Global markets fell to levels not seen in years on Monday as fears concerning the credit crisis mounted. Despite bank bailouts in the U.S. and Europe, confidence in the financial sector remains dangerously low, and even commodities and futures are suffering in a climate of uncertainty where each decline causes as much psychological damage as it does financial.
In a drop that some commentators have called “a lost decade,” the Dow Jones slipped beneath the 10,000 mark, which it first reached on March 29, 1999. There were 3,080 declining stocks compared to 78 advancers total on the New York Stock Exchange.
Asia/Pacific markets also took a sharp and psychologically painful drop, as the Japanese Nikkei posted its lowest close since 2004 on Monday, while in Seoul the Kospi index fell 4.3 percent with declining issues outnumbering advancers by a ratio of almost 10 to 1. Sydney’s S&P/ASX All Australian 500 declined 3.3 percent, and Hong Kong’s Hang Seng index dropped 3.4 percent.
However, Europe seems to be facing greater concern and crisis. A string of bailouts began last week with assistance from three countries to Fortis NV, but after the bank declared that it could still not continue operations, the Dutch portion of the company was seized Friday by the Dutch government. Under approval by the European commission, the British government took control of mortgage lender Bradford & Bingley PLC and will sell the ailing company’s deposits and assets to Spanish bank Santander.
In Berlin, the German government pledged to back Munich-based Hypo Real Estate Holding AG. German Chancellor Angela Merkel promised, with finance minister Peer Steinbrück, that all private bank deposits would be protected and that irresponsible bankers would be held accountable for their part in creating the crisis, according to The New York Times.
As uncertainty of a global downturn rises, commodities and futures are declining with the equity markets. After seeing a slow rise for most of last week, crude oil prices dropped to an eight-month low beneath $90 a barrel with falling demand. Meanwhile, futures for agricultural staples, including corn, wheat and soybeans fell dramatically overnight, according to AgWeb.
Weakening crude prices have taken a toll on gold as well, which saw an extremely volatile week. The price per ounce touched a nine-week high of $926.20 and a low of $817.45. Among other precious metals, copper saw one of its worst weeks in decades while silver showed signs of weakening.
Low-return investment havens, such as treasury bonds and bills, are seeing increased demand despite falling yields for both short- and long-term investments. On Friday, the yield for a three-month Treasury bill fell from 0.50 to 0.33 percent while the yield on ten-year notes fell from 3.60 to 3.45 percent, according to The New York Times.
However, not everyone believes that the commodities market is truly a bear market just yet, though it is facing correction. In an interview published by NDTV on Saturday, investor and economic commentator Jim Rogers said, “There is no question that commodity prices have cooled off, but that is the way the market works. You always have consolidation and correction. Three times in the last nine years, oil prices have gone down by 50 per cent, and each time it was not the end of the bull market…In the 1970s, gold went down 50 per cent, but after two years it turned around and went up 850 per cent.”
Rogers continues by saying that there is no telling how long the slowdown will last, but suggests that is always just a matter of time. “[Commodity prices] will have a consolidation but if you are suggesting the world in a perpetual economic decline, then we will never have any bull market.”
“Over the past many decades commodities and stocks have gone in separate ways. If you can balance your portfolio then one of the best things you can use is commodities.”
Others are optimistic that this turmoil will bring about greater integration and unity in Europe and worldwide. As quoted in The New York Times, Sylvester Eijffinger, a member of the monetary expert panel advising the European parliament, said, “First we had economic integration, then we had monetary integration…but we never developed the parallel political and regulatory integration that would allow us to face a crisis like the one we are facing today.” Mr. Eijffinger added, “Progress in Europe is usually the result of a crisis…This could be one of those rare moments in E.U. history.”
The question is, will progress come fast enough and will European, Asian and American markets find ways of buoying each other up, or will they drag each other down?