TSX 3-day losses top 900

TSX 3-day losses top 900

RTGAM

Another day, another rout.

The spectacular selloff on North American stock markets continued Thursday, with Canada's benchmark index now suffering three-day losses of more than 900 points.

The S&P/TSX composite index, which has been hit hard on the notion that a U.S. economic recession will curb demand for Canada's commodities, dropped 279.64 points or 2.14 per cent to 12,795.64. Materials, mining, metals and energy stocks had the sharpest declines, although no sector was immune.

The index officially entered correction mode on Wednesday, having lost around 12 per cent since its Oct. 31st high. It has dropped about 903 points in the last three sessions alone.

Growing pessimism about the prospects for the U.S. economy did most of the damage again, as investors reacted to a U.S. regional report that showed manufacturing activity slowed and comments from Fed head Ben Bernanke, warning that the risks of a U.S. downturn are mounting.

The Dow Jones industrial average tumbled to a 10-month low of 12,159.21, shedding 306.95 points or 2.46 per cent. The S&P 500 composite was off 39.95 points or 2.91 per cent while Nasdaq composite fell 47.69 points or 1.99 per cent.
According to Bloomberg, the U.S. indexes are nearing so-called bear markets levels - declines of at least 20 per cent from highs.

The selling picked up after the Federal Reserve Bank of Philadelphia reported its index of manufacturing activity in the region contracted sharply in January, falling to its lowest reading since October, 2001.

"This is bad," Ian Shepherdson, chief U.S. economist for High Frequency Economics, said of the report. "This is very alarming, because we had pinned our hopes on the relative strength of the corporate sector offsetting some of the housing hit."

Mr. Bernanke added to the gloom by telling Congress that the risks of a recession are increasingly pronounced and that the housing sector will act as a drag for most of 2008. Earlier in the day, a U.S. report showed construction of new homes in December fell to its slowest pace in 16 years.

Economists at Goldman Sachs said Thursday that Mr. Bernanke's comments, along with the extremely weak Fed manufacturing and other economic data, suggest the U.S. central bank will cut rates by 50 basis points at its next meeting.
Credit concerns also dogged Wall Street Thursday after rating agency Moody's Investors Service placed bond insurer Ambac Assurance Corp. on review for a possible downgrade.
With files from wires.




Copyright 2001 The Globe and Mail

Peter Grandich On The Markets 2007+2008

Quick Note –

I have a special fondness for Canada (except the Vancouver Canucks, who are once again leading their poor suffering fans to yet another big disappointment come playoff time) and while I believe it’s in much better shape than its neighbors to the south, I don’t think it can escape being impacted by what’s unfolding here. Like it or not, Americans buy more than three-quarters of everything Canada exports, which accounts for nearly a quarter of Canada’s GDP. Yes, it may no longer be true when America sneezes Canada catches cold, but it appears prudent for Canadians to at least put on a sweater and gloves.

CAUTION

The Sub-prime mess and an economy heading toward or already in recession is most likely going to create some headlines like this in the not-too-distant future: “Troubles in the Corporate Debt Market.” Up until this fall, defaults on corporate bonds were at their lowest levels in more than 25 years. But, with an absolute binge of borrowing in this millennium and an economy heading for the dumps, I anticipate heightened concerns going forward in the so-called “high yield” (who buys low-yield bonds, anyway-lol) market. Citigroup’s (yes, they are in trouble themselves) credit research team has issued a warning worthy of heed:

Summary –

The public-at-large, especially those poor souls who watch “TOUT-TV” (CNBC-TV), have no real idea how enormous this crisis is. First and foremost, the debt markets are ten times larger than the stock market yet most investors misunderstand it or watch it - UNTIL NOW!!! Economic life begins and ends with the debt market as financings for governments, companies and pension funds with credit instruments are done there on the belief loans will be repaid on a contracted schedule with interest.

Here’s why I believe history will end up not being kind to former Fed Chairman Greenspan: banks and pensions profited when there was a wide difference between short and long term interest rates. They took in on the short side and loaned/invested out on the long side. But thanks to Greenspan’s allowing rates to fall incredibly low and seeing the yield curve all but disappear, banks and pensions ended up willing patsies for the plethora of exotic instruments Wall Street created at the expense of borrowers who could least afford the risk. Now the time has come to pay the piper in the debt market, and for America to pay for years of living way beyond their means.