Investors run for cover as Dow plunges 416 points, worst day since Sept. 2001

China still driving the investment markets...

Chinese growth heating up economy
Thursday, 19 April 2007, China's economy picks up pace, stoking fears it may be overheating and sending shares sharply down.

China's economy has grown by an annual rate of 11.1% in the first three months of 2007, official figures show, fanning fears it is starting to overheat. First quarter growth topped forecasts and was significantly up on the 10.4% rate in the final three months of 2006.

Separate figures showed annual inflation rose to 3.3% in March. China's main share index closed 4.5% lower amid concerns interest rates will have to rise to slow inflation because earlier measures have largely failed.

'Too hot?'

The drop was the biggest since an almost 9% slump on the Shanghai stock exchange earlier this year prompted a global sell-off that shook markets in Europe, Asia and the US. "Investors are worried the government may take serious steps to rein in the economy, such as an interest hike plus some administrative measures," said Xu Yinhui, a fund manager at Guotai Junan Securities.

More http://news.bbc.co.uk/2/low/business/6570713.stm

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Overheating worries grow as China’s economy surges 11.1 percent in 1st quarter
Thursday, April 19, 2007 - China’s sizzling economy surged 11.1 percent in the first quarter, prompting the country’s Cabinet to declare Thursday it will take steps to keep the economy from overheating.

The pledge by the State Council came after the government announced that inflation rose to its highest level in more than two years. "If this type of fast growth continues, there is the possibility of shifting from fast growth to overheating. There is that risk," Li Xiaochao, spokesman for the National Bureau of Statistics, told a news conference.

Worries that Chinese authorities would raise interest rates to curb growth in Asia’s second-biggest economy prompted regional stock markets to drop sharply. European markets also opened lower. China’s consumer price index rose 3.3 percent in March, data showed, above the government’s 3 percent target. And fixed-asset investment countrywide grew a robust 23.7 percent during March.

A statement posted on the council’s Web site following a meeting chaired by Premier Wen Jiabao said the government will work to "reduce the country’s large trade surplus, limit rapid growth in house prices and maintain basic price stability." Asian markets fell ahead of the report’s release in anticipation that the numbers would be stronger than expected and prompt Beijing to act to restrain growth in China, a major regional trading power. The nervousness was increased because Beijing delayed the release of the figures by five hours without an explanation.

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Here we go again...

Chinese Stocks Tumble 8.3 Percent
Jun 4, 2007: Biggest 1-Day Drop Since February Plunge

Chinese stocks plunged Monday following government efforts to cool a market boom, recording their biggest one-day drop since a late February drop that triggered a global market sell-off. The benchmark Shanghai Composite Index tumbled 8.3 percent to 3,670.40, falling for the third time in four sessions since the government raised a tax on trading last week. The index had dropped 2.7 percent Friday. The Shenzhen Composite Index for China's smaller second market fell 7.9 percent to 1,039.90.

It was Shanghai's biggest decline since Feb. 27, when the market slid 8.8 percent, triggering selloffs in Hong Kong, New York and London. The index has dropped 15 percent since last Tuesday's record high of 4,334.92. Beijing has been trying to cool a boom that by last week had pushed up Chinese stocks more than 50 percent so far this year. The rally has attracted millions of first-time investors who are pouring their savings into the market.

Drops in Chinese prices last week caused brief declines in markets in Tokyo, Hong Kong and elsewhere. Most other Asian markets shrugged off Monday's plunge in the Chinese mainland. Shares in Australia, South Korea and the Philippines rose strongly to record highs. Tokyo's Nikkei 225 index edged up 0.08 percent, while Hong Kong's benchmark idex was up 0.6 percent. Beijing keeps its markets largely isolated from global financial flows. Most Chinese shares are off-limits to foreign investors and financial controls prevent most Chinese from investing abroad. Also, analysts have been warning of a possible Chinese correction for weeks, reducing the element of surprise for investors abroad.

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Tax worries knock Chinese shares
Monday, 4 June 2007, The Chinese stock market closed more than 8% lower on concerns that the government is set to launch further measures to cool the economy.

The benchmark composite Shanghai share index closed 330.34 points or 8.26% down at 3,670.40. Chinese shares were hit last week after Beijing opted to triple the tax on stock transactions. Investors fear China might now embark on a capital gains tax to further cool China's break-neck economic growth.

"Investors are still panicking about recent market talk that the government might levy capital gain taxes," said Wang Jun, an analyst with Merchants Securities. "In any event many can still sell their holdings and make a big profit," he added. Despite the drop, some analysts say this is likely to be only be a temporary slide.

Even if the government does embark on more taxes, this will not thwart the overall upward trend of China's stock market, they argue. China has issued a range of measures recently as part of wider economic reforms, including a new bankruptcy law giving creditors precedence over workers.

BBC NEWS | Business | Tax worries knock Chinese shares

Chinese market slide spreading...

Stocks slide on economic woes
June 5 2007: Comments from Fed chief Bernanke, surprisingly strong services sector report give investors a reason to retreat one session after Dow and S&P 500 ended at all-time highs.

A surprisingly strong report on the services sector of the economy and cautious comments from Federal Reserve Chairman Ben Bernanke sent stocks tumbling Tuesday, one session after the Dow industrials, S&P 500 and Russell 2000 all closed at record highs. The Dow Jones industrial average (down 79.97 to 13,596.35, Charts) lost 0.6 percent 2-1/2 hours into the session. The blue-chip barometer ended the previous session at an all-time high, it's third in the past four sessions.

The broader S&P 500 index (down 8.89 to 1,530.29, Charts) lost 0.6 percent after ending the previous session at an all-time high for the fourth time in a row. The Nasdaq composite (down 13.14 to 2,605.15, Charts) gave up 0.6 percent. The tech-fueled index ended the previous session at a new six-year high.

The Russell 2000 small-cap index lost 0.9 percent, after ending at an all-time high in the previous session. Treasury bond prices slipped, boosting the corresponding yields, with the benchmark 10-year note yield edging closer to 5 percent. The dollar slipped as well.

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This is starting to get worrisome...

Stocks tumble for third session in row
Rising bond yields stoke fear that rate cut this year unlikely
June 7, 2007

Wall Street fell sharply for a third straight session Thursday after rising bond yields deflated hopes for an interest rate cut later in the year. The Dow Jones industrials fell nearly 200 points and the S&P 500 index fell below the 1,500 mark. The yield on the Treasury’s 10-year note passed 5 percent Thursday, rising as high as 5.13 percent in early afternoon trading in New York, its highest point since mid-July. The move unnerved investors who contend the Federal Reserve will be less inclined to cut short-term interest rates.

Stocks also fell as retailers turned in mixed sales results for May. While sales figures improved from the prior month, investors faced some concerns that rising gas prices could cut into consumers’ spending money. The array of fresh economic news, which was in some cases positive, didn’t halt the selling. “When this year started, Wall Street and global markets were too enthusiastic that central bank tightening was behind them,” said Subodh Kumar, global investment strategist at Subodh Kumar & Assoc., referring to higher interest rates. “I think we’re seeing the realization that central banks are not in ease mode. People have been discounting the effect that rising bond yields would have on stocks and their valuations.”

According to preliminary calculations, the Dow fell 198.94, or 1.48 percent, to 13,266.73, bringing its three-day loss to more than 400 points. Broader stock indicators also fell. The Standard & Poor’s 500 index fell 26.66, or 1.76 percent, to 1,490.72, and the Nasdaq composite index fell 45.80, or 1.77 percent, to 2,541.38.

More Stocks tumble for third session in row - Stocks & Economy - MSNBC.com

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Current decline in stock market rough weather...

Choppy markets but 'no systemic crash'
July 30, 2007 - THE recent turbulence on world markets, sparked by fears of a global credit crunch, heralds some rough sailing ahead for investors rather than a systemic financial meltdown, analysts say.

Stock markets in the Asia-Pacific region fell sharply Friday in the wake of Thursday's alarming 2.0 per cent plunge on Wall Street. But European exchanges on Friday pared their losses after steep declines of between 2.0 and 3.0 per cent the day before. Markets in London, Paris and Frankfurt ended the week on losses limited to 0.58 per cent, 0.55 per cent and 0.76 per cent respectively.

The sell-off the previous day was triggered by a 6.6 per cent fall in sales of new homes in the United States in June, intensifying concern for the health of the key US housing market. Investors staged a "flight to quality", transferring some of their money from stocks to government bonds, a trend that sparked fears of a possible deterioration in the ability of companies to get credit, notably at a time when interest rates are on the rise in Europe.

Rising oil prices and anxiety over a generalised exacerbation of inflation added to investor unease. World stock markets had been moving noticeably higher in recent months, continuing an upward course that began five years ago and suggesting that they might now be in for a long-term correction. The Dow Jones Industrial Average has gained 22 per cent in the past year, including an 8 per cent increase since January.

More Choppy markets but 'no systemic crash' | NEWS.com.au Business

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Still, it looks more worrisome than what they're telling us...

Big US slump ends volatile week
Friday, 3 August 2007, Traders are looking for signs of which direction the US economy is heading

The Dow Jones, which saw triple digit gains on Wednesday and Thursday, fell by 2.1%, 284.8 points, to 13,178.5. The Nasdaq lost 2.5% to 2,511.25 points. Selling was driven by continuing concerns over financial institutions, especially sub-prime lenders, and its knock-on effect to the credit market.

A Bear Stearns top executive said that credit markets were in the worst turmoil he had seen in 22 years. "These times are pretty significant," said Sam Molinaro, the investment bank's chief financial officer.

His comments reinvigorated the market's fears that a credit squeeze will end an era of cheap funding for corporate takeovers. Despite Friday's heavy falls, the Dow Jones only lost 0.5% over the week. A week earlier, Wall Street saw its worst five days of trading in four years.

Housing slump widening?

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Fed tryin' to stop the downhill slide to recession...

Fed urges loan companies to help borrowers
Sept 4, 2007 - As default dangers escalate, mortgage servicers asked to pitch in

WASHINGTON - The Federal Reserve and other banking regulators issued special guidance Tuesday urging loan service companies to work with borrowers in danger of defaulting on their home mortgages. The guidelines are not mandatory, but the regulators expressed hope that companies that collect payments on mortgages would heed the advice. Sheila Bair, chairman of the Federal Deposit Insurance Corp., said mortgage collectors have the authority under existing accounting and tax rules to help deserving borrowers.

“More and more consumers with subprime and hybrid mortgage products are facing the very real prospect of losing their homes through foreclosure as their payments reset and become unaffordable,” Bair said in a statement. “It is vital that mortgage servicers work proactively with borrowers facing much higher payments as their interest rates reset.” The banking regulators’ guidance issued by the Fed and other agencies followed President Bush’s announcement Friday that his administration was putting forward proposals aimed at preventing defaults expected over the next two years as the housing industry endures a serious downturn.

The effort by Bush and the banking agencies is an attempt to deal with growing anxiety as more and more homeowners worry about losing their homes because they can no longer pay the mortgage. An estimated 2 million adjustable rate mortgages are scheduled to reset by the end of 2008, going from low introductory interest rates to higher rates.

More Fed urges loan companies to help borrowers - Mortgage Mess - MSNBC.com

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Big Al says not to worry...

Greenspan: We've seen this turmoil before
September 7 2007 - Report: Economic bubbles can't be defused through interest rate adjustments, he suggests in speech.

"The human race has never found a way to confront bubbles," Former Federal Reserve Chairman Alan Greenspan said Thursday in reference to the euphoria that can precede contractions, or reactions, like the current market turmoil, according to a published report. Greenspan, speaking to economists in Washington, D.C., compared the turmoil to that of 1987 and in 1998, when the giant hedge fund Long-Term Capital Management nearly collapsed, the Wall Street Journal reported on its Web site.

"The behavior in what we are observing in the last seven weeks is identical in many respects to what we saw in 1998, what we saw in the stock-market crash of 1987, I suspect what we saw in the land-boom collapse of 1837 and certainly [the bank panic of] 1907," Greenspan said at the event organized by the Brookings Papers on Economic Activity, according to the Journal. Greenspan, now a private consultant, said euphoria takes over when the economy is expanding and leads to bubbles, "and these bubbles cannot be defused until the fever breaks," the Journal said.

Bubbles can't be defused through incremental adjustments in interest rates, he suggested, the paper reported. The Fed doubled interest rates in 1994-95, and "stopped the nascent stock-market boom," but when stopped, stocks took off again. "We tried to do it again in 1997," when the Fed raised rates a quarter of a percentage point, and "the same phenomenon occurred."

Source

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Just enough to ease the crunch...

Fed members cool hopes for big cut
September 10 2007: San Francisco Fed president says rate policy is not intended to bail out investors.

San Francisco Fed President Janet Yellen said Monday that while market turmoil has the potential to hurt the economy, rate policy should not bail out investors. The speech, which helped send major gauges lower in early afternoon trade, followed comments from Atlanta Fed President Dennis Lockhart, who said investors should consider Friday's unemployment report alongside a mostly strong batch of retail sales reports seen recently. Over the weekend, Philadelphia Fed President Charles Plosser said that the Fed doesn't make rate decisions based on any one number.

Yellen said that, although many types of higher-risk loans had become more expensive in recent months, it was more important to policymakers to see the overall borrowing costs facing average households and firms. Of concern is that very high interest rates for consumers and businesses have the potential to slow the economy considerably. Corporations with good credit records have not had a difficult time borrowing recently, she said, because Treasury rates have declined.

But many in the mortgage market are facing much higher rates, including potential borrowers with good credit histories, which she believes is a concern. And subprime mortgages have become very difficult to get, Yellen said. Also worrisome is that many firms that originate mortgages are no longer able to sell them to others, forcing some out of business, she said. Yellen emphasized that the subprime market is a small part - 10 to 15 percent - of the overall mortgage market, but said its impact could still be broad

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Greenspan worried boom is becoming bust
Sunday 9th September, 2007 - U.S ex-Federal Reserve boss Alan Greenspan has warned the current financial turmoil is identical to what has been seen in previous stock market crashes.

Mr Greenspan, in alluding to booms which suddenly run out of steam, has compared the current situation to the crash of 1987 and the fallout from the near-demise of Long-Term Capital Management in 1998.

At a speech in Washington, he said U.S financial panics were usually driven by a collapse in confidence in banks or land speculation turning sour. He said the current turbulence was being driven by unwillingness by banks to lend while still trying to determine the full extent of their exposure to the troubled sub-prime mortgage market.

The Federal Reserve has said sub-prime losses could total $100bn and is under pressure to cut interest rates later this month to make borrowing cheaper for banks and consumers.

Responding to Mr Greenspan's remarks, U.S Treasury Secretary Henry Paulson acknowledged there were certain similarities to past financial crises, adding that it would take a while for confidence to return to financial markets.

Greenspan worried boom is becoming bust

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Banks borrowin' more and more money...

Banks borrowing more from Fed
September 13 2007: Last month, the Fed cut the interest it charges for direct loans to banks.

Banks increased their borrowing from the Federal Reserve this week, pushing the one-day level to the highest point since the day following the 2001 terrorist attacks. The Fed reported Thursday that direct borrowing by commercial banks from the Fed totaled $7.15 billion in primary credit on Wednesday. That was the highest one-day total since the Fed loaned $45.5 billion on Sept. 12, 2001, the day following the terrorist attacks on New York and Washington.

The daily average borrowing from the Fed for the week ending Wednesday totaled $2.93 billion, an increase of $1.83 billion from the average for the previous week. Both figures were higher than had been expected and indicated that the strains from the credit crisis that hit full-force last month were continuing, analysts said.

"This is a much-higher borrowing total than expected and it is probably a sign that the credit crisis, while it may be moderating slightly, is far from over," said David Jones, head of DMJ Advisors, a Colorado-based economic forecasting firm. Treasury Secretary Henry Paulson, meeting with executives of the nation's top mortgage companies on Wednesday, said that it would take some time before the turbulence that hit financial markets last month is resolved, especially as it relates to subprime mortgages.

But, he said, "We are already seeing some signs of improvement in a number of markets that have been experiencing stress." Paulson did not elaborate, but a separate Fed report on Thursday showed that the amount of short-term borrowing by companies in the form of commercial paper fell by a much smaller amount this week than in the previous four weeks.

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Fed can't stop recession
September 13 2007: Even if the central bank starts to cut rates aggressively, many of the risks for the U.S. economy are beyond its reach.

Problems in housing, the financial markets and the first job decline in four years have made a Federal Reserve rate cut next week all but certain. But it has also raised talk about a recession - and whether the Fed is able to prevent one. While most economists still don't believe the nation will fall into a recession, there is general agreement that the economy now faces a greater risk than there was only a month or two ago.

But many economists also say that the Fed can do little at this point to address many of the factors threatening continued economic growth. Some economists even argue that rate cuts could make matters worse. The mortgage market would seem to be where the Fed could have the most effect. Most directly, a rate cut will reduce the rates for adjustable rate mortgages, one type of loan that has caused the problems for lenders and subprime borrowers, those with less-than-perfect credit.

An estimated 2 million homeowners face sharply higher mortgage payments when their current loans reset over the next year. So a Fed rate cut could possibly stave off a wave of foreclosures. That's key since more foreclosures could have the potential to hurt consumer spending as a whole, said David Wyss, chief economist for Standard & Poor's.

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