At this time the Asian Markets are experiencing large losses as the United States economy as well as economies around the world are suffering from recessions and high inflation. Currently the worldwide markets are going through some extreme sell offs with the Nikkei down 4%, Strait Times down 3.2%, Australia S&P/ASX down 3.1%, and the Hang Seng down 2.7%
Tonight the US dollar has hit another record low dipping to 73.56 and Gold has hit another new high at $980.60. The risks of some United States banking institutions failing is being absorbed by the markets worldwide. At first the idea that some US banks may fail was met with some skepticism, but the idea of this becomming a reality over time is taking hold. Jim Marino of the FDIC’s Division of Resolutions and Receiverships said last week in an FDIC report:
The notion that a bank is too big to fail shouldn’t be out there
The prospects of financial institutions facing even greater losses is also playing on global markets. It has been said many times that the sub prime crisis would be contained to consumer real estate. Our long time readers know that we have argued against this premise and said it would spread. Commercial real estate problems will be next in the credit crisis and real estate implosion. Once commercial real estate loans begin to deteriorate it will bring financial institutions to their knees. Now it appears that the media is catching on to the possibilities of a commercial real estate crisis in the making which will further increase the risks of bank failures. The Wall Street Journal reports tonight:
WSJ LOOKS AT THE IMPACT OF THE CREDIT CRISIS ON SMALLER BANKS; SOME SMALL BANKS HAVE AN INCREASING LIKELIHOOD OF FAILURE
- WSJ notes that many of the smaller US banks financed the building projects of leveraged builders and now these cash-strapped builders are falling behind on interest payments.
- WSJ notes that some of these smaller banks are accumulating portfolios of delinquent loans and face increased pressure from banking regulators to reassess and hedge these troubled loans, and those banks that don’t have enough capital set aside or are not diversified enough have an increasing likelihood of failure.
We would add here that it is not isolated to smaller banks only. On the contrary, some of the nations largest banks are the biggest investors in commercial real estate. While a larger bank may be better hedged against those loan losses it will still impact the banks earnings, furthering eroding the financial sector.
The largest declines in the Asian markets this evening are in the financial, automobile manufacturers, insurance, and steel producer sectors. Toyota is down significantly on the Japanese Nikkei / US dollar changes. Nippon Steel is also down significantly as they reported tonight that raw material costs are eating away at their profit margins.
Speaking of the automobile industry, Ford Motor Corp (F) has been downgraded to a ’sell’ by Citigroup. Also of note concerning the auto industry is a dealership not far from where I live. A Chrysler dealership which had been in business for over 40 years has closed its doors for good this past week. The showroom is now empty, the lot is empty, and the doors are chained shut. A sign of the times.
Lets talk about housing for a moment, Brian Louis and Dan Levy of Bloomberg have analyzed the housing market and discovered that the number of vacant homes in the United States is at levels not seen since the 1970’s. Newly constructed single-family homes are sitting empty at amounts highest on record. The full article text can be read HERE. This is some good reporting by Bloomberg.
Now for some charts…
(Morgan Stanley World Index)
This monthly chart of the Morgan Stanley World Index is made up of stocks from the following countries: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Italy, Japan, Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, United Kingdom. This index is showing us that the global markets are entering into a bear market. Those who claim that you are better off investing in foreign markets need to only look at this global index to see that the United States is NOT the only country suffering.
(S&P 500 daily chart)
Notice on this daily chart of the S&P 500 that Friday’s sell off was a hard confirmation of a triangle pattern failure. We have some support just below, however I feel this support is minor when weighing other factors of the intensity of Friday’s selling. The support may offer some short term price support but the longer picture is for more declines in the major indices.
(Nasdaq weekly chart)
The Nasdaq is approaching a very dangerous region in our technical analysis. When the Nasdaq is viewed on a monthly chart the price advances since 2004 resemble a long bear flag pattern. On this weekly chart we see that the price level is very close to the trend support line. Should the Nasdaq fail this trend support and close below it, then the Nasdaq will have made the move into a long and steep bear market. We will be watching this one closely for sure.
(Natural Gas Fund - UNG)
Caution still needs to be advised on commodities, they have advanced too fast to sustain further moves at the same magnitude without some consolidation. While Natural gas has made some impressive moves lately, it is still in a region of possible resistance.
At this time the United States S&P Futures are down 0.60%. The Fed Funds Futures have the chances of a 75 basis point rate cuts by the Federal Reserve at close to 75% tonight. Remember that the FOMC meets on March 18th to discuss their next move. And we can’t rule out another emergency rate cut if the markets continue to decline rapidly.
We remain short on the Dow Jones Industrials and we are currently sitting on a 6.7% gain. (The ‘open trades’ page will be updated soon). Because we have been avoiding individual stocks and concentrating on the indices explains why there have been no additions to the watch list. In this market environment it is to our advantage to be trading the index funds at this time.
