The market seems to be selling-off on the back of limited bad news imo, apart from the dollar that is.

If you can hold your nerve and apart from any short term requirements to offload poor performing stocks, I have a couple!!, my advice would be sit tight. This does not have the feel of the tech(mining!) bubble at all. Difference being there are a lot of good fundamentals, unlike in 2000 when there were a lot of over rated nothing companies.

US could be heading for recession - Last Updated: 12:05am BST 28/08/2007


Ex-Treasury Secretary Summers warns of risks 'greater than any since aftermath of 9/11', reports Ambrose Evans-Pritchard

Former US Treasury Secretary Larry Summers warned that the United States may be heading into recession as the biggest victim to date of the sub-prime mortgage debacle was humiliatingly sold for a token sum in Germany.

Traders are braced for another week of turmoil after the near breakdown of America's $2,200bn (1,100bn) market for commercial paper.

"It would be far too premature to judge this crisis over," Mr Summers said. "I would say the risks of recession are now greater than they've been any time since the period in the aftermath of 9/11."

In Germany, it emerged that the state-bank SachsenLB may have accumulated $80bn of exposure to risky assets through a set of Irish funds kept off balance sheet.

The regional government of Saxony agreed yesterday to sell the East German bank - the biggest victim so far of the worldwide credit rout - for a token 300m (204m) to the Landesbank Baden-Wttemberg in Stuttgart (LBBW), ending a three-week saga that has revealed the extent of German involvement in the some of the most treacherous areas of US sub-prime debt.

Georg Milbrandt, prime minister of Saxony, said the sale of state-owned lender was the only viable option.

"Given the market turbulence and the pressures on the bank, it could not have gone on without a partner. We want to get our ship off the high waves and into a safe port," he said.

Sachsen LB, founded in 1992 after the fall of the Berlin Wall, was rescued two weeks ago in a state orchestrated bail-out. A consortium of banks agreed to provide a 17.3bn credit lifeline, but only on the understanding that it agreed to be sold to a stronger player.

It allegedly used no fewer than five Irish 'conduits' (off-balance sheet vehicles) to invest in collateralised debt obligations (CDOs) and other high-risk instruments, according to German newspaper Sdeutsche Zeitung.

The biggest losses stemmed from structured investment vehicles (SIVs) which involve using short-term credit to buy longer-term assets, creating a mismatch in maturities.

The rescue deal comes as investors waited to learn whether the US Federal Reserve would succeed in stabilising the US commercial paper market, the latest - and biggest -domino to fall in the spreading contagion from sub-prime debt. Investors have suddenly lost trust in this form of debt, fearing it may be tainted by exposure to CDOs.

Stock markets rallied strongly late last week on the belief that the Federal Reserve would start to cut its key lending rate in September, and that the European Central Bank would refrain from further tightening. Goldman Sachs said any hint the banks may prove more hawkish could quickly dampen investor spirits again, warning it was too early to give "all clear" on equities.

Federal Reserve data shows that the outstanding stock of US commercial paper has fallen by $255bn over the last three weeks, a sign that borrowers have been unable to roll over huge amounts of debt. The fall is comparable to the sudden shrinkage that occurred at the onset of the dotcom bust, and may have the effect of draining liquidity

wave 5 has commenced , 12k now a possibility

I agree, but think it now inevitable. ;-))

<5800 UKX too. ;-0

Be prepared for a carnage tomorrow in FTSE.

around what time should we expect this? (when the DOW re-opens?) From where I am, looks like the FTSE is fighting back!

Now I have the FTSE in positive territory day on day .... when should we expect to see the carnage?

Perhaps not today - looks like the market is fighting back but don't be taken for a surprise if it drops.

MADDOCTOR,BIG AL, HLYEO98 IS AMERICA GOING INTO RECESSION?

Halifax,did you get back in PET paying higher than you sold for?

halifax , whats the relevance of that question? particularly when you get the mad arses in the US behaving like they did tonight

Link


Prepare for an awesome autumn

Ken Fisher 29.08.07

Ken Fisher is chairman of Fisher Wealth Management, and a long standing Forbes Magazine columnist.

Those blinded by the summer correction into believing bad times and a bear market are ahead will miss this autumn's rally. Don't be among them. The correction could last a bit longer - and many do a W-like-bottom, bringing a whole additional roller-coaster ride before the rally. But there is a good up-move coming.

How do I know? First, corrections start with a bang, bears with a whimper. Corrections are short, sharp shocks, fuelled by a fantastic, scary story later deemed inconsequential or even silly - or maybe a disaster that later seems to have been miraculously and barely averted. That's a lot like now, with disaster seemingly springing from a subprime mortgage-induced credit crunch. Sometimes there is one such story, and another a month or two later - equally as scary. Think 1998, for example. First, the Russian rouble crisis followed by the supposed Long-Term Capital Markets crisis. But three months later, the S&P 500 ended 1998 up 28.6%, all of it in the last quarter of the year, after the correction faded.

Conversely, bull markets have slow, broad, rolling tops, churning in a narrow bandwidth - within 8% or so from the top - for the first six to eight months of the new bear's duration (1987 being the sole exception proving the rule - it came and went too fast to time), marked by effusive euphoria. In 2000, non-tech US stocks were actually positive for the year, and the FTSE 100 was only down 8% - the slow broad roll of a market top. But no euphoria plus a sharp drop, like this summer, equals classic correction.

But how can the credit crunch be inconsequential? Easy - it's a phoney crunch! In my last column, I told you to watch the spreads. The media preaches spreads are wide, but they've got it very wrong. Sure, spreads are wider than June, but only 1.4% from historic lows. (Real credit crisis spread magnitude is maybe three times that) At worst, spreads are "normal" right now. We saw a similar magnitude mini-spike in 2005 coinciding with 2005's market pullback. No one screamed bloody credit murder. Then, a no-show bird flu pandemic was supposed to mangle the market. It didn't happen!

Since July, spreads have actually narrowed a bit. They've narrowed despite long-term government rates dropping globally. Legitimate credit crunches usually see treasuries and gilts rising, not dropping. Had long rates stayed put, we'd see much narrower spreads today. Medium grade long-term corporate rates (BBB) and mortgage rates are actually lower than in June. By definition, cheaper borrowing rates are pretty much the opposite of a credit crunch.



Don't be fooled

Something else real credit crunches don't have - vast amounts of cash on the sidelines. You can see the cash in the recent down-spike in three-month US Treasury bill rates. Normally, T-bills trade just below America's Fed funds rate. (The rate can't be higher or banks would borrow Fed funds endlessly, buy T-bills, and profit on the spread.) Sometimes there's spread volatility, but big spreads, in excess of 1.25%, are rare. When it happens, normally it's because America's central bank raises short-term rates. If temporary, it doesn't mean much. But if the central bank's tightening, and the spread's wide for a longer period, that can be (but doesn't have to be) bearish.

Still, that' s not what's happening this time. The gap got super wide on August 21 - over 2.25%! - because T-bills were falling with the Fed funds rate flat. It takes a tidal wave of cash buying bills to move the spread so far so fast. This is not bear market action. This is panic and classic correction bottoming. I can find this in history in corrections and bear market bottoms, but not a single occurrence of it happening early on in a bear market. Not one. Why is this so bullish? That cash won't sit in low-yielding T-bills for long. As it pours back into shares, the ride will be awesome.

One final way to know the fall rally's on the way? Those dour journalists! (See my earlier column, Sell Journalists, Buy the Market) The media will often make general, Johnny-on-the-Spot decrying corrections - quick to accuse, try, and condemn their scapegoat (subprime today, yen carry trade earlier this year and last, bird flu in 2005, Russian rouble in 1998). But when bull markets peak, they're silent on true economic negatives - too busy filing euphoric stories about new economies and new paradigms. Don't be subprime-blinded and media-mauled and miss the rally. Ride the wave with stocks like these:

Believe it or not, financials should lead the rally - despite the sector's alleged septic subprime infection. Canada's Manulife Financial (MFC), North America's second-largest life insurer, had been lagging all year though progressing as a business. It sells at 10 times my estimate of 2008 earnings, making it a tasty takeover target in a hot sector. Buy it now before the CEO figures it out.

A growing global economy demands energy, making integrated oil companies like Hess (HES) very attractive. They do the whole gamut - from exploration to the petrol pump - and they've got operations in the UK. At 12 times this year's likely earnings, Hess is not too big to be taken over. Buy it first.

BOSTON (MarketWatch) -- Neil Hennessy, president of the Hennessy Funds, says that investors should stop worrying about subprime mortgage problems and other negatives and consider how historically low inflation, interest rates and unemployment rates have the market poised for strong long-term performance.

"We are not going into a recession," Hennessy stressed during a radio interview with MarketWatch senior columnist Chuck Jaffe. "What people don't believe today is that we're in a bull market. ... There's nothing for people to be fearful of; if you just sit tight, this will be fine."
Hennessy noted that the methodology of his funds is to pay less than $1.50 in stock price for every $1 in a company's sales. He noted that the Dow Jones Industrial Average currently sells for $1.25 per dollar in sales, which "means we have about a 25% move on the upside" which Hennessy expects to happen in the next two years.
While Hennessy remains optimistic about the future, he's not equally bullish about all industries, noting that he would avoid the technology sector, largely because "I don't see anything on the horizon from the technology area that will revolutionize the way we live."

.

have believed all along and still do, that company fundamentals are solid, interest rates are peaking and are historically low, people are still spending and that this is a correction and not the start of a bear market... PE ratios would become ridiculously cheap...

not sure about US, but am told that London is still looking cheap with overall P/E of about 11 against 20 when the last crash came in 87(?).

for all that, it is sentiment that drives the markets, especially over a short period ...... this, as we all know, can defy any sort of cold logic

You may find this interview interesting viewing.

http://tinyurl.com/2xwh6l

Interest rates likely to keep rising
Read full article here

critical level on the dow , the shorts should move in but with all the interference in the market they must be nervous

the president discussed the need for legislation and changes in the U.S. tax code to help subprime mortgage borrowers avoid losing their homes.

However, analysts and investors said subprime borrowers who are not speculators made up such a small portion of the troubled market that any proposals would bring little change.

"This is more messaging," said Richard Steinberg, president of Steinberg Global Asset Management in Boca Raton, Florida. "It's more pomp."

For that reason, analysts said investors in such sectors as housing, retail and finance -- some of which saw a bump up in value on the news -- shouldn't expect a big boost from Bush's plans over the longer term.

Many analysts have warned that a spreading credit crisis could drag the U.S. economy into recession, while Bush administration officials have repeatedly said fundamentals remained healthy and global growth was robust.

Bush's proposals include plans to give the Federal Housing Administration more flexibility by allowing lower down-payment requirements and enabling homeowners to refinance into FHA-insured mortgages. He also called for changes in the tax code to eliminate penalties for refinancing mortgages, and better disclosure from mortgage brokers on rates and fees.

Peter Morici, a professor at the University of Maryland School of Business, said the plans were not enough.

"There's the immediate problem of the people who are stuck, and then there's the longer-term problem of fixing this market so it doesn't happen again," said Morici, a former chief economist at the U.S. International Trade Commission. "You always have to start with that second thing and then say, 'How do we bridge these people into that new market?'

"In terms of the immediate problem, all you really can do is put some Band-Aids on until you come up with some mortgage products that these people can afford," he added.

NO BAILOUT

Investors, while sensitive to helping those borrowers in trouble, don't want the government to simply bail them out.

"Speculators should suffer," said Tim Ghriskey, chief investment officer with Solaris Asset Management in New York. "Investing is fraught with risk, and if you bail them out, it just encourages more speculators."

Bush agreed: "It's not the government's job to bail out speculators or those who made the decision to buy a home they knew they could never afford."

Earlier on Friday, Federal Reserve Chairman Ben Bernanke assured the markets the Fed will act as necessary to limit the damage to the U.S. economy, but there will be no bailouts.

But Ghriskey called Bush's plans a Band-Aid for the financial markets -- a sentiment echoed by others.

"If you're a politician looking for re-election, you want your voters to be less unnerved about what's going on in the mortgage market," said Ken Crawford, a portfolio manager at Argent Capital Management in Clayton, Missouri.

The key is patience.