Worst week for equities since 1970

A look at 110 stock market indices, and other key indicators, from especially deep stock market crashes in Russia and China, to gold bullion, a relative outperformer, and the cheerful dollar.

Author: Barry Sergeant
Posted: Friday , 10 Oct 2008

JOHANNESBURG -

Everything in the world is down, just about. The one exception worth mentioning is the dollar, which has been rallying since 15 July 2008, and made fresh 16-month highs on Friday. That aside for a moment, stock markets in Russia, Indonesia and Iceland have been closed until further notice, which pretty much sums up what is now being called the worst week in equities since 1970.

The Iceland prime minister, Geir Haarde, has advised his modest 320,000 populace to go fishing. He was, of course, Iceland's finance minister from 1998 to 2005 and oversaw the growth of the country's three biggest banks - which all went bust this past week - to USD 230bn in "assets", twelve times Iceland's USD 19bn annual gross domestic product.

If this sounds like a country gone completely insane, mostly outside its own country, consider some of the lighter matter rising from the stench of market rot. A "bull market" is now defined as "a random market movement causing an investor to mistake himself for a financial genius". A bear market is redefined as "a six to 18 month period when the kids get no allowance, the wife gets no jewelery, and the husband gets little of a certain thing, and has to eat baked beans and army biscuits".

On a more serious note, the dollar has been in a protracted bear market since January 2002, mainly on the back of a burgeoning US trade deficit. The deficit has been contracting, as would eventually be the case with a weaker currency, but the dollar has become attractive for other reasons in the past few months. Expectations of rate cuts outside the US, which started this week, threw a shine on the greenback, and it has also become a counterintuitive safe haven asset as the credit markets crisis has intensified.

Within the past 12 months, most currencies have taken a battering from the dollar, bar the Chinese yuan and the Hong Kong dollar, which are all but tied to the dollar. Five currencies in particular have fallen heavily, by around 30%, against the dollar: the Brazilian real, the South African rand, the Australian dollar, the Chilean peso, and the South Korean won. Russia and South Korea have been doing desperate things to "defend" their currencies.

One current favourite play, for some hedge funds, at least, is between the dollar, yen and gold. Leaving aside the currencies of China and Hong Kong, the yen has fallen least against the dollar. Go figure.

Here are some take away points, from the tables below:

The MSCI Barra index for world equities has now fallen by more than 40%

This puts the "average" stock market back to where it was five years ago

Some stock market indices have fallen by more than 60% from recent peaks, as in the cases of China, Russia, and Ireland

A stock market that has fallen less than 40% can consider itself star material

Most of the misery is found between falls of 40% and 60%

Dollar aside, gold bullion appears to be about the best performing "indicator" in the world, at "just" 14% off its highs

Other precious metals have been very badly whipped

Energy prices have fallen heavily across the board

Food prices have crashed

Base metal prices have really crashed.

Source: Disclaimer

MINEWEB is an interactive publication, with rolling deadlines through each day, commencing in the Sydney morning, and concluding, 24 hours later, in the Vancouver evening. If you believe your side of an issue deserves inclusion, but has failed to meet one of our deadlines, you are invited to notify the Editor in Chief in Johannesburg, and we will include you in our editing and expanding on our stories. Email him at alechogg@gmail.com