|
World stocks continue to tumble { July 2007 } Original Source Link: (May no longer be active)
http://www.bloomberg.com/apps/news?pid=20601103&sid=adyDGn1DunrU&refer=ushttp://www.bloomberg.com/apps/news?pid=20601103&sid=adyDGn1DunrU&refer=us
U.S. Stocks Tumble on Credit Concern; Asia, Europe Markets Drop
By Lynn Thomasson
Aug. 16 (Bloomberg) -- U.S. stocks tumbled for a fourth day after Countrywide Financial Corp., the nation's largest mortgage lender, tapped an $11.5 billion credit line and said turmoil in global markets is drying up financing for home loans.
The Standard & Poor's 500 Index fell 33.74, or 2.4 percent, to 1,372.96 at 1:08 p.m. in New York, bringing its decline to 3.2 percent for 2007. The Dow Jones Industrial Average decreased 308.66, or 2.4 percent, to 12,552.81. The Nasdaq Composite Index lost 65.32, or 2.7 percent, to 2,393.51, erasing its gain for the year.
``This is a classic case of fear trumping fundamentals,'' said John Praveen, chief investment strategist at Prudential International Investments Advisers LLC in Newark, New Jersey, a unit of Prudential Financial Inc., which oversees $648 billion. ``All markets are being hit by the same brush.''
General Motors Corp., the biggest U.S. automaker, had its worst three-day fall since 2005 after Moody's Investors Service downgraded debt of the home lending arm of GMAC LLC to junk. Goldman Sachs Group Inc. and Citigroup Inc. also retreated. Home Depot Inc. slipped to a four-year low after the government said builders started work on the fewest homes in a decade in July.
Europe's Dow Jones Stoxx 600 Index dropped to a five-month low, losing 3.6 percent to 352.37. Asian stocks posted their biggest two-day decline in a year as the Morgan Stanley Capital International Asia-Pacific Index retreated 2.3 percent to 142.15. The S&P 500 has fallen 11.6 percent from its record July 19, the first so-called correction in four years. The Dow average has lost 10.3 since its peak on the same day.
Volatility
Emerging-market shares and currencies also retreated. The MSCI Emerging Market Index lost 6.6 percent, its steepest slide since 1997. South Korea's Kospi declined 6.9 percent, while Turkey's ISE National 100 Index slipped 6.8 percent.
U.S. stocks fell to their lows of the day after the Federal Reserve said manufacturing in the Philadelphia region unexpectedly stalled in August and lender First Magnus said the secondary mortgage market has collapsed.
The benchmark index for U.S. stock volatility, called the VIX, rose to the highest since October 2002. The Chicago Board Options Exchange Volatility Index climbed 14 percent to 34.98. Higher readings in the gauge, derived from prices paid for S&P 500 options, indicate traders expect bigger share-price swings in the next 30 days.
Countrywide posted its steepest drop since the 1987 stock- market crash for a second day in a row, losing $4.62, or 22 percent, to $16.67, a four-year low. David Sambol, the lender's president and chief operating officer, said liquidity in the mortgage industry has ``become constrained.'' Countrywide said today it drew down an $11.5 billion bank credit line as the global credit crunch curbed access to short-term financing from debt markets.
Moody's Investors Service cut its rating on the company's debt three levels to Baa3, the lowest investment-grade level, from A3.
Goldman Sachs
Goldman Sachs, the world's most profitable securities firm and second-largest hedge-fund manager, decreased $5.50 to $159.40. JPMorgan slipped 6 cents to $42.94.
The S&P 500 last fell at least 10 percent from a high in the period ended March 11, 2003, or 1,619 calendar days ago. That's the longest streak without a correction since the 2,572-day stretch ended October 27, 1997, according to data compiled by Birinyi Associates Inc. and Bloomberg News.
``The equity market is just being slow in understanding what has already happened in the credit markets,'' said Daniel Broby, chief investment officer at Renaissance Investment Management in London, where he helps manage $4 billion. ``This market is one where you'll find it very difficult to call the exact magnitude of when the correction is over.''
ResCap Downgrade
GM, the biggest U.S. automaker, lost $1.78 to $29.76. ResCap, the Minneapolis-based mortgage unit of GMAC LLC, was downgraded to high-yield, high-risk status. Its ratings were cut two levels to BB+ by Fitch and one step to Ba1 by Moody's. GM owns 49 percent of GMAC.
Amgen Inc. retreated $1.59 to $49. The world's largest biotechnology company said it will slash jobs for the first time in its 27-year history, close plants and cut capital spending in response to declining sales of its top-selling drug, the anemia treatment Aranesp.
Home Depot, the largest home-improvement retailer, declined $1.07 to $32.29 after a government report showed no sign that the housing industry is recovering from an 18-month recession. The greater-than-forecast 6.1 percent decrease in housing starts to an annual rate of 1.381 million followed a 1.47 million pace in June, the Commerce Department said. Building permits also fell to a 10-year low.
Moody's, S&P
Moody's Corp. fell $3.24 to $45.86. McGraw-Hill Cos., owner of S&P, lost $1.95 to $48.79. French President Nicolas Sarkozy and Europe's financial regulator called for a probe into Moody's Investors Service, S&P and other ratings firms criticized for underestimating the risk of subprime debt.
Raw-material producers fell the most among 10 industry groups in the S&P 500, dropping 4.3 percent on mounting concern that losses in global credit markets will erode economic growth and demand for raw materials.
Alcoa Inc., the world's second-largest aluminum producer, decreased $2.50 to $31.20. Freeport-McMoRan Copper & Gold Inc., the second-biggest copper producer, fell $8.32 to $69.55. Nucor Corp., the second-largest U.S.-based steel company, declined $4.47 to $42.04.
Exxon Mobil Corp., the world's largest publicly traded oil company, lost $1.26 to $80.43. Chevron Corp., the second-biggest U.S. oil company, declined $1.40 to $79.36. Crude oil fell for the first time in four days in New York on concern falling stock prices may cause economic expansion to slow, reducing fuel demand.
Hedge-Fund Warning
Credit losses may cause a major hedge fund to collapse, Chris Mahoney, Moody's vice chairman, said on a conference call today. Forced selling by a large fund would ``disrupt markets'' as the collapse of Long-Term Capital Management LP threatened to do in 1998, he said.
Goldman last night blamed its $3 billion in losses from hedge funds on too many managers of quantitative funds making the same trades. So-called quant funds use computer models to make their investment decisions. Some $4.2 trillion of stock market value has been wiped out globally since July 19, according to data compiled by Bloomberg.
``The magnitude of this move alone argues that fundamental economic news could not be responsible,'' according to Goldman. ``Our conclusion is that there was a major supply/demand imbalance caused by many quant managers unwinding simultaneously, which caused outsized negative'' returns.
Fed's Poole
Federal Reserve Bank of St. Louis President William Poole said only a ``calamity'' would justify an interest-rate cut. His comments in an interview yesterday suggest a reduction in borrowing costs at or before the central bank's Sept. 18 meeting isn't the certainty that futures traders had assumed. The best course is to assess economic figures when policy makers next meet, Poole said.
``The Fed appears out of step,'' said David Nelson, who runs a hedge fund as chief executive officer at DC Nelson Asset Management in New York. ``It seems like the subprime problem is spilling over in many ways. It's a scary time for investors.''
The Fed Bank of Philadelphia's general economic index dropped to zero in August, the dividing line between expansion and contraction, from 9.2 in July.
Treasuries advanced, pushing two-year yields to the lowest in 22 months, as a slide in global stocks fed demand for the relative safety of government debt. Sydney-based Rams Home Loans Group Ltd. said today that it was unable to refinance the equivalent of $5 billion of U.S. loans due to tightening credit.
With regard to subprime losses, ``we cannot ignore that the discussion regarding the possibility of negative spillover effects on the economy is over,'' UniCredit analysts wrote. ``There definitely will be spillover effects, the unknown variable is just the amplitude.''
The decline in U.S. stocks today triggered the New York Stock Exchange's trading curbs, measures aimed at stabilizing the market by restricting certain kinds of transactions. Trading collars, which limit so-called index arbitrage, kick in when the NYSE Composite Index drops 180 points or more. The index tumbled as much as 243.4 points.
Last Updated: August 16, 2007 13:09 EDT
|
|
