Jan. 1 (Bloomberg) — U.S. stocks plunged the most in 2008 since the Great Depression as financial shares collapsed, energy and metal producers tumbled and the world’s biggest economy suffered a yearlong recession.
Citigroup Inc., Bank of America Corp. and Goldman Sachs Group Inc. retreated more than 60 percent as 80 out of the 84 financial institutions in the Standard & Poor’s 500 Index declined. Exxon Mobil Corp. and Freeport-McMoRan Copper & Gold Inc. fell as the Reuters/Jefferies CRB Index of 19 raw materials dropped a record 36 percent. Caterpillar Inc. sank 38 percent as the U.S., Europe and Japan experienced the first simultaneous contractions since World War II.
“They will write about this year for a long time,” Duncan Niederauer, chief executive officer of New York Stock Exchange owner NYSE Euronext, said in an interview. “It’s been, in one word, tiring.”
The S&P 500 decreased 38.5 percent, the most since the 38.6 percent plunge in 1937, to 903.25 and sank to an 11-year low of 752.44 on Nov. 20. Volatility increased, with the index rising or falling 5 percent in a single day 18 times. The Dow Jones Industrial Average slumped 34 percent to 8,776.39 for the steepest drop since 1931.
• FTSE 100 has lost 31% of its value in 2008
• Russia down 72% and China off 65%P
A trader reacts to the falling FTSE 100 at CMC Markets in London. Photograph: Alastair Grant/AP
A record $14 trillion (£9.7tn) has been wiped off world share values in 2008 as many stockmarkets around the world suffered their worst 12 months on record.
Turmoil in the financial system and the worst global recession since the 1970s have sent shares reeling. Global stocks, as measured by the MSCI index, have fallen by a record 44% over the year.
In London, the FTSE 100 index lost 31.3% in 2008, its worst annual decline since it was created in 1984, and following a 3.8% gain in 2007. It edged up 0.94% to 4434.17 on the last trading day of the year, a gain of 41.49 points. Banks, at the centre of the financial storm, were among the biggest losers ranging from HBOS, Royal Bank of Scotland and Lloyds TSB to Barclays. Mining companies Kazakhmys, Xstrata and Rio Tinto also fared badly as the economy worsened.
Investors pulled a net $32bn from hedge funds last month, making 2008 the first year in their recorded history that the funds have had significant outflows and ending the industry’s 18 years of asset growth.
Money has been taken out of funds following every strategy, even those – such as macro funds – which were showing returns, according to data from fund trackers Hedge Fund Research.
The funds enjoyed net inflows for the first part of the year, even as the financial crisis hit and traditional mutual funds began to show outflows.
However, in September a tide of redemptions began, according to TrimTabs, another fund tracker.
Conrad Gann, chief operating officer of TrimTabs, said: “We estimate outflows in November were $32bn, and there is an additional pipeline of redemptions that have not been filled, there could be $80bn [of redemptions] in December.
“There are $57bn of redemptions that we know are in, that are not reflected yet,” he said.
The U.S. military is now spending more – on a constant dollar basis – than it did in 1968, when the Defense Department had more than 500,000 soldiers stationed in South Vietnam. If you include the cost of the wars in Iraq and Afghanistan, then the U.S. military spent about $580 billion in 2007; that’s about 33 percent more – again, measured in constant (year 2000) dollars – than the United States spent in 1968. Even without the cost of those ongoing wars, America’s military spending is higher now than at any time since 1945.
A recent study by the Center for Strategic and Budgetary Analysis, a Washington-based think tank, provides yet more sobering numbers. The report, written by the CSBA’s Steven M. Kosiak, concludes that “since 2001, some $904 billion has been provided to cover the cost of US military operations. This includes some $687 billion for Iraq, $184 billion for Afghanistan and $33 billion for various homeland security activities.”
‘Hellhouse’ of personal data will be created, warns former DPP
The private sector will be asked to manage and run a communications database that will keep track of everyone’s calls, emails, texts and internet use under a key option contained in a consultation paper to be published next month by Jacqui Smith, the home secretary.
A cabinet decision to put the management of the multibillion pound database of all UK communications traffic into private hands would be accompanied by tougher legal safeguards to guarantee against leaks and accidental data losses.
But in his strongest criticism yet of the superdatabase, Sir Ken Macdonald, the former director of public prosecutions, who has firsthand experience of working with intelligence and law enforcement agencies, told the Guardian such assurances would prove worthless in the long run and warned it would prove a “hellhouse” of personal private information.
“Authorisations for access might be written into statute. The most senior ministers and officials might be designated as scrutineers. But none of this means anything,” said Macdonald. “All history tells us that reassurances like these are worthless in the long run. In the first security crisis the locks would loosen.”
Looking back in our archives this Christmas I came across a rather important article which I had half forgotten about. It dates from 2006, when the credit crisis was a mere apple in the financial system’s eye and the City was enjoying one of its biggest booms in history. The article, which can be found here, reveals that the Bank of England knew precisely what risk was posed by the dangerous build-up of debt which was brewing in the economy.
More strikingly, its Financial Stability Report from 2006 was as far as I can tell the first major institutional missive explicitly warning about the dangerous funding gap building up in the British banking system.
As recession fears cause the nation to embrace greater state control of the economy and unimaginable federal deficits, one searches in vain for debate worthy of the moment. Where there should be an historic clash of ideas, there is only blind resignation and an amorphous queasiness that we are simply sweeping the slouching beast under the rug.
With faith in the free markets now taking a back seat to fear and expediency, nearly the entire political spectrum agrees that the federal government must spend whatever amount is necessary to stabilize the housing market, bail out financial firms, liquefy the credit markets, create jobs and make the recession as shallow and brief as possible. The few who maintain free-market views have been largely marginalized.
Taking the theories of economist John Maynard Keynes as gospel, our most highly respected contemporary economists imagine a complex world in which economics at the personal, corporate and municipal levels are governed by laws far different from those in effect at the national level.
A for sale sign stands outside a home in Boston, on Sept. 5, 2008. Photographer: Michael Fein/Bloomberg News
Dec. 30 (Bloomberg) — Home prices in 20 major U.S. cities declined at the fastest rate on record, depressed by mounting foreclosures and slumping sales.
The S&P/Case-Shiller index declined 18 percent in the 12 months to October, more than forecast, after dropping 17.4 percent in the year through September. The gauge has fallen every month since January 2007. Year-over-year records began in 2001.
The financial market meltdown that’s reverberated around the globe has prompted banks to curb lending, signaling the housing slump will persist for a fourth year in 2009. Falling property values have eroded household wealth, causing consumers to pare spending and deepening what is projected to be the longest recession in the postwar period.
U.S. one hundred dollar bills are displayed for a photograph in New York on Dec. 30, 2008. Photographer: Daniel Acker/Bloomberg News
Dec. 31 (Bloomberg) — The dollar fell, heading for its worst annual decline against the yen in more than two decades, on speculation a U.S. report this week will show manufacturing shrank at the fastest pace since 1980.
The currency was also poised for a third annual loss versus the Swiss franc on bets the Federal Reserve’s zero target lending rate will weigh on demand for the greenback. The euro was set for the largest annual gain against the British pound since its 1999 debut on speculation the Bank of England will keep its main lending rate lower than the European Central Bank’s rate.
A column of Israeli armored vehicles is deployed in a farmer’s field Tuesday near the Gaza border.
GAZA CITY (CNN) — Israel’s fourth day of attacks in Gaza sent the Palestinian death toll to more than 375 as the Jewish state’s prime minister warned Tuesday that the air offensive marked only the beginning, according to officials.
“We are currently at the first stage of the operation,” Prime Minister Ehud Olmert told President Shimon Peres during a morning briefing, officials said.
A girl in Caracas, Venezuela, holds a sign reading, “No more massacre in Gaza” at Israel’s embassy Monday.
Olmert’s summation came a day after Defense Minister Ehud Barak told Israel’s parliament that the campaign launched Saturday marked an “all-out war” against Hamas, the Islamic militant group that rules Gaza.Continue reading »
For three straight days, Yellowstone National Park has been shaken by a serise of small earthquakes. Scientists are watching to see whether the tremors are signaling something bigger to come. (ABC News Photo Illustration)
CHEYENNE, Wyo. (AP) – Yellowstone National Park was jostled by a host of small earthquakes for a third straight day Monday, and scientists watched closely to see whether the more than 250 tremors were a sign of something bigger to come. Swarms of small earthquakes happen frequently in Yellowstone, but it’s very unusual for so many earthquakes to happen over several days, said Robert Smith, a professor of geophysics at the University of Utah.
“They’re certainly not normal,” Smith said. “We haven’t had earthquakes in this energy or extent in many years.”
Smith directs the Yellowstone Seismic Network, which operates seismic stations around the park. He said the quakes have ranged in strength from barely detectable to one of magnitude 3.8 that happened Saturday. A magnitude 4 quake is capable of producing moderate damage.
“This is an active volcanic and tectonic area, and these are the kinds of things we have to pay attention to,” Smith said. “We might be seeing something precursory.
Billionaire Kirk Kerkorian, whose Beverly Hills-based investment company confirmed Monday that it had dumped its remaining stock holdings in struggling Ford Motor Co., had had a long, if not always profitable, relationship with Detroit. Associated Press
The investor spent about $1 billion acquiring a 6.5% stake in the struggling automaker this year, then saw the value of its stock plummet.
Kirk Kerkorian wasn’t kidding when he said he was putting the brakes on his latest foray into the auto industry.
A spokeswoman for Tracinda Corp., the billionaire’s Beverly Hills-based investment company, confirmed Monday that it had dumped its remaining stock holdings in struggling Ford Motor Co. She declined to provide details of the stock sales.
Kerkorian owned 107.1 million Ford shares, or 4.9% of the company, in late October, when Tracinda reported in a regulatory filing that it had unloaded 7.3 million shares and planned to sell the rest of its holdings by the end of the year.
Because it owned less than 5% of the company — the regulatory threshold for reporting changes in stock ownership — Tracinda was not required to file information with the Securities and Exchange Commission regarding the more recent sales, such as when the shares were sold or at what price.
But Kerkorian, who began buying Ford shares in April and spent about $1 billion acquiring a 6.5% stake in the automaker, clearly took a bath on the investment. Ford was trading at about $7.75 a share when Kerkorian began acquiring his stake. The average price since his last SEC filing in late October: $2.33 a share.
Vehicles bound for export wait in a lot in Yokohama City, Japan on Oct. 27, 2008. Photographer: Haruyoshi Yamaguchi/Bloomberg News
Dec. 30 (Bloomberg) — Japan’s economy will probably shrink at an annual 12.1 percent pace this quarter, the sharpest drop since 1974, as exports collapse, Barclays Capital said.
Gross domestic product in the three months ending tomorrow will fall at almost three times the 4.1 percent rate previously predicted, said Kyohei Morita, chief Japan economist at Barclays in Tokyo, after reports last week showed industrial production and exports posted the biggest declines on record in November.
“Given the speed and the length of the contraction, this recession could be the most severe in the postwar era,” Morita said. “We expect negative growth will continue for a fifth straight quarter to the April-June period of 2009.”
The Japanese stock market on Tuesday morning completed its investment year with its usual half-day, Dec. 30 session. That won it the dubious honor of being the first major global stock market to put its 2008 performance in the books — and its double-digit loss is likely to be followed by most of the rest of the world.
The Nikkei Stock Average’s glory days above 38000 are a distant memory, as the Japanese stock market has completed its dismal 2008 investment year. Pictured, a trader in Tokyo earlier this month. Associated Press
The Nikkei closed up 1.3% to finish at 8859.56, booking its worst year ever with a loss of 42%. This follows an 11.1% decline for 2007. On a positive note, the index marked its first positive month since May.
More striking is the Nikkei’s comedown from its heights two decades ago. In 1989, on the last trading day of that year, Tokyo’s blue-chip index had touched an all-time high of 38915.86.
On Monday, the final full trading session of the year, the Nikkei had closed at 8747.17, down 7.65 points or 0.09%.
Insurance stocks in Tokyo on Monday surged in the wake of reports that Mitsui Sumitomo Insurance Group, Aioi Insurance and Nissay Dowa General Insurance were in talks to integrate their operations by next autumn.
In a statement posted on its Web site, Mitsui Sumitomo wrote that “no decision that needs to be disclosed has been made.” Mitsui Sumitomo rose 8.3%, Aioi soared 19% and Nissay Dowa jumped 15%.