Hot on the heals of the demise of some
of America’s oldest institutions including Lehman Brothers, Merrill
Lynch and AIG, this week saw the end for Washington Mutual (WAMU), a 119
year old bank, which represents the biggest US bank failure in history
as it was seized by the US Government, with parts being sold off to JP
Morgan. Goldman Sachs and Morgan Stanley, the two remaining “investment
banks”, changed their status commercial banks “on the advice of
government officials.” New home sales in August fell by 11.5%, to the
lowest annual rate since January 1991, whilst durable goods orders for
the same month fell by 4.5% versus the -1.9% expected, led by transport
goods which collapsed by 9%. The Dow ended the week lower by 2.2%,
whilst the S&P 500 and the Nasdaq gave up 3.3% and 4% respectively.
European money supply slowed by more than expected in August, falling to
8.8% annualised from July’s 9.1% and the region’s manufacturing and
service industries contracted at the fastest pace in 7 years in
September. UK mortgage approvals fell to the lowest level in at least a
decade last month, according to the British Bankers Association. The
August figure was down by 64% from a year earlier. The FTSE 100 index
fell by 4.2% over the week, whilst the French CAC and German DAX gave up
3.7% and 2% respectively.
Out East, the Bank of East Asia became the first “bank run” seen in Hong
Kong for at least a decade, whilst in China the Government has
authorised the states sovereign wealth fund to increase its stake in
three of China’s largest banks as rumours circulated about increased
outflows by US funds.. The Nikkei eased by 0.2% and the Hang Seng fell
by 3.3%.
The $US index declined by 0.9% to 76.95, as the German Finance Minister
said that the US will fade as the World’s dominant economic force, due
to the crisis on Wall St. The Swissie gained 1.4% whilst the south
African Rand fell by 2%. German 10-year bund yields fell by 4 bps to
4.16%, whilst Japanese 10-year “JGB” yields eased by 2 bps, ending the
week at 1.46%. US Treasury yields continued to rise, on the back of the
bailout plan, with the 5 year yield higher by 0.9% on the week at 3.02%,
whilst the 10 year yield jumped a further 1.5%, ending the at 3.83%.
Mortgage rates rose across the whole curve.
The commodities complex witnessed continued volatility, with the crude
oil price jumping by 4% to $106.9 a barrel, whilst the price of Gold
ended the week higher by 2.8%, at $888oz
Next week sees the latest S&P/Case Shiller US home price index for July
and the latest US consumer confidence and unemployment data, whilst the
UK releases August net consumer credit and Q208 forecast GDP. Euro-Zone
consumer confidence, CPI and retail sales numbers are due out, whilst in
Japan the Q308 Tankan is due out.
We are just over 1 year into the credit and “denial” is still
evident within policy makers and investors’ alike, just as it should be
in the early stages of it. Heck it was only just over a year ago that
the most powerful Central Banker in the World, Ben Bernanke of the US
Federal Reserve stated that he saw little chance of falling property
values in America and Treasury Secretary, Hank Paulson was waxing
lyrical about the USA having, “Capital markets that are the deepest,
most efficient and most transparent in the World.” Meanwhile we have
a property rout that has either directly or indirectly caused the demise
of Bear Stearns, Lehman Bros, Merrill Lynch, AIG, WAMU and the US
mortgage market via Fannie & Freddie, despite market manipulation
measures being designed behind closed doors. We may find out this week
if the latest and biggest bailout to date makes any difference.
“No man’s credit is as good as his money”
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