Bush fails to calm battered stock markets

To think I’d just said the economy was boring! This, by the by, is my favourite of the stories making up the pictures.

The White House last night made a concerted attempt to inject fresh confidence into the world’s battered stock markets as share prices suffered a new day of falls on fears that a credit crunch will end an era of cheap funding for corporate takeovers.

With Wall Street down 100 points in early trading after Thursday’s 311-point plunge, Mr Bush and his treasury secretary, Hank Paulson, downplayed fears of contagion from the crisis-ridden real estate market and claimed that the US economy was strong.

Are they out of their fucking minds? For a start, nobody with actual money at risk is subsequently stupid enough to believe either (i) the canard about sub-prime mortgages being contained (will Greenspan please bend Bernanke over his knee and give him a good hiding?), or (ii) that the Bush administration can manage anything, ever. Hell, while a good economy and two odds-on favourite wars go to utter shit around them, they’re busy cooking up arms deals with the Saudis (nothing at all to do, I’m sure, with the weird sale-price they got on Saudi Aramco oil, a week or two back).

You’ll note that deal sells advance US weapony to “Saudi Arabia, other Arab allies of the United States and to Israel”. Thanks for all the hard work on peace in the Middle East and keeping down the proliferation of weapons, you bastards. It also includes “allies of the United States” such as Egypt – whose relative lack of those freedoms and democracy we’re exporting Bush and Rice themselves have criticised, repeatedly. At least now we’ve given them the weapons with which to fight back.

So here’s a tip for the White House: you guys don’t seem to have any sense of shame or, say, reality. But when everything from equity deals to hedge-fund-speculated commodities to housing to the risk profile of banks is tipping over, it’s best not to go on television, spewing pure fantasy and generally appearing like desperate, shrieking incompetents are at the helm of the ship of state. That might work with Fox News and CNN, but you’ll find the Stock Exchanges of the world are populated by intelligent people, not shills and hacks. This isn’t MSNBC’s bloody Trader Talk; it’s the actual traders.

So that was interesting. Meanwhile, more and more, writers are pondering aloud about Big Ones (market crashes, not Aerosmith albums). I never particularly gave this credence, given the differences (the biggest being that the Big One was a crash in value – actual value – rather than what had been occurring here), but those differences aren’t so stark anymore:

• According to Moody’s Economy.com, 2.5 million first mortgages will default this year. Delinquencies should peak in the summer of 2008 at 3.6% of all outstanding mortgage debt, up from 2.9% in the first three months of 2007, and it won’t get better until 2009. That’s driven by sub-prime and Adjustable Rate Mortgages, and it will most certainly affect everything from auto sales to garden hoses to curtains.
• New and Existing homes drift forever (and sometimes sharply) downwards – meaning the stocks of building companies are taking a hit. Shares of major homebuilders plunged to the lowest in almost four years after D.R. Horton Inc. and Beazer Homes USA Inc. reported losses totalling $US1.47 billion on lower sales and huge write downs of unsold land and houses.
• As bond sales go awry, and as lenders of money are unable, increasingly, to sell that debt on as bonds, banks are stuck with bonds and other debt that nobody wants, increasingly junk-rated and likely to vanish anyway. Shares for Deutsche Bank and Citigroup, among others, fell 5% and 4% respectively yesterday.
• Oil is, ultimately, down (I’m not eating my hat yet – or is it crow?) a couple of cents, as hedge funds drop their investments in them. So is gold, copper, nicel, etc. (Australians: this will effect immediately the value of the commodities boom, not to mention the Australian Dollar, which is already down).
• Sadly, even things like the Wesfarmers purchase of Coles Group, which I loved, are in great danger. Wesfarmers, you will recall, was doing it old school – straight cash and share offer. Well, their share price is off the cliff. Meanwhile they’re the only buyer, though – the other bids were from Private Equity, who ultimately couldn’t find a loan-bridge-er to back their play. So Coles Group can look forward to their value tanking, too.
• If the US sneezes? Euro is down, AUD and others are down. Our All-Ords (Australia’s Dow Jones, if you will) lost ground, while Asia had it’s worst week in a year, as the S&P 500 has its worst in 5 years. Canada’s week was the worst in 6 years. Bloomberg tips US stocks to fall 10%, based on options trading.

There are two things at work: one is Bloomberg’s Housing Recession, which is properly heading for being an Actual Recession; the other is the capital markets, or credit crunch (a term that, for some reason, I really do not like). Capital drying up means more and more Private Equity deals are falling through – meaning that, if these aren’t likely to come through, or even come up, shares that are declining will continue to decline, because the expectation of an Equity buy-out won’t exist (and this has been fairly key in keep the paper value of a lot of firms buoyant – like Coles Group). Every story, lately, talks about risk aversion being nearly at its lowest – and it probably isn’t finished.

So, what? Nothing, really. Returning to Moody’s, their Moody’s Economy.com In the News is a telling list indeed:

Stocks down, currencies tied to the US down, housing down, etc. The only ‘up’ news came from the government – meaning it was a pitch, not a story.

In some good news, the US economy did go a little ahead of predictions, based on exports (that low US dollar), commercial and government spending. Commercial contruction, though, won’t last. The durable goods numbers are down, when aircraft, cars and trucks are removed, indicating that commercial investment is down. Government spending can only last while government borrowing can last – i.e. not forever. Exports might hold, though. Remember that old Macroeconomics equation:

Aggregate Demand = Consumption + Investment + Government Expenditure + Net Exports

Aggregate Demand also is Aggregate Expenditure and Incomes.

Consumption is already falling, thanks to the housing problem; Investment looks like it is declining, and ought to anyway, as consumption catches up and the credit problem fills out. That leaves Exports, at the mercy of the US dollar (which can’t be allowed to decline too far, because you need it for your borrowing – a complication that has upward pressure on US interest rates, which will hurt the economy further), and Government Expenditure, which (i) is already too large, relative to income, and (ii) is yet, to me, to be undertaken at all competently by the Bush administration, who seem never to have taken a Macroeconomics class in their collective lives.

Gets messy, doesn’t it? And what picture are these thousand words (no, I did not count them) worth?

Dow Jones:

S&P 500:

Which may as well be the FTSE100, the EUROFIRST 300, the NIKKEI, the ALL-ORDS. Take your pick.

A stroll through the S&P Goldman-Sachs Commodities Indices will give you the same losses or volatility in returns on cocoa, coffee, corn, gold, industrial metals, you name it. It’s a long list.

The Big Picture blog is also looking specifically at how – relevant to the rose-tinted press conferences being given – the US economy has lagged the world by a good long way for a good long while, now (we use the terms “Bush Boom” with not a little irony. Or sarcasm, it kind of depends on the tone).