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World laid bear

Robert Peston | 10:35 UK time, Tuesday, 22 January 2008

The technical definition of a bear market is a drop in a leading market index of 20 per cent from its high.

On that measure, and after the falls of the past couple of days, there are already bear markets in France, Mexico and Italy.

After the first impact of the crisis in money markets in the autumn, Japan and China entered a bear market phase last November.

In fact, according to research by Bloomberg, some 43 stock markets have slipped from bull to bear.

And as for developed markets as a whole, as measured by the MSCI World Index, they are down 17 per cent on average from their 31 October high.

So I think we can safely say that the stomping, snorting optimistic beast of a market is fleeing the field, to be replaced by something scary and grizzly.

In the UK, at one point this morning shares were showing a fall of a fifth in their value on average since just the start of this year.

But volatility is the order of the day. In London there has been a stunning bounce, which could yet turn out to be ephemeral.

Having worked at assorted times on trading floors, I can smell the adrenalin, testosterone and fear that is creating this mayhem.

There are of course fundamental reasons to be worried.

I have written and broadcast extensively about the painful transition we are living through from liquidity crisis to solvency crisis, from credit crunch to asset deflation, from money market malfunction to global economic slowdown.

It started last summer as a crisis of confidence among banks and financial institutions, which led them to rein back the credit the provided to each other and then to all of us.

But what has been profoundly shocking is how the effect of that credit squeeze has been amplified by a self-reinforcing feedback mechanism which has seen the recession in the US housing market pulverise first the value of the alchemical securities manufactured out of sub-prime and then the balance sheets of banks and insurers.

And in the vicious cycle of decline, the flaws in the financial system ignored during the bull-market euphoria are now being exposed. As you know, I have been particularly worried for some time about the fragility of the so-called monoline insurers - and the threat that their woes will lead to massive losses for investors in the bonds they insure.

My fears became very personal yesterday when the disarray at Ambac, a leading monoline, led to falls in the price of bonds of my beloved Arsenal.

Few of us are immune from what's going on. Whether you are saving for a pension, a direct investor in shares and bonds, or a Chancellor of the Exchequer dependent on tax revenues generated by the City, you would be right to feel a bit poorer this morning.

Comments   Post your comment

  • 1.
  • At 11:12 AM on 22 Jan 2008,
  • Christian Evans wrote:

I have minimised my pension contributions as the fund will be worth nothing to me by retirement. All my cash is in physical gold, I have no debt and am stocking up on basic food stuffs and water filters and propane. Be scared, very scared.

  • 2.
  • At 11:20 AM on 22 Jan 2008,
  • Mark wrote:

"Grizzly" as in crying?

Yup, I'd go for that.

Heck, the traders and VC get paid whether the stock goes up or down. A downturn means they're on good money rather than bloody excellent money. And THAT'S only a problem if they're spending like this situation can only get better.

The value of a stock market investment can go down as well as up.

They keep telling us this but it's so that they don't have fewer people getting their money out. They don't believe it themselves.

  • 3.
  • At 11:24 AM on 22 Jan 2008,
  • John Constable wrote:

I would like to know more about precisely why the 'monolines' are in big trouble.

If only because an American I once knew, who was recognised as a financial genius, on his deathbed with his last gasp croaked 'Buy Muni's'.

Mind you, this was several years ago and in investment timing is the most difficult thing of all - even for the pros.

  • 4.
  • At 11:25 AM on 22 Jan 2008,
  • Tim Probert wrote:

From an extremely selfish point of view, I am relishing this plunge and hope it continues for several months. I hope the FTSE at the very least halves in value. Make way for the younger generation. The baby boomers have had their turn. Privatization, right to buy, inflation, a colossal house price boom, buy to letting, final salary pensions. Now it's our turn to clean up. Bring it on!

  • 5.
  • At 11:31 AM on 22 Jan 2008,
  • Paul wrote:

At last!

A recognition that this is a solvency crisis, not a liquidity crisis. Now all we have to do is convince the Bank of England that printing cheap money and lowering rates will only make the problem worse, as the US has found out. We can still learn from their mistakes.

  • 6.
  • At 11:33 AM on 22 Jan 2008,
  • Pete wrote:

The market and the media has deluded itself that everything in the garden is rosy for years so why should it come as a shock that now the tables are turned? Any good news e.g. Morrisons, John Lewis is ignored as it doesn't fit the story and all the pundits which a month ago said we'd have slow growth are now jumping aboard the recession bandwagon.

No normal person would lend money to people with dodgy payment histories to buy houses they would struggle to afford yet investment banks were quite happy to buy these debts without asking any sensible questions because they just saw an easy buck. I don't know why they bother paying high wages in the city when everyone just behaves like sheep.

As a Spurs fan however, I am encouraged to read that bond prices for Arsenal are down. It just goes to show that every cloud has a silver lining.

  • 7.
  • At 11:39 AM on 22 Jan 2008,
  • Ally wrote:

Reply to #1

Further advice to this comment. Look out for Y2K bug hitting soon too! Maybe it would be best to live in the hills away from flight paths.

  • 8.
  • At 11:39 AM on 22 Jan 2008,
  • ben grimer wrote:

Do the Wall Street shuffle
Hear the money rustle
Watch the greenbacks tumble
Feel the Sterling crumble

10CC
"Wall Street Shuffle"

Firstly I do no think there is any need for scaremongering, stocking up on food etc. etc.

I have often thought my only criticism of this blog is that it paints a really black picture, when maybe that isnt the case... but i still read this blog - so i must like it!

Top comment Robert, thanks.

Guy
Ps I bought those books you reccomended.

  • 10.
  • At 11:49 AM on 22 Jan 2008,
  • Tarquin Elderflower wrote:

Good piece again Robert"scoop" Peston.However you do not mention House Prices.Acorrection although painful is surely an essential component of future recovery.
Yours
Tarquin Elderflower

I can't wait to see collapse of the mini empires of buy-to-let (anyone can be a property developer) gluttons who's greed has made houses totally unaffordable for average working people. This is country has been a mess for years, only a collapse can fix it.

Recession?? Hell yeah!!

Depression?? I feel it lifting already...

  • 12.
  • At 12:06 PM on 22 Jan 2008,
  • Dave wrote:

considering how concerned the general public probably are by what is happening, the last thing they need is Robert Peston on the 6 oclock news scare mongering everyone with his ever pessimistic views. The markets are fuelled by sentiment, and if anyone listened to his comments the whole world would crash.

People want to be encouraged, not discouraged. How can the Governments etc try and "maintain consumer confidence" in the economy when Rob is telling us all worse is to come.

  • 13.
  • At 12:08 PM on 22 Jan 2008,
  • Chris Bowie wrote:

The other effect of the monolines collapsing hints at the failure of future PFI funding.

Don't forget that Gordon Brown's greatest trick has been spending like crazy and using off balance sheet finance (PFI) to make it look like his golden rule was intact.

With funding for future PFI deals now looking broken Gord will have to take those 'investments' in public services back on balance sheet, also at the same time as Northern Rock goes back on balance sheet.

Looks like debt/gdp of more like 50% than 40% to me.

  • 14.
  • At 12:13 PM on 22 Jan 2008,
  • Scamp wrote:

I understand there is talk in the market about the possibility of interest rate cuts and this has resulted in a 20 point rise in the FTSE.. Not a lot but a rise nonetheless although one would be right to question if its sustainable.

Personally I believe an interest rate cut would be the wrong move. There is an opportunity here to completely reform attitudes in the UK and to drive over spending and over valued housing out of the system and curtail the activities of Private Equity companies. Indeed I would go so far as to say that what we really need is aa rate rise to ensure the lessons of the past ten or twenty years are properly learnt.

It would be very painful for some and it would damage the retail sector quite badly. But, it may be the first step towards the much needed rebalancing of the economy in which financial services become a service element supporting the rest of the economy instead of being the dominant force.

The financial services sector, the City or whatever you want to call it has let the country down very badly. We should not allow that to happen again.

  • 15.
  • At 12:21 PM on 22 Jan 2008,
  • David wrote:

Another thing which often comes to light in a downturn is fraud and dishonesty.

We may soon see another BCCI or Barlow Clowes.

  • 16.
  • At 12:27 PM on 22 Jan 2008,
  • Ben wrote:

How is it that all these so-clever bankers and brokers persisted in buying what were obviously pigs in pokes ? Sheer greed ? Along with Enro etc., a demonstration of unregulated capitalism.
Alan Greenspan when Chairman of the Federal Reserve was warned in the year 2000 and onwards by senior colleagues about the subprime scam.
He brushed all these warnings aside. The one man who could have regulated the market and avoided the present imbroglio ! It is time he stood up to be counted.

  • 17.
  • At 12:34 PM on 22 Jan 2008,
  • David wrote:

I invested all my savings of £16,000 in the world's financial markets just over a week ago and have already seen -6% (-£1,000) of this trickle down the plug hole.

Still, as I only just set up the investment, I can chicken out within the next 14 days and get all my money back.

  • 18.
  • At 12:34 PM on 22 Jan 2008,
  • Kv wrote:

'the flaws in the financial system ignored during the bull-market euphoria are now being exposed.'

Great quote to sum it up. It's seen all over the markets. Greed and fear push things too far either way. Despite all the turmoil late summer and gloomy outlook for the economy the gbp was trading at 2.11 to the dollar. A fallacy. The british economy is being exposed and so is Gordon Brown and co.

  • 19.
  • At 12:54 PM on 22 Jan 2008,
  • GA wrote:

I can't see a Grizzly from where I am; looks more like deceased feline to me.

What a silly comment number 12 is. Dave you might have your head in the sand but I don't choose to.

Robert is reporting what is happening and even the layman could see this coming months ago (August to be precise). If you hadn't already taken evasive manoeuvres you can only blame yourself.

I also don't agree with your comment about scaremongering. Whilst the market was dropping through the floor yesterday the focus was on Northern Rock. Irrelevant compared to the one day write off of £70 billion.

The coverage of the FTSE yesterday was minimal and I have a feeling, consciously so!

But hey, if you don't wish to know about the big monster in the room it won't prevent it from eating you...

Robert - if Credit crunch and fear has contributed to this fall, why don’t government bond are capable to take us out from this poor situation? or perhaps problem lays somewhere else like debt economy, budget deficit and high oil price?

  • 22.
  • At 01:00 PM on 22 Jan 2008,
  • Mike wrote:

I think what we are seeing is the start of things to come, The stock market is always a leading indicator based on speculation... what worries me more is the lagging indicators such as Unemployment. There is a long way to go yet for all these issues to unravel.

Hopefully we are now seeing an adjustment to more realistic and sensible ways of doing things, what makes me angry is the "smart boys" behind this who have made their killing selling their clever idea's, (such as CDO Squared) ..hmmmm.

I am sure these people have taken care of things for themselves.

My opinion is that Robert is providing a clear insight into difficult and complex issues which dont make for pleasant reading ... Not for nothing did Thomas Carlyle call Economics the Dismal Science in the last century.

  • 23.
  • At 01:01 PM on 22 Jan 2008,
  • John Constable wrote:

Next question : How much money is in circulation in the United Kingdom?

I would like to know this so I can calculate by what percentage the money supply has been inflated by the 'creation' of £55Bn (the NR bung) by the Old Lady.

Thanks.

  • 24.
  • At 01:06 PM on 22 Jan 2008,
  • Trickyflyingdave wrote:

Since the unnecessary middle class is being asset stripped who's next? The rich of course! POP!
... and the Stupor Rich get richer.

I don't feel a little bit poorer today. I had a fiver on Liverpool to draw with Villa last night at 7/2.

  • 26.
  • At 01:09 PM on 22 Jan 2008,
  • The Plinth wrote:

Good Summary as always Rob.

Travelling in on the tube this morning from Zone 2 I was pleased to see the tube is still packed. Hence one assumes we all still have jobs.

I'm still ammazed with all of the sub-prime right offs that we haven't seen the big job losses in the city.

Has the economy changed that the power banks need the volumes of staff to keep the volumes turning over?

I'm of the opinion that the myths that have kept us afloat over the last 6 months...

1. Markets have decoupling from the USA
2. BRIC now have independent markets that are self sustaining
3. You can always make money in mining
4. The government will save us if our savings go down the toilet

...are all starting to show cracks.

The thought of Monolines...well this is just scary and will the government be there to support them???

Time to buy a mattress and start stuffing money underneath I think. But which currency???

  • 27.
  • At 01:11 PM on 22 Jan 2008,
  • John Constable wrote:

Next question : How much money is in circulation in the United Kingdom?

I would like to know this so I can calculate by what percentage the money supply has been inflated by the 'creation' of £55Bn (the NR bung) by the Old Lady.

Thanks.

  • 28.
  • At 01:14 PM on 22 Jan 2008,
  • Loyd wrote:

Does this mean the price of a Big Mac will go down?...can Big Mac's go down as well as up?

  • 29.
  • At 01:16 PM on 22 Jan 2008,
  • Groucho Marxist wrote:

Why is Robert Peston pessimistic? Because he has a clue. Despite the good news there has been unprecedented bad news - historical bad news.

There are two scenarios that run through my mind - a reflation where people start borrowing and spending again, or a grinding, painful journey downwards. (The reflation is followed in a couple of years by a slow, grinding downward journey.)

  • 30.
  • At 01:17 PM on 22 Jan 2008,
  • P.Dough wrote:

Dear Robert, another well worded epitaph. A few quick points, few of us are immune, read no one is immune. If the direct effects of a global recession don’t get you this time, the knock on effects will. For many, and that means the most vulnerable in society again, it will spell ruin. There will be seen the oceans of difference between disappointment, distress and disaster.

But it's not all so profoundly shocking is it? The global economy has, i.e. ALL economies have, for several years now been unstable, and that is the single greatest danger in the current take on “globalisation”. The present unsustainable form is characterised as an unchecked rise in the monoculture of interdependent markets. That is why there are a growing number of financial crises in the world. Yet if an error happens to creep in on a grand enough scale, which is exactly what happened regarding sub-prime debt collateralisation, it can bring down an entire global economy. That is what we mean by unstable. Not so much knock-on effects you might say, but pulverising effects.

To paraphrase colleague Evan Davis, the risks in securitization are multiplied, there are deeper links between anything securitized, sub-prime lending, and equities. In addition, effects rebound again and again inside the market, multiplying the damage. It’s akin to letting off a high powered rifle in an enclosed space. The proiettile just keeps on ricocheting around and around. Now we’re back to the bout of selling, and the buck just is not stopping.

What can be done. What can we learn. Conventional wisdom states, “regulators often cannot keep up with the pace of financial innovation that may trigger a crisis”. Rather it is that regulators have been politically squeezed out of this generation of financial ‘innovation’… thus such ‘innovations’ are not, or never were derived from a process which was, wholly independent and transparent, and that was not fair to the rest of the world.

The rest is simple. Central banking supervision, independence and transparency, which were divested at the outset of all this, must be reinstated and justice must run its course. Otherwise we can never have that clean slate from which markets my rebound. Sorry about Arsenal. Really. Honestly.

  • 31.
  • At 01:18 PM on 22 Jan 2008,
  • Matthew wrote:

I am neither saving for a pension, nor a stock-and-share speculator, nor a Chancellor of the Exchequer. So, remind me again, please, why should I be bothered?

  • 32.
  • At 01:24 PM on 22 Jan 2008,
  • John from Hendon wrote:

No monoline's = No hope of the recovery in the inter-bank and bond markets in the foreseeable future.

Live with it. The mortgage over valuations will destroy capital - but the so called 'value' is nothing but over pricing.

If as a consequence mortgage lenders have to offer higher interest to savers and compete for money to lend to borrowers (as the inter-bank bond market is frozen) thus nothing the BOE or US Treasury can do with interest rates will make much difference.

The markets need to find real levels again. Banking dose not create much value it is just an overhead cost. Value is created by using capital and productive labour - unfortunately with the Yuan at 15 to the pound it is very difficult to make much in the UK - this exchange rate problem is in part caused by the financial services 'industry'!

  • 33.
  • At 01:26 PM on 22 Jan 2008,
  • Prospective traveller wrote:

Now I'm quite new to the world of economics (though trying hard to get to grips with it) and wonder if anyone can help me work out how the market tumble may affect prospective travellers...

I was travelling last year and the sterling anabled me to do a lot, especially with the dollar so low.

I want to travel again come Easter for up to a year and guess that if the pound weakens, it won't go 'so far'. Should I review my budget? But if other currencies also fall will it all just stay parallel?

My guess is that its my employment prospects upon my return that I need to worry about most...! (bring on wishy washy govt jobs!!)

  • 34.
  • At 01:26 PM on 22 Jan 2008,
  • Neil Small wrote:

Stand by for an increase in taxation, since Gordon can't have his potential voters losing their benefits. Bet he's wishing he did go for the early election, as things are going to get worse.

Slightly off topic, are the Lib Dems supporting Labour in not asking for a referendum because they can see a potential coaltion Government? If the recession does come in they may have the opportunity.

  • 35.
  • At 01:29 PM on 22 Jan 2008,
  • Burt Gummer wrote:

Post #11 - I agree, bring on the property crash; while I can't blame people for trying to make a few quid they were trying to do it through a rancid mixture of .gov incompetence and greed

- overpopulation (60m plus people in the UK - leading to densities almost second only to the Gaza Strip!),

- overcrowding (Town & Country Planning Act 1947 - the nationalisation of all land, cramming 90% of the people onto 10% of the land)

- inflating M3 leading to soaring house prices, forcing the low-waged into overpriced and low-quality rental properties

I could go on. Time for a change. The unwary will suffer.

  • 36.
  • At 01:31 PM on 22 Jan 2008,
  • Anonymous wrote:

A collapsing market may make me poorer in the short term but in the long term it is a great benefit to young people like me. A low market now means that the money that I pay into my pension buys more. As far as I am concerned the lower the market the better as long as it picks up again in 30 years time.
A knock on benefit will hopefully be a correspondingly large collapse in house prices, then younger people could afford a home to live in.

Move over you old ones, you have had your day, and let us youngsters through!

  • 37.
  • At 01:31 PM on 22 Jan 2008,
  • Nigel P wrote:

#11 wrote "gluttons who's greed made houses totally unaffordable.."

You need to remember who sets the value of the house. The person who is selling it, that's who.

Meaning, it is the working people are selling their houses at the inflated prices you elude too.

  • 38.
  • At 01:34 PM on 22 Jan 2008,
  • Philip wrote:

Robert Peston is the worst type of hack there is. First he deliberately misrepresents the situation at Northern Rock (causing considerable worry and upset to ordinary working people) and wallows in self-congratulatory smugness - presumably awaiting his prize for best financial story of the year from TV Quick magazine. And then he has the audacity to sit there and proclaim "I told you so". Numpty.

  • 39.
  • At 01:34 PM on 22 Jan 2008,
  • Jeremiah Harpur wrote:

As usual Robert your piece was 'excellence with a soul'. At the moment, the problem facing central banks is akin to a man that knows he needs to control water leaking from his bath but he only has the option of fiddling around with the inflow of water. He has no way of knowing whether the more he puts in will increase the rate of out flow and make his leak worse, bring it to an equilibrium, or best of all the inflow exceeds the outflow givng time for some exogneous plumbers (unknown) to put a valve in the outflow. The credit insurance industry is clearly in trouble. If there 'asset' base were to evaporate it would be a disaster. The central banks are waffling about inflation (when really they are privately waffling about stagflation) but throughout the nineties the US had low unemployment and low interest rates with no inflation bubble. Credit bubble yes, but which OECD country did not get on the merry-go-round? The fed havenow backed themselves into a postion where they can only apply interest rate measures to try to stem the leakage. They are similar to the DIY man with a hammer in his toolbox. Since that is the only tool left to him, that is the tool applied to every problem. The fact that there 'value' out there but not been bought up shows that for the funds the value is eitehr illusory or risky. Forget the dividend. Matters little if the coupon is cut in half a week after you coughed up granny's legacy to get yourself a 'value' nestegg. The question now is whether we are looking at some form of OECD wide temporary regulation to act as a valve? I don't favour this intervention, but I believe the high street bansk would welcome it, not the mention the pension funds.

  • 40.
  • At 01:36 PM on 22 Jan 2008,
  • john thomas wrote:

to Dave #12

Would you rather a falsely optomistic view was presented? That the credit crunch is just little local difficulty? That Northern Rock is just a distraction away from the very serious woes of the rest of the banking and bond isurance industries?And that we're not to worry as people far cleverer and far far richer than us know what they are doing and it will all be alright soon. There, there.

The liquiity crisis is becoming a solvency crisis.

The Housing market will crash...not just correct.

Companies will fold, unemployment will rise.

If you think this has happened before, I refer you to the boom years of the 1920's... they were followed by the depression years of the 1930's.

Putting a positive spin on events does not change the events, it just allows politicans to keep their jobs.

And as I write...the Fed has just cut the US intrest rate from 4.25% to 3.5%! PANIC?! Why not? ....the Americans are panicing, why shouldn't we!?


  • 41.
  • At 01:42 PM on 22 Jan 2008,
  • FR wrote:

Uh-oh. The Feds just cut their rates by 75bps.

Delay the inevitable and make it worse in the long run. Desperate measures indeed. Stupidity.

  • 42.
  • At 01:42 PM on 22 Jan 2008,
  • Rahul, London wrote:

Dave (#12) - "people should be encouraged, not discouraged".

No - people should face up to the facts. Telling people chirpy, positive things does not help - everyone has to face up to reality.

If by "maintaing consumer confidence" you mean that people should be told that all's well and that they can carry on spending like they have been (i.e. by borrowing, not by saving), then it is time that this "consumer confidence" was shaken a bit.

The reality (whether we like it or not) is that we are in some amount of trouble - not a "meltdown, it's the end of the world" sort of trouble, but definitely a "our savings and the stock market and the economy in general are going to suffer for a while" sort of trouble.

The sooner people realise this, the more information and time that is available, the better it is - at least everyone will have time to plan and try and budget properly and work out how best to reduce expenditure etc. If the government paints a happy picture and then a crash/recession happens, a much greater number of people will end up suffering.


  • 43.
  • At 01:43 PM on 22 Jan 2008,
  • Fran wrote:

With your waffling on the BBC everynight bemoaning doom and gloom no wonder this country is in a down turn - you and the BBC should take responsiblity

  • 44.
  • At 01:43 PM on 22 Jan 2008,
  • Ian Harris wrote:

A 0.75% cut in US base rates shows just how panicky people are and how bad the Fed feels it needs to try and reassure people.

This is either a panic move or the figures that are going to come through over the next few weeks from the States are likely to be horrendous.

It might be a bit of both in the USA but I can see UK base rates at 5% or below by the end of June.

  • 45.
  • At 01:51 PM on 22 Jan 2008,
  • Ian Harris wrote:

A 0.75% cut in US base rates shows just how panicky people are and how bad the Fed feels it needs to try and reassure people.

This is either a panic move or the figures that are going to come through over the next few weeks from the States are likely to be horrendous.

It might be a bit of both in the USA but I can see UK base rates at 5% or below by the end of June.

  • 46.
  • At 02:02 PM on 22 Jan 2008,
  • Andy H wrote:

So now we get to see whether the NYSE gives a damn about rate cuts, which will be the real test.

  • 47.
  • At 02:07 PM on 22 Jan 2008,
  • Gary Heard wrote:

Dave@12
What a load of tosh. Are you saying that one man (Rob Peston) has so much power that he can make markets fall?

The truth is that this correction is LONG overdue, the money men got greedy, unfortunately we will be paying for their excesses for a long time to come. What Robert Peston is reporting is based on OTHER PEOPLES sentiment, which is why the market fell yesterday.

What the market has reminded me of, for the last 3 months, is Wiley Coyote from the roadrunner cartoons, defying gravity having run off a cliff, fine until you look down -- and it's an awfully long way down

Perhaps it will prove that you have to make things to add value, not just manufacture "Financial Instruments".

  • 48.
  • At 02:09 PM on 22 Jan 2008,
  • Susannah wrote:

I would like to know whether even 'maintaining consumer confidence' can actually help at this point in the game. Surely consumers are part of this problem in the first place, taking on debt to spend above their means? If the confidence of those in debt is maintained, surely they will just keep on spending and while the immediate market troubles might be slightly allayed, we'd just be making the debt bubble even bigger and more disastrous?

Obviously what the markets would like (I think...I am a scientist who reads this blog as the only chance I have of understanding money business) is for those consumers who actually still have money, rather than debt, to start spending that. But, given that these people are obviously more cautious than their debt-laden friends, how can you increase their confidence without also encouraging the people (and companies) that really need to stop spending?

My view of the mechanics here is probably far too simplistic, but given the inherent amplifying feedback of any major change in the markets, I'd be interested to know how far Mr Peston himself believes we might be able to escape this mess in any sort of controlled way.

  • 49.
  • At 02:09 PM on 22 Jan 2008,
  • Christopher Bolton wrote:

Markets by their very nature move in cycles. As does the weather, the seasons, and many other things. The problem with the money markets is that they are mostly influenced by people, and as has been proven many a time, by people who will sell us a lie in order to make money.

Every action has an opposite and equal reaction. The problem I see here, the rises over the past few years have been pushed up so much, every single opportunity has been exploited, there is no way out, no possible cushion, the coming fall could be equally as big.

  • 50.
  • At 02:13 PM on 22 Jan 2008,
  • Susannah wrote:

I would like to know whether even 'maintaining consumer confidence' can actually help at this point in the game. Surely consumers are part of this problem in the first place, taking on debt to spend above their means? If the confidence of those in debt is maintained, surely they will just keep on spending and while the immediate market troubles might be slightly allayed, we'd just be making the debt bubble even bigger and more disastrous?

Obviously what the markets would like (I think...I am a scientist who reads this blog as the only chance I have of understanding money business) is for those consumers who actually still have money, rather than debt, to start spending that. But, given that these people are obviously more cautious than their debt-laden friends, how can you increase their confidence without also encouraging the people (and companies) that really need to stop spending?

My view of the mechanics here is probably far too simplistic, but given the inherent amplifying feedback of any major change in the markets, I'd be interested to know how far Mr Peston himself believes we might be able to escape this mess in any sort of controlled way.

  • 51.
  • At 02:15 PM on 22 Jan 2008,
  • Damian wrote:

The 3/4% cut in US rates looks like a panicky move and the FOMC should not intervene like this. Grenspan did this to interfere in market movements which shoud be allowed to run their course. Bernanke should be put back into his academic ivory tower.

All this will do is engender more inflation.

We should just remember what happened in Japan from 1990. What is required is a fiscal solution as the crumbs haven't filtered down from the rich man's table to the create all the economic benefits Bush suggested- jobs in China & S-E Asia, Mexico & S. America perhaps.

  • 52.
  • At 02:16 PM on 22 Jan 2008,
  • Ian Harris wrote:

John, post 27 the money supply is a rather tricky thing to nail down as like inflation it has many different definitions.

These tend to start with an M. The best known ones are M0, M1, M2, M3, and M4 and before someone pipes up they are not motorways.

The attached link gives a fairly simple and easily understandable idea of what they all are.

http://moneyterms.co.uk/money-supply/

  • 53.
  • At 02:17 PM on 22 Jan 2008,
  • David Dearden wrote:

I am surprised at the glee from respondents as bad economic news is followed by worse. Who do we think is going to suffer most if there is a world-wide recession?
The rich? I don't think so.

While I agree with the sentiment that wants to see the wicked punished, particularly those who have profited from mortgage backed securities and other junk financing, I fear that this looming economic collapse will hurt poor, elderly, and minority people far more than the fat cats.

While everyone is exercised about the current crisis, it may be a good time to implement strong policing of financiers by giving regulators powers and public support to reign in the greedy. This is especially true here in the US where the Bushists have encouraged lawlessness throughout the financial system.

  • 54.
  • At 02:19 PM on 22 Jan 2008,
  • Adam wrote:

OK, this may seem like a crazy thought, but bear with me for a minute.

One lesson that history teaches is that no system of how things are run lasts forever. The Ancient Egyptian Pharaohs were like gods in their own country and were pretty much a regional superpower. But eventually the Romans came and it all went downhill. There are no Pharaohs in Egypt now.

The Roman Empire must have considered itself invincible at one stage. They ruled most of Europe and quite a big chunk of the Middle East. They probably thought they would always do so. But the Barbarian Hordes came along and the Empire fell.

Currently, the world is ruled by global capitalism. Those of us in developed countries depend on the global capitalist system and the stock markets for our jobs, our houses, and the food we eat. This system, like the Pharaohs and the Roman Empires, won't last forever.

Now, don't get me wrong. I'm not predicting the imminent end of global capitalism. I'm sure that the current woes are just a bad time that will be followed in due course by good times, and that global capitalism will be here for several decades or even many centuries to come. Just not forever.

But here's a thought. If the end of the global capitalist system were just beginning, in much the same way as a couple of isolated and unimportant Roman outposts were captured by a few dozen Barbarians, what would that look like? Would it start with a credit crunch and a stock market crash?

  • 55.
  • At 02:24 PM on 22 Jan 2008,
  • Sam Chew wrote:

I have not yet paid any money into a pension, but will be starting in March 2008. Assuming that the market starts a recovery at some point soon (say, the next six months), then as far as I'm concerned, the lower the FTSE sinks over the next six weeks, the better - my (as yet uninvested) money will only be worth more in the long run.

  • 56.
  • At 02:28 PM on 22 Jan 2008,
  • AliG wrote:

#37 "You need to remember who sets the value of the house. The person who is selling it, that's who."

Really? I thought it was the person who buys it. The seller can set the selling price of their house as high as they like but the house is only as 'valuable' as the price someone else is prepared to pay. You can't increase the value of your property by wishful thinking...

  • 57.
  • At 03:00 PM on 22 Jan 2008,
  • robert marshall wrote:

Until city salaries basis change reality will remain a dream in the UK. Derivitaves have done nothing but generate false truly unrealisable profits save for banks and if they pay a huge penalty they can only look in the mirror as they brought it on themselves.
We are in a poor state which we have the present government to thank for. We owe politicians nothing but they owe us their jobs and are duty bound to tell the truth, so why tdo we allow Ed Balls to prattle on talking as though he came from LaLa land about the strength of the British economy.
Keep going Robert, you and your colleagues at the BBC appear to be the only guys now capable of telling us the truth and long may that go on.

  • 58.
  • At 03:24 PM on 22 Jan 2008,
  • Andrew H wrote:

#12

Its not talk that makes the market. Its whether the talk is reliable or not. You cannot talk yourself into a recession. People do not stop spending because they are told to - they stop because the talk has a ring of truth about it. Wake up, smell the coffee. Its true.

  • 59.
  • At 03:40 PM on 22 Jan 2008,
  • Ryan Stephenson wrote:

The money supply figures have been running at 15% for every major country for the last ten years. This means that there is three times as much money in the system as there was 10 years ago. That extra money has come entirely from debt. If there is now three times the money in the system as there was ten years ago, this means that for every dollar of real cash in the system there are two dollars of debt. And if there are two dollars of debt for every dollar of real cash, there is not enough real cash in the system to ever repay all the debt that has been created. The world financial system is fundamentally broken. The only solution is to simply print more money to effectively write off the crazy expansion in debt, and then try and deal with the raging inflation that will result. These are desparate times.

  • 60.
  • At 03:53 PM on 22 Jan 2008,
  • Susannah wrote:

Oops, too easy to post a comment twice. Naughty 'page not found' error. Sorry.

While I'm here, to Adam in post 54: I think, much as a few Roman outposts were probably defeated by barbarian hordes centuries before the empire fell (and probably for as long as there were outposts, in fact), a stock market crash need not signal the end of a world order. After all, they've happened before, and capitalism is still hanging on in there. But yes, of course it *could*...if the markets get worse and worse and we run out of money to afford anything just as the price of energy sky-rockets due to diminishing resources, and inequalities between countries lead to jealousy and/or war, and maybe somebody wakes up in a bad mood one day next to a nuclear rocket launch button...who knows?

Or, alternatively, not. Does this fall signal total anarchy, or just a 'period of correction'? I think I'd prefer the latter...

  • 61.
  • At 04:26 PM on 22 Jan 2008,
  • Dave wrote:

Unfortunately some readers have missed my valid point and seem to revel in depression. Sometimes telling it in a way as to grab headlines is not good – even if what is said is true. Run on the Northern Rock, anyone? If the general consumers were more blinded to the mechanics of what is happening then maybe they would be spending a bit more – which in turn would help support the economy. Being told how bleak things are – in a very dramatic and unnecessarily over the top way – will simply make people more nervous and so spend less: The fear of a recession causing a recession. Nothing happened yesterday to warrant the wipe-off, it happened due to sentiment. The same sentiment as the general public are being fed

  • 62.
  • At 04:36 PM on 22 Jan 2008,
  • Jim Laird wrote:

Why is the fall in Arsenal bond values reported as if it were bad news for the club? They've sold the bonds and built the stadium, and the fall in value is no reflection on their creditworthiness. If they have some spare cash they could even buy back the bonds on the cheap. This is more likely to be a problem for clubs which want to issue bonds/borrow money in the near future. Oh yes, White Hart Lane is looking pretty shabby compared to the Emirates.

  • 63.
  • At 04:43 PM on 22 Jan 2008,
  • John Constable wrote:

#52 Ian Harris

Thank you for that .. I looked it up via your link and eventually decided to use M4 and then went to the BoE website for the numbers.

Unfortunately, the only numbers I could find for M4 went up to 2002 (£690Bn) but we can see that there is an average growth in M4 so I ended up with a figure of roughly £884Bn as the current M4 figure.

So, if somebody at the BoE punched in £55Bn to 'fund' NR, then this would seem to increase M4 by roughly 6.2%.

Now how will that feed through to the 'rate of inflation'?

  • 64.
  • At 04:58 PM on 22 Jan 2008,
  • Mike Dixon wrote:

The problem is debt, debt and more debt. Cutting interest rates will have no effect on that. Try reducing the interest rate to 1 percent and then asking the Head of Ford to return the 23 billion bollars they borrowed on the secrity of their own plants to keep going. See what answer you get.

All that is going to happen - and it is a big all - 1) US inflation is going to rise even quicker and 2) holders of dollar credits around the world ar going to dump them as qickly as possible. Libia have just placed contract worth 40 billion Euros with four European countries, to be paid for in Dollars at the exchange rate ruling at the time of payment. So much for the US Dollar being the world reserve currency - not any more it isn't.

  • 65.
  • At 10:24 PM on 22 Jan 2008,
  • Rude Boy wrote:

#1 Christian Evans
Scared? It should be your neighbours that are scared.
Do they know you are stockpiling propane?
Does the local fire brigade?
Does the HSE?

Still, I suppose your gold will survive the fireball and could be used to pay your fine if you survive or just compensation if you don't.

  • 66.
  • At 11:00 AM on 23 Jan 2008,
  • Ian Harris wrote:

John, post 63 the December money supply figures came out yesterday.

A good day to bury bad news. Please see the attached.

http://www.bankofengland.co.uk/statistics/m4/2007/dec/provm4.pdf

Money supply grew by more than double the trend rate in December by £ 25 billion.

The increace in money supply has been on average 15% over the last year as the government deperately tries to keep the embers of economic growth alive.

  • 67.
  • At 11:01 AM on 24 Jan 2008,
  • simon davis wrote:

Last Friday both the UK and US markets closed above key support levels at option expiry. In fact the US looked quite encouraging as the Dow tested the 12050 level and closed above this. The same was true for the FTSE also held above 5850. Over the weekend however somebody decided with the monoline issue and began to sell dow nasdaq and S+P futures heavily taking advantage of the fact the markets were highly illiquid as a result of the Martin Luther King holiday in the States. Only futures were open and then only until 11.30. Faced with a 5% plus decline in all indices the markets collapsed on Monday. Curious as the US was shut. Asia followed and every body was quaking in their boots on Tuesday. Ben having seen the carnage cut be .75 and the DOW only closed down 1.2%. Fancy. Same stunt was pulled yesterday with US futures again leading to a trashing of markets in Europe. The Dow opens goes down 2.5% and then closes up 2.5%. Conclusion. In my opinion, notwithstanding that there is a great deal of anxietey atm the markets have been legged over by a deliberate and calculated move. Somebody has made a lot of money. I guess we will find out soon who when the investment banks reveal their figures for 1Q. Any guesses?

  • 68.
  • At 06:04 PM on 24 Jan 2008,
  • John Constable wrote:

#66 Ian Harris

I think this is key ... the money supply growing at this sort is rate (15%) cannot be healthy, except compared to Zimbabababwe of course.

However, you would wait forever for a politician to come out and say that 'the pound in your pocket now buys 15% less than it did a year ago'.

We would expect a financial journalist to be on the case though (hint).

BTW. Is it me or is the gross current value of M4 (i.e £nnnBn) very hard to find on the BoE website, although you could understand why they might wish to obscure this number.

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