Obama infrastructure plan sends world sharemarkets surging
(11am update) World stockmarkets surged overnight as US President-elect Barack Obama pledged to boost the economy with the biggest public-works spending package since the 1950s when President Eisenhower created the interstate highway system..
The benchmark indices on Wall Street closed above a 3.5% gain while, earlier, the German and French markets were up 8% while Asian markets were stronger.
Steel, aluminium and copper stocks led the Wall Street surge, all putting on double-figure gains as commodity prices rebounded from last week’s losses on speculation Obama’s spending on roads, bridges and school repairs will boost demand.
The plan is also expected to include spending on electrical grids, public transport, dams and investment in alternative fuels. In a televised interview, Mr Obama refused to put a cost on the plan, but senior Democrats are talking about $US700 billion, with others urging up to $US1 trillion. The plan could create some 2.5 million jobs.
The Standard & Poor’s 500 was 3.8% up 909.7, having put on more than 20% since its 11-year low on November 20. The main Dow Jones index closed 298.76 points higher, or 3.5%, at 8934.18 after rising above the 9000 mark.
General Motors jumped more than 14% as lawmakers agreed in principle with the White House to provide funds to shore up the car industry.
European shares rallied sharply, with oil majors and banks among the strongest performers. The pan-Europe Dow Jones Stoxx 600 Index gained 6.7% to 202.61, the most in two weeks.
National benchmarks climbed in all 17 western European markets that were open. The FTSE 100 gained 6.2% or 251 points to 4300 as BHP and Anglo American led the advance.
France’s CAC 40 rose 8.7% to 3247, with oil company Total jumping 11%. Germany’s DAX added 7.6% to 4716, led by Siemens.
Stock markets in Tokyo and Hong Kong jumped 5.2% and 8.7% respectively. The two markets were among the biggest gainers in a broad rally across Asia. In South Korea, the benchmark index finished 7.5% higher.
Commodities
Commodities rebounded from last week’s losses on demand hopes from the US stimulus package.
Crude oil for January delivery rose $US2.92, or 7.2%, to $US43.73 a barrel in New York.
Copper and corn futures also rose.
Currencies
The yen and the dollar have fallen the most against the euro in two weeks. The yen weakened 1.7% to 120.28 per euro and was down 0.2% to 92.99 against the dollar. The euro rose 1.6% to $1.2927.
In other overnight developments:
• UK factory prices fell for a fourth consecutive month in November, Output prices fell 0.7% on a month-to-month basis and were 5.1% higher on a year-to-year basis, the weakest annual rate of increase since December 2007.
• Chicago-based media company Tribune, which owns eight major newspapers and a string of local TV stations, has filed for Chapter 11 bankruptcy-court protection. The company has been in trouble since real-estate mogul Samuel Zell led a debt-backed deal to take the company private last December.
• Dow Chemical, the largest US chemical maker, will eliminate 11% of its workforce, close plants and sell businesses.
• Hungary’s central bank cut the EU’s highest benchmark interest rate in a surprise move. The benchmark rate was cut one percentage point after an emergency 3 percentage-point increase on October 22, the biggest increase in five years.
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Comments and questions1
The big news of Monday was the DOW hitting the 9,000 mark. The big question now is, “Have we hit bottom”? Our answer is, “Maybe, but don’t rush into anything on a single day’s news just because you’re worried that you might miss out.”
The pundits tell us, "The market is a discounting mechanism." But relying on market "fundamentals" falls far short of explaining what’s really happening. Colorful trend charts can’t gauge the true intentions of buyers and sellers, and plugging in discount rates, risk premiums or annualized growth rates into a formula is no measure of the true fair market value of a financial asset.
But there are a few facts that the market has apparently already discounted which might explain the rally of the past few days:
• Monday: Stocks Rally Worldwide, DOW hits 9,000, S&P 500 hits 1-Month High on Obama Plan
• The market withstood the 533,000 job loss report on Friday—worse than expected
• Obama presented a proposed stimulus package with the largest expenditures on U.S. infrastructure since the 1950's
• Over the weekend the Asian markets rallied, China announced expansions of stimulus package and India has approved it’s own $4 billion of stimulus infusion
• The future is uncertain for the NASCAR race car economy. Formula 1 is the first victim as Honda has pulled a $300 million plug
• A $15 billion bridge loan for the Big 3 U.S. Automakers will be voted on next week, which if signed would tide the industry over only until March 09
• Dow Chemical is slashing 11% of its workforce and shutting down 20 facilities
• Advertising expenditures are way down and today’s retail sales report was enough to harsh Main Street’s holiday buzz
The worldwide crisis isn’t going to get fixed over night. I expect further volatility in the days ahead. For instance, when corporate earnings are released in January, it could trigger more volatility. Things are likely to continue like this well into 2009 or 2010. You may agree as you consider the following:
• U.S. bailout packages have been bridges to nowhere
• First stimulus package of $160 billion led nowhere
• New structure of financial industry still not addressed
• Regulators and credit rating agencies don’t have their act together—the 23rd U.S. bank failed last week
• States like California and many others are going broke, if they haven’t already, and urgently need life-support
• Corporations are filing for chapter 11 or chapter 7 due to inept executives who claim they couldn’t foresee this coming
• Risk management is non-existent in most organizations today – “surprises” are becoming the new standard
• GM and Chrysler (even with the expected bailout) will be back for more sooner than later
• Commercial lending, even though better collateralized than residential lending, could bring the issue of their $900 billion credit cards debt to the handout table.
• Expect further losses and write-downs from JP Morgan, Bank of America, Citigroup as well as other major financial institutions
I could go on and on without even mentioning our under-funded heath care system and other government program. There are simply not enough funds to do everything.
A situation that began as a housing crisis has turned into the worst financial crisis since the Great Depression. More than $31 trillion has evaporated through equity and debt losses. And the write-downs on the books of the world largest lenders and investors is approaching $1 trillion. We’d never want to be accused of saying, “We told you so!” but the fact remains that all of this was predicted in our book "The Big Gamble: Are You Investing or Speculating?” by Jose Roncal and Jose Abbo as I’ve always maintained, that in the end, it’s all speculation.
For more information go to financialspeculation.com