Wednesday, January 23, 2008

Australian Markets Lose $300 Billion In 21 Days

$110 Billion Worth Of Investors Savings Wiped Out In One Morning

Last Friday Reserve Bank Said 'No Need To Panic', So How About Now?

If anyone tries to tell you, "No-one saw this coming," tell them they're full of shit. The real players on the Australian stock market saw this horror story coming and pulled out, or shifted, their money months ago. Those who could afford to do so, anyway. Others with millions to play with laid bets that the Australian stock market floors would be awash with blood in January, 2008, and are now raking in their winnings.

But not the 'mum and dad' investors that former prime minister John Howard and ex-treasurer Peter Costello did so much to encourage to pour their money into stocks. No, thousands, if not tens of thousands, will lose most of their money, their houses, their cars and their nest eggs.

What is happening today, what has been happening early December, is not an accident, and it was not unforeseen.

This is business.

And it's time for a few hundred thousand moderately rich Australians to taste the bitter lemon of poverty again. And the bloodshed is not over yet.

In the words of Keith Richards, "It's funny how things go around, but go around they do..."

They sure do. They always do.

Watch and see how many people lose their eastern suburbs mansions in the coming months, and then compare those numbers to the newly homeless in western Sydney. Who wants to bet that for every mansion lost in the eastern suburbs, there will be twenty homes lost out west?

From The Australian :

The biggest share market rout since the October 1987 crash has caught millions of Australian shareholders off guard and raised fears the China boom might not protect the Australian economy from a looming US recession.

Panic engulfed world financial markets yesterday, with Australian shares plunging by 7.3 per cent to suffer their fourth-worst day in history and wipe $110billion off the savings of investors.

The carnage - which was worse than the financial market reaction to the terrorist attacks of September 11, 2001 - left traders stunned.

The S&P/ASX200 index lost 393.6 points to close at 5186.8, the lowest point in two years, while the All Ordinaries was smashed by 408.9 points to end at 5222.

Until now, most analysts believed China's seemingly insatiable demand for mineral exports would protect the Australian economy and its share market from the fallout from the US sub-prime mortgage crisis.

Instead, Australia's share market has fallen harder than Wall Street.

Australian shares are down 18.2per cent since the start of the year, a much bigger fall than Wall Street's 8.8 per cent, not including last night's performance.

HSBC chief economist John Edwards said the market was now pricing in a harder hit to the Australian economy from a US recession than first thought.

The punishing loss yesterday was the fourth-worst day in history, behind the October 20, 1987 crash (25 per cent), the junk bond collapse on October 16, 1989 (8.1 per cent) and October 29, 1987 (7.6 per cent).

Brokers said retail investors panicked, and many had to dump stock immediately after receiving margin calls to meet emergency loan repayments.

The popular online broker CommSec collapsed for 25 minutes because so many investors attempted to sell as the market opened.

The plunge in Australia means it is in official bear territory. More than $300billion has been wiped out since the start of the year, three weeks ago.

The damage will hit Australian superannuation savings.

ABN Amro's head of institutional sales, Justin Gallagher, said there was widespread fear despite most experts believing the market has become relatively cheap.

"I've been in the markets for 15 years and I've not seen anything like this," he said. "To fall 7 per cent in one day, you expect that from the emerging markets, not the developed markets, and certainly not Australia.

"There was no rationale today, it was just sheer panic. For us to fall by this much without any catalyst does not make sense."

No catalyst. No major terrorist event. No nation-crippling natural disaster. Just sheer and total panic, because the myth that the markets just needed a little 'correction' could not be maintained for one day more.

A 10% loss of value in the markets in one day is the very definition of a stock market crash. Yesterday, Australian markets lost 7.3%.

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Last week, Reserve Bank boss Glenn Stevens was in London meeting with UK and European central bankers, who were no doubt preparing for what they surely knew was coming. In other words, they were preparing their spin and getting their stories straight :
Asked at a business lunch in London overnight what his message would be to Australian mum and dad investors who had been hit by the market falls, Mr Stevens said: "Share markets go up and down.

"Mums and dads shouldn't be trying to play them on a short-term basis."
The clip of Glenn Stevens comments on the evening news revealed the audience of bankers and business leaders laughed, they fucking laughed, when Stevens said "share markets go up and down..."

The sound bite version of Stevens' comments used in newspaper headlines and on the evening news was 'No Need To Panic'.

How about now, Mr Stevens? Can all those mum and dad investors panic now?

They sure as hell can't pull their money out of the market without losing a bundle.

How exactly the Reserve Bank, and the mainstream media, will contain the panic isn't exactly clear. They probably won't be able to. But it's the 'mum and dad investors' that need to be convinced that they can't pull out now and eat their losses. They have to keep their money in the market or the whole thing truly falls apart.

The big boys have already mostly protected themselves, and taken the few hits they were willing to sustain, hence the crash-level losses yesterday.

When millions of 'mum and dad investors' suddenly start saying "Oh, fuck this for a joke" and demand what remains of their money back is when the markets shut down and the banks start locking their doors.