The Crisis Continues
Shares have fallen to a new low for 2008 as the economic outlook looks grim.
There's been a barrage of rotten news this morning.
- The UK's Gross Domestic Product (GDP) - which measures the output of the UK economy - shrank 0.5% in the third quarter. Economists had expected a fall of 0.2% according to a survey by Bloomberg.
- The pound slumped to below $1.53. That's a bigger fall than on Black Wednesday in 1992 when the UK was ejected from the Exchange Rate Mechanism.
- John Lewis said sales at its department stores have fallen for the fifth week running. Sales for the three months to October 12 were down 2.9% compared to a year earlier.
We still haven't had two consecutive quarters of economic contraction, so we don't have an 'official' recession just yet, but a 0.5% fall in GDP is a recession in my book.
The rotten economic news has sparked further falls in the stock market. As I write the FTSE 100 is down 9% at 3'782 points, its lowest level since April 2003. HSBC (LSE: HSBA) is one of biggest fallers, crashing 97p to 708p.
HSBC's fall is striking as the global bank's share price had held up reasonably well compared to many of its peers in recent weeks. That's because HSBC has a relatively strong balance sheet and looked very unlikely to go bust.
I still think that HSBC looks very safe, but it's now becoming clear that many emerging markets are going to suffer a lot from the global economic slowdown and a big chunk of HSBC's business is in emerging markets, especially in Asia. So profits will be hit. Another big player in emerging markets banking, Standard Chartered (LSE: STAN) saw its share price fall 112p to 788p today.
What does this mean?
I said ten days ago that I thought we were probably through the worst in the banking crisis. I think that's still true. I doubt we'll see any more major banks almost go to the wall in the US or UK. (That said, you can't rule it out completely.)
But it's clear that we are heading into a recession and that there are significant financial problems in Eastern Europe and other emerging markets. For example, Hungary's currency, the Forint, has fallen 14% this week against the dollar. That's in spite of a 3% rise in the country's benchmark interest rate to 11.5% this week. In a modern interconnected world, we won't be isolated from these problems.
What now?
If you're a brave long-term investor, today is probably a good time to put money in the stock market. An index tracker is a simple way to do that.
The lower risk option is to curb your spending and try and save as much as possible in a solid savings account. I've already booked an expensive foreign holiday in 2009. I'm now regretting that extravagance.
More: The Global Financial Crisis Is Over | Ten Top Trackers
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I agree with Keith1942 - the EU is not a level playing field - nor will it ever be. [br/][br/]Other EU countries laugh at as all the time for blindly following and carrying through the edicts that eminate from Brussels. They do not know the rules of "cricket" - and would not care even if they did. They are more than happy to see us leap lemming-like over the precipice and enjoy the spectacle. [br/][br/]Of course those same EU countries are very quick to accuse us of non-compliance when it is their own interests. Look at how many times France has been fined for ignoring EU rules - the lengthy ban on British beef after BSE comes to mind. France was fined a huge sum, but of course the fine was never paid - nor will it ever be. What are you going to do - send in a army to "sieze" assets? Of course not. France knows it, we all know it. [br/][br/]We of course leap at every opportunity to pay our EU fines - to "demonstrate" our good faith and intentions in same vain attempt to shame other countries into behaving similarly - yeah right![br/][br/]A little bit of self-interest now and then - is not a bad thing. Remember the fuel protests - that shook Blair to the core. Our beloved leaders need to be reminded - they are there to serve us, not themselves.
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Keith1942, I'm not so sure we've ever been THAT committed to the EU - we don't have the Euro for a start - but fact is we're in it - thanks to Wilson, Heath, Thatcher and Major's successive thread-weaving - that's three Conservative governments, one Labour. We can't just ignore directives and then expect to be trusted some other time over some other issue. The idea of extrication is exciting but I wonder if it would really serve our interests long-term, taking in to account the rise of the East. If we could rebuild our manufacturing and develop energy independence based on renewables, we might just get to self-sufficiency, but wouldn't that threaten to bring xenophobia and even war? DamoMackerel, did we not have cooperation in the adoption of the Brown refinancing plan and synhronised interest rate reduction? And I can't see how the EU would "end" as a result of this crisis. Sorry to put a downer on it but that's probably wishful thinking.
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* keith1942, good post. What the crisis has done is show that European cohesion and cooperation is one big sham. If certain EU countries, like Italy and Hungary and perhaps a few more really get into trouble then not only would that spell the end of the Euro but also the EU itself.[br/][br/]* pillarofsalt, I would love to but gold but I simply don't know the experience to do so.
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26 October 2008