Friday, August 5, 2011

The financial markets think it's a Satan Sandwich, too

Yesterday afternoon, I posted a video in Next Media Animation on the Debt Ceiling Hostage Crisis that portrayed Chinese displeasure with the debt ceiling deal, which I'm just going to call the Satan Sandwich from now on (I'm also adding a "Satan Sandwich" label/tag to all my posts about it), along with all kinds of wild financial news from the day before yesterday. Yesterday was even worse, as the rest of the financial markets weighed the deal and wrote "Mene, Mene, Tekel, Upharsin" on the walls of the exchanges.

All stories from Reuters.

Investors flee economic gloom, policy paralysis
By Edward Krudy
NEW YORK | Thu Aug 4, 2011 7:52pm EDT
Investors around the world dumped stocks and commodities on Thursday and rushed to the security of cash and government bonds, hammering equity indexes to their lowest levels of the year on fears of a spreading debt crisis and slowing growth.

Worries the euro-zone debt crisis was spiraling out of control sent blue chip European stocks to levels not seen since markets recovered from the financial crisis in mid-2009. Italian equities pushed further into bear market territory -- down nearly 30 percent since February.

Major U.S. indexes fell more than 4 percent, with the technology-heavy Nasdaq down 5 percent, erasing gains for the year as the broad-based S&P 500 entered a correction of more than 10 percent from a peak in May.

Intense selling this week reflects frustration with politicians to address pressing concerns over high public debt levels in Europe and the United States as large industrial economies show signs of running aground.
See that bolded paragraph? That's the market's opinion of the Satan Sandwich.
"The big catalyst was fear," said Matt Rubin, director of investment strategy at Neuberger Berman in New York, which manages $199 billion in assets.
We'll see fear later on, this time expressed as numbers.

Wall Street suffers worst selloff in two years
By Angela Moon
NEW YORK | Thu Aug 4, 2011 7:52pm EDT
The S&P 500's drop puts it more than 10 percent below its April 29 high, considered a correction. Nearly 14 billion shares changed hands, the busiest trading day in more than a year. Decliners beat advancers on the New York Stock Exchange by about 19 to 1.

The market's recent malaise stems from a number of factors. U.S. economic data has worsened, suggesting slowing growth from already sluggish pace in the first half. Europe's sovereign debt crisis has defied remedies and threatens to engulf large euro-zone economies Spain and Italy.
The Dow Jones industrial average was down 512.46 points, or 4.31 percent, at 11,383.98. The Standard & Poor's 500 Index fell 60.21 points, or 4.78 percent, at 1,200.13. The Nasdaq Composite Index lost 136.68 points, or 5.08 percent, at 2,556.39.

Some 13.92 billion shares changed hands on the New York Stock Exchange, NYSE Amex and Nasdaq, the highest since June 25, 2010, and well above the daily average of around 7.48 billion.
Big losses on high volume are very significant. It's a sign of utter loss of confidence, if not panic.
The CBOE Volatility index jumped 35.4 percent to 31.66, its highest since July 2010. It was the biggest rise since February 2007.
The Volatility Index, or VIX, is popularly called "the fear index." I told you that you'd see fear expressed in numbers.

Even gold, the usual haven for people in a panic, suffered.

Gold eases below lifetime high; investors cover losses
Reporting by Lewa Pardomuan
SINGAPORE | Thu Aug 4, 2011 8:36pm EDT
Gold ticked lower on Friday after hitting a lifetime high in the previous session as investors sold bullion to cover losses in other markets triggered by a global stampede out of riskier assets on fears of a spreading debt crisis and slowing growth.


* Spot gold eased $3.71 an ounce to $1,644.19 by 0004 GMT after hitting a record around $1,681 an ounce on Thursday before losing some of the gains.

* U.S. gold futures fell $12.7 to $1,646.3 an ounce -- off Thursday's record around $1,684 an ounce.
Still high, but ouch to all the gold bugs out there.

Was there any good news? Yes.
Oil tumbled as much as 6 percent on Thursday, with U.S. crude crashing through technical support to its lowest since February as mounting fears of a stalled economy set off a global race from riskier assets.
You want the price?
U.S. crude futures settled down $5.30 to $86.63 a barrel in New York.
If this news looks like deja vu, it is.  From this past May.

Oil prices drop 10% in one day, which isn't entirely good news

In this environment, oil prices generally fall on bad news elsewhere in the economy. Yesterday's trading action demonstrated that in spades.

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