It's Recession 101 As Crisis Deepens

The Age

Wednesday October 8, 2008

By Ian Munro, New York

WALL Street's crisis is no longer its own. Now it has events overseas to spur its panic.

Recently the Street's buzzword for its market outlook has been "choppy", but that only serves to disguise the fact that its choppiness is on a receding tide.

Right now no one is prepared to guess where this wild ride will end, although "choppy" did fit trade on Monday when, from the opening, the market slumped 270 points, before recovering a third of its losses, then plunging back down again. That was in the initial 15 minutes.

"I think we have gone beyond panic to capitulation, and now right through to despondency," Standard and Poor's chief equities analyst Sam Stovall said. Against its highs of October last year, the New York market has lost 30% of its value.

"Choppy is a stiff-upper-lip way of describing what's happening. I have been trying to think how close are we to the bottom." He thinks - and hopes - the bottom is near, and that the problem has quickly become global.

The US economy, however, was deeper into recession than other economies, he said.

Last week's bad news was job losses and collapsing car sales. This time the share market collapse was fuelled by news of banking crises and an easing currency in Europe and of failing markets in Asia. Also oil fell below $US90 ($A120) a barrel.

As this week drags on, the first US corporate profit reports are expected to kick off a new season of bad news and weak performances. Confirming the gloom, most Americans believe the country is headed for a full-blown depression, according to a CNN poll.

This week New York became the latest state to indicate it faced a budget crisis and needed to find $US2.6billion in savings urgently. Governor David Paterson said he was bringing forward the budget process by six weeks to head off a possible downgrading of the state's credit rating.

His comments come less than a week after Californian Governor Arnold Schwarzenegger said his state might need a $US7billion federal loan because it was unable to borrow on frozen credit markets.

In Washington, US Treasury officials said they would act to implement a massive bail-out plan for the financial sector, seeking bids by today to manage the troubled mortgage-related assets at the root of the crisis.

There is a growing realisation that the US economy is slowing harder than had been expected and that world economies are now following suit, but with the toughest times ahead of them.

Mr Stovall said that with the distraction of Congress' $A900billion bail-out legislation out of the way, attention had refocused on the economy. "We have to wait to see if (the bail-out) will do any good," Mr Stovall said. "We're back to Recession 101."

© 2008 The Age

Back to News Index | Back to Home