!* (Goldman announced they were cutting back 10% of their workforce-less than I expected!), speculations about whether we're in a recession or not (do we really need anymore proof?), Greenspan admitting to be "partially wrong" and bad company earnings report coming out didn't help. Oh and PNC just announced that they were taking over National City for $5.2 billion (backed by tax payers). This is the next big bank takeover since Wachovia two weeks ago. Investors are now waiting to see if the Fed will further lower interest rates next Wednesday and whether the US economy is indeed in a recession with the GDP data coming out next Thursday.
It's not a completely gloomy outlook though. Asian countries, following Europe, are starting to form their own $80 billion emergency fund- better safe than sorry. The US are working on another stimulating package and a plan to bailout individual home owners, so then they can get better termed loans. Call me a selfish hypocrite, but while I'm all for bailing out banks because it affects me, I'm not sure how I feel about bailing out individuals. Makes me think, "if I knew the government was going to bail them out, maybe I should've gone and bought a house I clearly cannot afford too!" Logically though, I know helping them would help the economy as a whole, since foreclosure is one of the biggest issues. Guess I'll get around to the idea.
On a side note, did you know that the $250 billion capital injection into banks last week is not part of the $700 billion package? I wasn't sure myself until this week. How come they need approval for $700 billion and not $250 billion? $250 billion is still a LOT of money.