World Financial Markets In Freefall -- Double, Double Toil And Trouble

IS RECESSION INEVITABLE? ANALYSTS STEER CLEAR OF THE "D" WORD

by David Hinz

American markets are closed today, in honor of the Martin Luther King holiday. But while our markets sleep, other financial markets around the world are harbingers of crisis.

Like the three witches in Macbeth, calling for calamity, we would do well to examine the portents pointed to by those world markets.

HONG KONG (Thomson Financial) - Hong Kong shares closed Monday sharply lower, with the benchmark Hang Seng Index settling below 24,000 points for the first time since September, as investors dumped blue chips on fears about the outlook for the US economy.

Fears of economic slowdown in the United States has caused a freefall of world markets, an indication that the world understands what few Americans do -- the United States drives the world economy.

Around the world, as market after market closes sharply down, the fears of an American Recession casts a pale among world investors.

The Hang Seng Index closed down 1,383.01 points or 5.5 percent at 23,818.86, after hitting a low of 23,770.13 earlier in the session.

The index dropped sharply in afternoon trade following steep declines in other major Asian bourses.

Mainland stocks led the losses on the Hong Kong index, with the Hang Seng China Enterprises Index down 1,029.87 points or 7.1 percent at 13,531.45.

It is becoming increasingly clear that world investors are putting little faith in the US government meeting the challenge through a "stimulus package" as proposed by President Bush.

As the earth turns, the market crisis which began in the far East, moves inexorably toward our own shores. In India, the markets saw their sharpest drop in more than four years.

Jan. 21 (Bloomberg) -- Indian stocks tumbled, with the benchmark index plunging the most in almost four years, on concern the U.S. will enter a recession and slow global growth and as investors placed funds into an initial public offering.

All 30 stocks on the Bombay Stock Exchange Sensitive Index fell after a sell-off by local investors exacerbated an outflow by foreign funds.

Europe has followed suit, as market after market has gone into freefall, mostly, we are told, over fears about the US economy. From Spiegel Online:

Markets crashed all across Europe Monday, with Germany's DAX losing 7 percent of its value. But analysts advise against panic -- in fact, they say, now might be a good time to pick up some cheap stocks.

....

It wasn't just the DAX which was hard hit. London's FTSE 100 index also fell 4.5 percent, while in Paris the Cac-40 dropped 4.6 percent. Elsewhere the Tokyo Nikkei 225 index fell by 3.9 percent. US markets were closed for a public holiday, however.

Interestingly enough, the prices of oil and gold are also sharply down, with oil standing at this moment at $88.65 and gold at $865, a drop of $16.50. Interestingly enough, the sell off in gold has been attributed, by some analysts as a liquidation of assets to meet margin calls.

The panic has bridged the Atlantic Ocean with Canadian stocks falling 4.1% and wiping out all of its gains from 2007.

The 520-point drop, which is about or 4.1 per cent of the market, trimmed more than $70 billion in value from the TSX on top of a 6.6 per cent dive last week that had already wiped out all of the market's gains for 2007.

Fears of Recession, or even dare I say, a World Depression, have analysts concerned. Anticipation of what the Federal Reserve will do to stem the tide, when markets open in the United States tomorrow, vary widely. Some are calling for a massive cut in the Federal Reserve Rate tomorrow, well ahead of their next scheduled meeting. Few believe, however, that such a move is likely.

And then, of course, there is the politics of the entire situation. Skeptics might question whether Democrats in Congress are even interested in stopping an impending Recession, and previous history has shown that they are more than willing to play politics with the lives of the American people.