We All Fall Down – Stock Markets Tumble

Stocks markets in the US, Europe, South America and the Asia-Pacific are all tumbling, fueled by fears of a global recession.

The outlook for global economic growth appears dim, due to bad news from a number of fronts. In the US, factory activity in the Mid-Atlantic region fell, while US home sales unexpectedly fell in July and new claims for jobless benefits grew more than expected. In Europe, fears that the debt crisis could infect the region’s financial system resurfaced, also US federal and state regulators’ scrutiny of the US arms of Europe’s banks and some European banks’ higher interest rates for US dollar loans, led to worries about spillover of Europe’s debt crisis into the US banking system. The decreasing global consumer demand and markets contagion led to other markets’ falls.

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Apple vs. Exxon: Race to Become the World’s Largest Public Company

Apple (AAPL) temporarily overtook Exxon (XOM) to become the world’s largest publicly listed company, in terms of their market capitalization. This is a remarkable turnaround for a company that was on the brink of bankruptcy in 1997, a mere 14 years back, and a remarkable achievement for a company that was valued at US$50 billion less than Exxon a few weeks back!

TechCrunch has a beautiful timeline of the race as both firms take turns at wearing the market cap crown.

In the days to come Apple is sure to become the largest public company, specially when iCloud goes mainstream and iPhone5 (iPhone 4G?) hits the streets.

The Safety of Gold

Investors are moving away from economy-dependent assets like T-Bills, currencies and from firm-dependent securities like stocks and bonds to economic performance-independent commodities (unlike oil) as safe-haven instrument while markets, particularly equities, continue to tumble all around us. Specifically, there is a rush for gold.

The graph shows the sharp price rise of gold in August. However, the most telling sign is the volumes traded in recent times, compared to over the previous months. Noteworthy is the high RSI (Relative Strength Index), which is generally indicative of an overbought situation, although here supported by price increases and prices touching the upper Bollinger. In other words, technically speaking (if you subscribe to such views), “sell” is still not signaled, since the indicators are not divergent.

“Speculators Pile into Gold Futures, Options” from Kitco News

And the Slide Continues … (But That’s Ok)

Stock markets are tumbling all over the world. Along the lines of my prediction in a recent post, stock markets in the US, Europe, Latin America & Asia, along with commodities markets, experienced significant declines.

Wall Street suffered the biggest fall in two years, brought about by massive “sell-offs” by investors, triggered by “great fear” of a US recession, while European markets also fell significantly, driven by the sell-off contagion and worsening debt problems in Europe’s large economies, including Spain & Italy. Latin American and Asian markets were not far behind either, as the sell-off continued on a global spree.

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Thus Begins the Slide

Global markets are on a downward slide. Stock markets across the globe are either falling sharply (indices in New York, London, Paris & Frankfurt are falling sharply as of writing this piece), or have closed lower (indices in Japan & Hong Kong).

Meanwhile, Spanish and Italian long-term bonds are yielding their record highest – indicating a lack of faith in their sovereign debt by creditors. Also, gold prices have hit a record high, being considered the lone safe investment now.

Having woken up from the keen focus on the US debt limit issue, global markets are now focusing on the general health of the global economy. The poor health of the US economy (slow service sector growth and falling factory order statistics being indicative), the ‘unbailably’ large economies of Spain and Italy, unrest  & uncertainty in the Middle Eastern nations – are all compounding the concerns of investors and markets across the globe.

Meanwhile, credit rating agencies Moody’s and Fitch have maintained their AAA rating for the US, albeit with a negative outlook on the ratings. The harsher S&P has not yet released their ratings. On the other hand, Dagong Global Credit Rating Company, China’s leading credit rating agency, has downgraded the US to A from A+ (which was, itself, a downgrade in Nov 2010). With the “Big Three” raters coming into frequent criticisms recently, rating agencies from developing economies are now gaining a stronger voice.

Overall, all these developments are signs of tougher times to come.

US Debt Brinkmanship – The Global Financial/ Political Chicken Game

The Republican-controlled US Congress, the Democrat-controlled US Senate and the US President Barack Obama are playing a deadly “chicken” game with the issues regarding the US debt ceiling increase, tax raises and spending cuts.

The Republicans want to force the Democrats’ hands in not letting taxes be increased while initiating spending cuts; meanwhile the Democrats have declared dead-in-the-water any proposal that does exactly that. Neither House Speaker John Boehner (Rep) nor President Obama (Dem) has yet managed to find a middle ground acceptable to all parties.

With the August 2 deadline for raising the US debt ceiling or risking credit default looming, either party has to “swerve” or crash horribly into each other. This would have catastrophic consequences for both the US and the global economy.

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Euro-Zone Bail-out: Media & Market Reactions

Greece has been bailed out. A number of steps have been initiated by the leaders in Europe. A modicum of stability has returned to the Euro-zone financial (and political) system.

Specific to Greece, euro-zone official lenders’ debts have been restructured in the forms of lowering interest rates from 5.5% to approx. 3.5% and extension of term from7.5 years to 15 or even 30 years. These have been backed by €109 billion bail-out money, an additional €20 billion for Greek bond buyback and €35 billion ECB collateral for Greek banks. Private creditors, officially recognized as Private-Sector Involvement (PSI) have been given a choice of either of three options – rollover of maturing bonds, swap with longer maturities (both backed by AAA  -rated collateral) or secondary market bond buybacks. However, the PSI has been defined to include only ‘voluntary’ and ‘substantial’ creditors, which would lead to a number of lenders being short-changed.

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