Two weeks have passed since my first financial blog. In that time credit markets have eased a little, shown by the rate of lending (LIBOR) between banks decreasing slightly. Unfortunately fears of a further credit crunch have been replaced by worries about decreasing global growth, rising unemployment, lower consumer spending and a negative corporate earnings outlook.

It seems to me that these days investors in equity markets can’t catch a break! Last week we were told by reputable financial media that a bottoming of stock prices has occurred, mainly due to the perceived notion that the credit markets were “thawing”. One week later and we are hitting the same lows across the board in the USA, Germany, Australia, England, Japan and other developed nations. Not to mention the emerging markets such as Brazil and India which are posting even larger losses for the year.

Didn’t we just receive numerous bailouts of the financial system and billions of dollars thrown at banks to INCREASE corporate lending and therefore REDUCE investor fear? The US government is now guaranteeing more and more corporate debt and still the volatility index (.VIX) is above 50%. The lack of confidence in our lenders remains because the financial institutions have decided to keep hoarding funds instead of using them to lend to smaller businesses. The problem is that negative investor sentiment has well and truly spread to all businesses/sectors. Right now I am glad I am not a Fund Manager because there is no safe haven anywhere in equities…

October is a month for earnings reports and most of those have been grim at the least. I won’t go into individual companies or countries, but analyst forecasts have been missed in the Health, Technology, Auto and Financial sectors, globally! Add to that commodity prices sinking to a four-year low and even the energy/resources sectors are trading lower. Gold is up one day and down the next, oil is on an unprecedented downward spiral, from a high of $145 a barrel to $69 a barrel in 4 months. This must be one of the strangest graphs ever! http://www.wtrg.com/daily/clfclose.gif

Right now some news is coming out from the US about emails and conversations between employees at the ratings agencies (S&P, Moody’s) responsible for grading those ‘lovely’ mortgage backed securities. It seems many of them were aware that they were rating risky assets higher then expected just to keep receiving the bonuses from greedy Bank executives. Does that help a retail investor decide which company to buy stock in if their balance sheet is AA rated? What do intelligent people do when they realise they were being lied to before?

As earnings get eroded in the next 18 months, more and more jobs will be lost globally. Once we have increased unemployment, we will see further defaults in the credit and housing markets which will result in more selling of equities. Right now it seems that the global economy is in a vicious cycle and it’s becoming more difficult to defend globalization to skeptics. Let’s hope that what happened in Iceland is an isolated case and we don’t see it re-occurring in other nations…

Someone must be held accountable for this whole mess and I believe that until we see prosecutions and bankruptcies, investor confidence will continue to be negative and the volatility in the markets will remain.

Now to end on a more positive note, as far as gTrade Global Trading Platform is concerned, we have taken into account the current market conditions and continue to produce various financial models for seed capital. We have scaled back many operations in the hope that a Venture Capital firm will partner with us to bring the platform to a live trading stage. For those interested please visit www.gtradenet.com and register for an email.

Tony Fle-Danijelovich
Co-Founder of gTrade
tony@gtradenet.com

Two weeks ago I decided it would be a good time to post my own views, on a daily basis, regarding the current turmoil in global financial markets.

Originally inspired by ‘expert media’ at CNBC and Bloomberg, I quickly realised that such a scope is far beyond me. So, instead of rambling on daily about what occurs in all the markets (credit, forex, bond) I will try to contain my views on what I feel I know best, the situation in the EQUITY markets! To spare anyone from boredom, I will also endeavor to post my views fortnightly instead of daily…

For those of you who do not want to read on, please take a moment to visit www.gtradenet.com and leave your email address. We are still in the process of searching for pre-seed capital for our gTrade business idea and would love to get in contact with anyone who wishes to take a look at our presentation and offer their expertise!

Now, where to start? I have seen and read recently that investor fear is driving this downward spiral in the equity markets. As I write this the Dow Jones index has fallen for the 6th straight session. Yesterday the Nikkei lost almost 10% and the FTSE and other European bourses were down around 5%. The past week has seen the fear intensify and subsequently the selling has spread across all industries and on a global scale. What started with the financials has now spread into all other sectors. Investor confidence is down, rules have been changed and credit is much more difficult and expensive to obtain. It is no wonder nobody wants to buy stocks, even those willing to take a long term view!

The question is ‘what has been done to restore confidence and trust in the markets?’ We all know the problems started from the banking sector. Years of cheap credit and “innovative” structured finance have put the whole financial system at risk and we are now facing a global economic slowdown (recession!).

Here is a summary of what appointed officials have done so far to try and restore confidence:

• The US Govt. voted and passed a $700+ billion dollar bailout called the Troubled Asset Recovery Plan (TARP) to purchase some of the securitized assets which the banks are unwilling to further write down even though a market for these assets is non-existent. The stock markets rallied for a day and then returned to the sell off.

• Some central banks (US, Australia, UK, etc.) decided to enforce a ban on short selling certain stocks, believing hedge funds were the cause of the market sell off. The market rallied for only half a day!

• Central banks injected further liquidity on a global scale by deciding to lend funds against all kinds of financial assets to spark the credit markets and urge the banks to lend to each other. The equity markets didn’t respond at all!

• Just yesterday the world sees an unprecedented globally (The US Federal Reserve and six other banks) coordinated 50 basis point (0.5%) cut in official interest rates to counter the devastating impact of the financial crisis. Markets rally for about 2 hours and then continue the losses.

I am now eagerly anticipating the lifting of the short selling ban tonight, US time…

So far, nothing seems to have helped investors regain confidence in the financial markets for an extended period of time. If this wealth destruction continues, there will be a much more severe global recession than what was expected only 3 months ago!!

We either allow the markets to sort themselves out, or we try quick fixes and let the downward spiral continue some more until we reach a bottom. What is the bottom? Nobody knows for sure in the current environment, which is why the global markets need some positive news about tackling the problems head on.

In the past few days, some economists, well known financial analysts and fund managers have outlined solutions to the problems. I have sourced these from the “Genesis” plan found on Karl Denninger’s blog http://market-ticker.denninger.net/ because I believe it summarises the points brilliantly.

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