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Tuesday, February 17, 2009

BetOnMarkets - Today, world stock markets have crumbled under...

Today, world stock markets have crumbled under the relentless barrage of bad news. Investors are flocking to safe havens with the yield on 10 year Treasury bonds sinking to 2.7% and gold pushing up 3% to $370. The Dow Jones Industrial average is just over 0.5% from revisiting the November lows. Despite the dramatic collapse in the banking sector, the FTSE has held up relatively well over the same period, holding around 6% above those lows.

There’s very little for the bulls to hang their hat on at the moment, everywhere you look, the risks seem to outweigh the rewards of investing in the stock market. Banks are again leading the fallers today with Lloyds and HSBC being singled out for punishment. HSBC is down 7% on speculation that it may have to raise more than $15bn to cover write downs and exposure to Eastern Europe. Oil majors, BP and Shell are also under pressure with oil prices touching $35 dollars once again.

In the US, automakers GM and Chryslers still battling to avoid oblivion. The US automaker industry is hanging by a thread. Further support is required to turn the sector round, but this is far from being a dead cert. Legacy costs from benefit support are now crippling the likes of GM. It is ironic that the great US economy is in danger of losing a key industry in part due to lavish benefits negotiated for union workers.

It is also worth noting that like many firms across the world that have gone to the wall, like Woolworths in the UK, US automakers were in trouble before the crisis broke. This global recession, like all recessions is exposing the weak businesses what they really are. It remains to be seen if the remaining companies have enough strength to carry the world economy through the crisis.