Investors flee as fear factor swamps markets worldwide

There are times when Wall Street sees boogeymen around every corner. That pretty well describes today in the markets.

Stocks worldwide are being hammered even as oil and many other commodities slide again. The Dow Jones industrial average was down 286 points, or 2.5%, to 11,247 shortly after noon.

The only investments attracting buyers in a big way are government bonds -- the classic refuge. The yield on the 10-year U.S. Treasury note has tumbled to 3.63%, down from 3.70% on Wednesday and the lowest since April.

Fear is in excess supply today. Fear of what? Let’s run down the list:

--- Fear that the cash pinch on U.S. consumers is worsening, despite falling gasoline prices. The generally poor August sales reports from major U.S. retailers today confirmed the Federal Reserve’s report on Wednesday on U.S. regional economic trends, which mostly described conditions as "weak," "soft" or "subdued."

What’s more, the government’s report today that initial unemployment-benefit claims rose 15,000 to 444,000 last week sets the scene for the August employment data due Friday. Many analysts expect the report to show the economy lost jobs for an eighth straight month, which would further dim the outlook for consumer spending.

The jump in unemployment claims shows "the labor market remains in a recession-like situation," said economist Asha Bangalore at Northern Trust Co., in a report today.

--- Fear that things are worse in Europe than in the U.S. The European Central Bank today held its benchmark short-term interest rate at 4.25%, even though policymakers say they’re still worried about inflation pressures. The Bank of England also held its rate steady, at 5%. Given the deteriorating economic backdrop in Europe, central bank policymakers have little choice but to put inflation worries aside for now, many economists say.

In Germany -- Europe’s biggest economy -- new industrial orders tumbled 1.7% in July, the eighth straight drop, the government said today. The German stock market plunged 2.9%, leading a broad decline in shares across the region. In Britain last weekend, the finance minister, Alistair Darling, said the country’s economic woes would be "more profound and long-lasting than people thought."

"People are getting nervous about a real global slowdown," said Scott Gewirtz, head of Treasury bond trading at Lehman Bros. in New York. That is driving more investors into government bonds here and in Europe.

--- Fear that struggling economies in the developed world will drag down the developing world as well. Bad as the U.S. stock market has fared over the last four sessions, it’s still above its mid-July lows. By contrast, Brazil’s main stock index has sunk to a 52-week low today, and has plummeted almost 30% since late May. China’s Shanghai composite stock index also hit a new 52-week low on Wednesday.

--- Fear of more financial-sector fallout from the credit crunch. Jitters about the health of banks, brokerages and hedge funds had eased a bit in August, but they've come back to the fore today. Financial stocks are leading the market lower in this sell-off, thanks in part to an ominous new commentary from Pimco bond-market guru Bill Gross.

--- Fear that there’s just no good reason to stay in stocks in the near term. Given the rising risks to the global economy and the ongoing credit crunch, "it just feels like people want out of the market," said Dan McMahon, a trader at Raymond James & Associates.

What’s more, veteran investors know that September historically has been the worst month of the year for the stock market. So the feeling, McMahon said, is why fight it?

" ‘Sell the rallies’ is the mantra," he said. "You tell me -- why would you want to buy something now?"

Comments

[F. Hoffman]

Personally, I think it's the McCain/Palin factor. Responsible people in the US and the world are digesting the possibility of having a man, who admits he is ignorant regarding economics and computer technology, and a woman that personifies a caricature of Annie Oakley, being elected into office. Shivers and chills are racing down not only peoples spines, but through our financial centers. I mean, moose-killing or not, does anyone have a warm, confident feeling when imagining Palin sitting across from and DEALING with the likes of Vladimir Putin and Dmitry Medvedev? Until the election is over (and especially if McCain/Palin were to win), I think the American stock market in particular will be volatile.

[martscan]

While there was a time I would have agreed with F. Hoffman's comments wholeheartedly, since watching the Republican Convention I have done a complete 180. I now know that while in his dank cell for over 5 years, Dr. Strangelove, McCain, actually reread in his mind's eye, the entire works of Adam Smith, Keynes, Ricardo, Schumpeter, Malthus, among others, that he only cribbed during his Academy days and which have been repressed all these, what, 40 years, because his consciousness was taken up with images of Brigette Bardot...which only now, in his dotage...have faded, allowing the economists' theories to surface. He is now an internationally acclaimed expert on every facet and ramification of supply and demand. As to Tundra Woman, lacking any exposure to things worldly, save sex, which resulted in her own pregnancy with Trask, or Truck or whatever the kid's goofy name is, bereft of holy matrimony but conveniently solved with the great solver of such things..a shotgun....who now proudly parades her daughter who has followed in her shameful foot steps (the ovum doesn't fall far from the ovary), Tundra Woman..taking a cue from Bush and being a creationist believer..she can talk to a snake who, in turn, can act as an interlocutor with God..provided he's still not po'ed at her...and implore God to make everything swell again in the great American culture war.

[newport]

The previous two comments confirm my suspicion that liberals are consumed by party politics and are mentally incapable of any reasonable contribution to economic discourse.

Sarah Palin is not responsible for the financial catastrophe promulgated from subprime loans that has contaminated billons in worldwide mortgage paper and collateralized debt to the point that no one wants to invest in these obligations or know there worth

Insulting Governor Palin may make you little men feel better but really has nothing to do with the above article.

[nswfm]

The rest of the world figured out that, with the advisors McCain has surrounded himself with, America is going to go to war in the Caucuses over oil.

McCain's lobbiest for Georgia, Cheney going over to Georgia, Rudy "9/11" Guiliani, Graham who kept the Enron exception and the "DRILL BABY DRILL" from the nutjob speaker last night instead of BURN BABY BURN line from the Enron trader on the recorded line.

Face it Californians, we're screwed if McCain gets elected, because all your tax money is going to war and to support Alaska. We are a donor state to small states when it comes to supporting them. Alaska can have a tax cut because they are going to get if from the Feds in pork barrel spending.

[PJO110]

The obvious problem is the Republicans. No, I mean the Democrats. No its the Conservatives. No. No. Its the Liberals. Crap!. Quite a quandary here. Hmmm. I got it. Its the Independents!

[martscan]

newport:

You really don't have "suspicions', do you? Your intent is obviously to insult liberals...and by extension implicitly convey your conservative superiority, isn't that right?

While F. Hoffman makes a valid point concerning the malaise of the markets..I doubt I am alone in thinking, as Hoffman does, that there are world political leaders, as well as economists, bankers, investors, etc, that are on edge awaiting the outcome of our POLITICAL elections, and the resultant ensuing economic policies that will affect markets the world over. However, you make no rebuttal to his premise so one can reasonably conclude that you don't really have any contributions to make, you are simply anti-liberal, notwithstanding economic theory, or lack of it. Why didn't you just say so?

Neither myself or Hoffman SAID Palin was responsible for the Wall Street debacles...I'll give you a minute to reread our remarks...did we? Incidentally, the catastrophe was the 'result of', it was not 'promulgated' from(sic), sub prime loans. Speaking of the catastrophe, where, in your mind, does the blame lay? Could it be blamed, to a degree, on Wall Street's greed over caution/risk, hell bent for profits approach? If so, were there ever regulatory devices or agencies extant to preclude such a condition...if not, should there have been? Does govt have a role to play in protecting the public from these 'catastrophes' and if so, isn't it to be expected that the political parties' economic philosophies are more than simply germane?

Since you are gallantly defending Tundra Woman, and apparently mentally capable of contributing pearls of economic insight to which only you are privy, perhaps you can edify this lowly, economically bereft and unknowing liberal, me, on whether TW would be an adherent of Friedman and the Chicago school or, say, Galbraith...or perhaps the economist leper, Laffler. Wouldn't you agree that knowing TW's economics mentors and philosophy would be helpful in assessing her qualifications for the job she seeks...though she herself has admitted she doesn't know what the job entails? Now that Dr. Strangelove admits he doesn't know squat about economics and TW wouldn't know a demand curve from a hockey stick....is this the blind leading the blind leading a nation, or what?

If, after listening to TW's acceptance speech, you think it is an affront to insult HER, when all she did was throw darts..incidentally, the speech was supposedly written before she was even selected as nominee...I suspect you haven't had your head in the political game..it must be somewhere else. She is now fair game.

What, newton, do any of your comments have to do with the above article?

[Gyre]

Palin is just the newest member of the "wrecking crew". I think she's a creature of Rove because of the cynisim of the gambit. However I also believe that America is collectively smart enough to not GAMBLE it's future on somebody so vacant yet ambitious. And as a proponent of failed "trickle down" economics she's a moving bullseye. Particularly so in today's market.

[Ultra_Lite]

martscan, tell that consevative loser off and put him in his place. This new world doesn't need people like that with archaic thinking. We need drastic change and the Democrats are here to provide that. It's time for the government to step in and provide more for the poor and take from the rich. We need to abandon the free market and have government control in our economy. Keynesianism to the extreme!!!!

[F. Hoffman]

To Martscan - Bravo! Thank-you for your support. You had asked a question
"Were there ever regulatory devices or agencies extant to preclude such a condition.." regarding curbing dangerous risk-taking and excessive greed on Wall Street. Yes there was, but to understand how the safeguards were dismantled, one would have to study the history of the Glass-Steagall Act. Below is a link to an article published by the NYTimes in c. 1989. It is a good beginning to truly understand how the tetherings of Wall Street were broken.

http://query.nytimes.com/gst/fullpage.html?res=950DE0DA103CF931A35751C1A96F948260

[anonymous]

One of my smartest money friends, a much-recognized money manager in Pasadena, used to be so bullish I was a little concerned. But a few months ago, I suddenly found him bearish -- for instance, advising older folks to sell their homes and downsize now before the housing market fell any further. With the cash they got for their homes, he advised, they should wait until it was clear who would be president before dollar averaging into the stock market.

My friend supports Obama, and at the time he and I spoke it seemed like Obama would be elected in Nov. But now it is suddenly not so clear at all who will be president, and quite likely that the psychologically astute GOP will be able to take the White House again. I do not think that most folks will dollar cost average into the market until after Nov. 4., if then.

I spoke to someone at Vanguard on Tuesday and expected to receive the usual lecture about how I ought not be in cash. Instead, I was surprised to hear that right now I was doing the right thing, what with stocks down 13 percent, the fellow on the phone said. I would very much like to be making more on my money, but at this time, on my own, it's the best I can do, despite the exhortations of The Wall Street Journal to buy stocks now.

[T.S.Elliot]

Yeah, let the DemoKlowns in. They'll raise taxes and further supress business growth. DemoKlowns like to show their compassion by spending other peoples money.

[Zeon]

Trading volume was light in yesterday's sell-off, as it has been most of the summer. Lots of bargains out there for the long-term.

[Chicka]

I voted McCain in 2000. Palin is a rightwing secessionist nutjob that put her hometown 20 million in the hole. Don't need to be a liberal to be scared of that one.

However, that's got nothing to do with the market tanking yesterday. I have a feeling rumors hit the street that it's FDIC Friday Time. It didn't help that England revealed that it's economy is going to possibly be as bad as ours is soon, and the Euro-zone can't defend itself on a two-front recession. People are pulling their money out of stocks and into bonds. Including US ones. If Palin the Terrible was the cause, people wouldn't touch the Treasury.

[stock picks]

Wall street is very nervous and will sell off on any bad news. Some of it
is political but it comes down to economics. The housing bubble burst, unemployment is going up, and borrowing cheap money will be over as the
FED will start to raise interest rates. Add to that oil prices, a credit crunch, and
a presidential election and bad news will be treated as bad news.

[tedson]

Since Newport, if he lives in Newport, might be one of the few people who benefited from Bush's tax cuts to the wealthy I can understand how he might fear a democratic takeover of the government. As to the rest of these illiterate neo-con morons who claim to be Republicans, it seems they are a product of a failed education system who believe what they hear on Fox News. Most of them don't even read the La times. Would a Christian creationist please explain to me how dinosaurs roamed the earth 259 million years ago if the world was created in seven days? Ms. Palin left that out of her b.s. speech.

[martscan]

F. Hoffman, of course I'm familiar with Glass-Steagle...I was goading newton...with the intent of perhaps explaining the lack of oversight of the past few years, i.e., govt's culpability....and the ensuing political posturing which is to sure to follow with a probable overreaction of regulation...at any rate, that the political party, and their view of markets, that gains the WH will play an important role in determining the form, shape and extent of market regulation should be a given, even for the most casual market observers.. But, on reflection, at this stage of the game, anyone that is pedantically explaining sub-prime as a cause for the massive woes we've experienced, probably wouldn't get it.

[tedson]

I would think an "oil expert" like Ms. Palin would know all about paleontology since oil comes dinosaurs. Maybe she thinks commonsense has no place in America.

[F. Hoffman]

Martscan, sorry did not mean to be condescending. As to the others though who truly believe that politics and economics can be divorced...I have a bridge for you in Brooklyn I can sell you.