THE HANDSTAND

MARCH 2007

DOW JONES BLAMES DROP ON
COMPUTER GLITCH
UPDATED

Investors on edge after week of turmoil

By Christopher Brown-Humes and Paul J Davies in London and Richard Beales in New York

Published: March 2 2007 18:30 | Last updated: March 3 2007 02:29

US stocks lost more ground on Friday after a turbulent week that saw European bourses endure their worst week for four years and Wall Street suffer its biggest one-day fall since markets reopened after the September 11 2001 terrorist attacks.

The global equity sell-off that began on Tuesday more than eradicated all this year’s gains, leaving investors on edge over the outlook for next week.

“Investors had become complacent about the outlook for the global economy, especially the US, and the prices of many risky assets had been bid to unsustainably high levels,” said Julian Jessop, of Capital Economics.

The flight from risky investments triggered a surge in volatility across financial markets. It began on Tuesday when Chinese stock markets fell 9 per cent amid concerns over the health of the US economy and the subprime mortgage market.

The worries about the US subprime mortgage market were underscored on Friday by the Federal Reserve and other US financial regulators who said they were worried that some borrowers did not understand the risks of such loans.

“It’s a classic risk sell-off after a very strong bull run,” said Robert Buckland, chief global equity strategist at Citigroup. “Whatever has gone up the most is going down the most.”

Wall Street, which suffered its steepest one-day fall in equities since 2001 on Tuesday, remained under pressure on Friday. The S&P?500 closed 1.1 per cent lower at 1,387.17, the second-worst day in a week in which the index lost 4.4 per cent. The Dow Jones Industrial Average was down 4.2 per cent on the week.

A flight to safety boosted global government bond prices, with 10-year US Treasury yields falling to 4.5 per cent from 4.67 per cent a week earlier.

The Nikkei 225 Average in Japan ended the week down 5.3 per cent and the Shanghai Composite index fell 5.6 per cent.

The yen climbed 3.5 per cent against the dollar as investors cut back “carry trade” positions, which involve borrowing in low-yielding currencies to buy higher yielding assets elsewhere.

In Europe, the FTSE Eurofirst 300 suffered its biggest weekly fall since March 2003, dropping 5.2 per cent. In London, the FTSE?100 fell 4.5 per cent to 6,116.2 – also its worst week since March 2003.

NEW YORK (AP) — When the Dow Jones industrial average plunged to its low of the session Tuesday, it happened with incredible swiftness — a matter of seconds — because of a computer glitch that kept some trades from being immediately reflected in the index of 30 blue chip stocks.

Dow Jones & Co., the media company which manages the flagship index, said around 2 p.m — just two hours before the New York Stock Exchange was to close — it discovered computers were not properly calculating trades. The company blamed the problem on the record volume at the NYSE, and switched to a backup computer.

MARKETS: Stocks plunge on concerns of global slowdown

The result was a massive swoon in the index that happened in the seconds it took Dow Jones to switch to its secondary computers.

"The market's extraordinary trading volume caused a delay in the Dow Jones data systems," said Dow Jones spokeswoman Sybille Reitz. "We decided to switch over to the backup system, and the result was a rapid catch-up in the published value of the Dow Jones industrial average."

Tuesday's Market Meltdown: Greenspan's “Invisible Hand" by Mike Whitney
www.dissidentvoice.org
March 1, 2007

Tuesday’s stock market freefall has former Federal Reserve Chairman Alan Greenspan’s bloody fingerprints all over it. And, no, I’m not talking about Sir Alan’s crystal ball predictions about the impending recession; that’s just more of his same circuitous blather. The real issue is the Fed’s suicidal policies of low interest rates and currency deregulation that have paved the way for economic Armageddon. Whether the Chinese stock market contagion persists or not is immaterial; the American economy is headed for the dumpster and it’s all because of the wizened former Fed chief, Alan “Great Depression” Greenspan.

So, what does the stumbling Chinese stock market have to do with Greenspan?

Greenspan was the driving force behind deregulation, which keeps the greenback floating freely while the Chinese and Japanese manipulate their currencies. This gives their industries a competitive advantage by allowing them to consistently underbid their foreign rivals. Big business loves this idea, because it offers cheaper sources of labor and allows them to maximize their profits. It’s been a disaster for Americans though, who’ve seen their good paying jobs increasingly outsourced while US manufacturing plants are dismantled and air-mailed to the Far East.

Greenspan has been the biggest champion of deregulation; it’s another way he pays tribute to the Golden Calf of “free trade,” the god of personal accumulation.

Equity markets tumble following Asia sell-off

By FT Reporters

Published: February 28 2007 05:43 | Last updated: February 28 2007 11:45

Stock markets took another hit on Wednesday as European equities moved lower, after indices plunged across Asia and in the US.

The losses followed a sharp sell-off on Tuesday sparked by worries about the sustainability of Chinese growth and the outlook for the US economy. However, European indices clawed back some of their sharp opening losses as US futures trade pointed to a strong opening rally on Wall Street.

By midday in Europe, the FTSE Eurofirst 300 was down 0.7 per cent to 1,486.78, following a 2.9 per cent slide – its biggest single-day decline in four years – in the previous session.

In London, the FTSE 100 fell 0.8 per cent to 6,237.7, while the CAC 40 in Paris shed 0.7 per cent to 5,549.36 and Frankfurt’s Xetra Dax lost 0.8 per cent to 6,764.75.

Stock markets across the Asia-Pacific region were weaker, continuing a global slump from the previous day that saw US stock indices posting their steepest drop since the September 11, 2001 terrorism attack.

In Asia, Japan led the falls as investors used the global slide as an excuse to lock in profits after a long bull run that sent the Topix index to a 15-year high earlier this week.

The Nikkei 225 Index, which was down by 700 points at one stage – its biggest single-session plunge since September 2001 – ended 2.9 per cent lower at 17,604.12, while the broader Topix shed 3.2 per cent to 1,752.74.

Chinese stocks, which recorded their biggest fall in a decade on Tuesday, steadied as the benchmark benchmark Shanghai Composite Index recovered 3.9 per cent to 2,881.07.

Malaysian stocks dropped, extending the biggest loss in almost six years, while Singapore ended 3.7 per cent lower and Seoul shares had their biggest fall in eight months.

In the US, the Dow Jones Industrial Average fell 3.3 per cent to 12,216.24, while the S&P 500 lost 3.5 per cent to 1,399.04 – the biggest one-day falls for both indicators since September 2001.

The majority of the drop came after the New York Stock Exchange had introduced trading curbs early in the afternoon – the first time computer trading had been limited since July – and coincided with technical hitches that delayed calculations of the Dow.

The Nasdaq Composite shed 3.9 per cent to 2,407.86.

The sell off in the US was aggravated by a weaker-than-expected 7.8 per cent drop in durable goods orders in January, worries about the US subprime mortgage market and a warning from Alan Greenspan, former chairman of the Federal Reserve, about a possible US recession punctured recent market optimism.

Emerging markets were the worst hit as investors removed cash from high-risk assets. In Turkey, the Istanbul share index was around 2 per cent lower, while Russia’s RTS index was off 2.1 per cent. Bank stocks exposed to these markets were worst fallers on European stock exchanges.

“Markets that have risen faster than others will face a sharper decline as hedge funds reduce their exposure,” said Mary Ann Bartels, chief US market analyst at Merrill Lynch.

Government bonds however, benefited from the pain felt in equity markets as investors continued to seek higher quality assets. The eurozone March Bund future jumped 17 ticks to 116.32, while March Gilt futures in the UK were 18 ticks higher at 107.76.

Blog comment from The Angry Arab News Service

Moyhabin said...: It seems that China is experiencing a financial melt-down and the US is entering into a recession. For quite a while I have been predicting that China cannot continue to purchase US's foreign debt (acquiring thus huge volumes of devaluating dollars) without in the end paying a severe price for it: uncontrolled financial speculation, inflation, and eventually a financial melt-dow. Economically the US is a sinking ship, and no matter how many resources China pumps into this declining Tin-tanic, in the end it will go down with it. As happened in the 1920's, the emerging hegemon (at the time the US)is succumbing and paying the huge prize for its desperate efforts to save the sinking hegemon (Britain at the time).

Hamish McRae: We fail to work with China at our peril

The US has to acknowledge, as it failed to do last weekend, that it is part of the problem

Published: 14 February 2007

If the leaders of the developed world cannot agree on a pretty obvious economic issue, how can they expect to get agreement with the new financial powers of China and India?

We had a good example last weekend of the inability of Group of Seven finance ministers to cope with the falling yen. You may not have noticed, but there was the biannual meeting in Essen, Germany. The yen is at a 21-year low against the euro. This is causing considerable grief in Germany, which not only has to compete against Japan in export markets, but is finding that Japanese cars are making sharp inroads into Europe. Viewed globally, we have a super-competitive Japan, racking up a huge trade surplus, mostly with the US but now increasingly with Europe, too.

The G7 ministers could not agree that this was a problem that needed attention: the Japanese did not want to be singled out and the Americans believe that if the market thinks the yen should be weak, so be it. So instead of showing concern, there was a bland communiqué that bumbled on about how well the world economy was doing, even if there were some risks ahead.

Yet most economists would accept that the Japanese surplus, plus the parallel Chinese one, are a huge problem. They are the counterparts to the US current-account deficit and a world where Japan and China pile up assets and the US piles up debts will have to adjust. Debts, even American ones, have to be repaid.

At least Japan is party to the G7 discussion. China and India are not. Yet, as is now widely appreciated, what China and India do is just as important to the world economy as France or Germany - more so, in fact, because they typically add more demand to the world each year than either. But while intellectually we in the West accept that economic power is shifting (and are reminded when an Indian company takes over what is left of British Steel), we have not yet thought through the consequences of this shift. Let's take three examples.

One flows directly from the risks to which the G7 failed to respond: what Japan and China are doing with their money. Japan seems content to pile up dollar assets, mostly in US Treasury securities - in effect, lending America the money to buy its goods. Up to now China has done much the same. But China is getting ratty at the poor return it gets on its money and is now trying to figure out ways of getting a better return.

Expect it to start buying US property and shares in American companies, in much the same way as Japan did in its first wave of overseas investment in the 1980s. The US just about put up with Japan buying the Rockefeller Center and Hollywood studios, but how will it react to China doing the same?

Not very well, I suspect. We in the UK have until now accepted foreign interests buying British companies, but the buyers have mostly been German, Spanish or American. We would, even with our open culture, feel rather different if the buyers were Russian or Chinese, maybe Indian too. We, however, are not a global problem, whereas the US, with a deficit more than 10 times our one, certainly is.

The second example concerns Africa. The West, with Britain playing a central role, is seeking to help sub-Saharan African economies improve their performance. Whether we are doing it well or badly, whether much of our aid is wasted, whether we should place stronger or weaker conditions on our funds - all these are hotly debated. Few people in the West appreciate, however, that the amount of investment that China is pumping into Africa is larger - in some cases much larger - than all the aid the West is giving. They are more important than we are.

The reason for Chinese interest is Africa's resources - Angola is China's largest oil supplier - so their motive is different. You could debate as to which approach will ultimately prove more beneficial, but it is hard not to accept that what China does in Africa will have more impact than what the West does.

The third example concerns the environment. Most people now appreciate that what China and India do is vastly more important than anything that Europe can do. Were the entire UK economy to disappear, its emissions would be replaced by those generated by Chinese growth in two years. Every three or four days a new Chinese coal-fired power station comes on stream.

We do not, however, connect this reality with policy. Take motor emissions: Europe is in a tangle about setting a low average carbon-dioxide emission limit for new cars. That is fine. But the reality is that motoring growth in China and India will dwarf anything we in Europe do or don't do. Both countries are racing to make the £3,000 new car. The aim: to make motoring really affordable for the masses. India has the world's single largest road-building programme. China will become the world's largest car producer in about 10 years.

The big point here is not that we should give up our efforts on Africa or the environment. Rather, it is that we should seek in everything we do to set our policies within the new realities of shifting economic power. We need to be honest with ourselves that our own prejudices don't carry much credibility in countries that think of themselves as more successful than we are.

So what should we do? Well, we don't need to dump all our priorities. Take, for example, our concerns about the environment. One of the things that Europe, and the UK, can do is to develop both technologies and work practices that are less wasteful. To take just one example, the UK seems to be making a lot of progress in developing teleworking, working either from home or from a variety of locations, using home as a base. In other words we are substituting electronics for physical travel.

That must be the way forward. Small fact: apparently, the UK has more wireless hotspots relative to population of any country in the world. We are effective when we develop technologies or applications that are globally significant, not when we try to lord it over others.

We need to think of the economic equivalent of "soft power" - power of influence and example rather than military power. That is, power of economic example rather than the power of economic might.

That goes, of course, for the entire developed world, not just Europe or the UK. It is no good the US attacking China for its trade surplus with the States when it fails to challenge Japan's trade surplus, too. The US has to acknowledge, as it failed to do last weekend, that it is part of the problem. It is tough for all of us to move from a mindset that, in economic terms, the old developed world is the sole place that matters. But we will only have influence with the new economic giants if we do.

The Independent

World stock slump hits second day

Some analysts fear the fall in share prices may last a number of weeks rather than days.

Investors are questioning the outlook for economic and earnings growth.

The current global stock sell-off was fuelled by speculation that China's government would try to clamp down on illegal share trading and might impose a capital gains tax on stock market earnings.

Stock prices and indexes had climbed to record levels in a number of key world markets, prompting some analysts to fear that shares may have gone too high, too fast.

The question facing many investors is how far and how long the fall in prices will last and whether or not the bull run that has driven stocks and indexes higher has now broken.

In May last year, the UK's FTSE 100 lost more than 9% as concerns about high oil prices and political global instability combined to impact on world markets.

China has been one of the main emerging markets for many investors, and its main stock index had more than doubled in value during the past year.

At the same time, key indexes in Asia such as Japan's Nikkei 225 were pushing to their highest levels in seven years.

Some analysts fear the fall in share prices may last a number of weeks rather than days.

"This sort of move by the market is a little worrying, and it looks like it has been caused by a build-up of concerns in recent days," said Angus Campbell, a trader at Finspreads.

"Memories of last May's correction have sent shivers through investors' spines as many market participants have used futures contracts to run for cover."

The worries hammered China's Shanghai index by nearly 9% on Tuesday, giving it its worst day in a decade.

The China wobble rippled out across Europe on Tuesday, and hit the US later in the day where it coupled with disappointing economic figures to push the Dow Jones 3.3% lower by the close of trading.

Asian markets then picked up on this negative sentiment, and by early Wednesday India's Sensex fell more than 3.8%.

Australia's main stock index shed as much as 3.5% and at one point was trading at a five-week low, before closing down 2.7%.BBC World News