Any remaining confidence in global markets has been well and truly trampled on today as investors throw in the towel. After months of bailouts, mini rallies, more bailouts and false dawns, investors have had enough. There has been a panicked flight to quality today as the yield on the shortest term US treasury bonds sink to near zero. Money is flooding to what is perceived to the safest haven in these troubled times. People would rather get next to no interest rather than risk losing their capital.
The cost of insuring against investment grade companies defaulting has shot up to its highest level since the crisis began. Worse still, Warren Buffet’s Berkshire Hathaway fund has seen the cost of its credit default swaps shoot to 5 times the level they traded at in June. At currently levels, the CDS prices are implying that Berkshire is more likely to go bust than Morgan Stanley. When investment titans such as Buffet look ready to fall, it is no wonder than investors are running to safe havens.
It has already been a remarkable year and at current levels it stands to be one of the worst on record. However, there are small positives to be found if you look hard enough. Today the UK banking sector is performing relatively well as Lloyds shareholders look as though they will approve the HBOS merger and RBS shareholders look set to approve and new fundraising plan. In the last few minutes there has been a wicked bounce off the lows of the day, but this recovery must hold if there is to be any chance of avoiding a revisit of the 2002 lows. Today’s sell off took the S&P 500 futures within just 10 points of this level.
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