Credit Crunch Back in Action

By: Regent_Markets

After taking some time off between Christmas and New Year, the credit crunch was well and truly back in action last week. Fears over further banking problems and sovereign debt downgrades for the likes of Ireland and Greece surfaced last month, but until now, these fears have merely been simmering in the background. Last week, the heat was once again turned up, and major fault lines are once again running through the global economy.

According to Bespoke Investments, the S&P 500 suffered its worst 9 day start to the year
ever. The omens aren't great with the rest of the year returning -0.74% when
the market gets off to such a stuttering start. US (un)employment and banking
problems once again dominated the headlines. Citi group announced it will
split in two after announcing an $8.29 billion loss. At the same time, Bank
of America posted its first loss in 17 years while receiving a $138 billion
bailout.

Economists talk about the prospects of a V, U or L shaped recovery for the
worlds various economies, reflecting the expected speed of any return to
growth. The prospect of the US or UK following a Japanese style "lost"
decade or L shaped recovery would have been laughed at just a couple of years
ago, but the world is a very different place today. Economists have made
various predictions that the recovery will begin in the fourth quarter of
2009, or first quarter of 2010, but perhaps what is scaring people the most
is the growing realisation that nobody knows what is going to happen.
Arguably, the banks still haven confessed all their subprime sins and until
they do, rumours will continue to spread concerning capital requirements. As
they are at the epicentre of the crisis, this uncertainty could continue to
shake markets for a good part of 2009. The global recovery may turn out to be
worse than most people expect, it may turn out to be better, but nothing
makes an investor reach for the sell button more than the unknown.

It was never going to be a good week for the FTSE when its two main sectors;
finance and energy led the selling. Global banking giant HSBC hit the
headlines after a Morgan Stanley note warned that it might have to raise $30
bn and cut its dividend in half. Deutsche Bank added to the misery by
announcing a $6.33 bn loss in the last quarter. They were forced to deny
rumours that this was down to a rogue trader. Considering the size of the
loss, one has to wonder whether it is worse that such a loss was generated
through authorised channels.

The biggest market mover at the start of the week was Bernanke's speech, in
which he outlined the need for further capital injections and guarantees for
banks. Considering this came in the same week as BoA's bailout, one can only
assume that he was right on the money. The notion of UK banks requiring
further capital injections was highlighted recently by The Bank of England
deputy governor Charlie Bean. Most UK financials have now reversed all of
last week's gains, as traders speculate that this capital injection is moving
closer to reality, along with the creation of a so called ‘bad bank' that
would soak up toxic assets. Many analysts are now in agreement that something
needs to be done, and although the treasury continues to deny such an act is
on the cards, it may be a question of when, not if.

Last week it was announced that Apple talisman Steve Jobs would be taking a
medical leave of absence. The announcement rattled the share price, but it
did not collapse as many believe it could have done. The share price held
above the $80 level last week, and there is a chance that it could continue
to hold above this level if investors buy the story that there is more to
Apple than Steve Jobs.

A No Touch trade predicting that Apple won't touch $77 over the next 30 days
could return 126% of profit at BetOnMarkets.com

By Mike Wright
Tel: +448003762737
Email: editor@my.regentmarkets.com
Url: Betonmarkets.com & Betonmarkets.co.uk

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