The carnage continues across the world’s markets with some taking extreme measures to halt the decline. We have already discuss the short selling rules brought in by the SEC, making ‘naked’ short selling a crime which is hope to stem some racier market strategies.
Across in Russia shares suffered their steepest one-day fall in more than a decade on Tuesday, losing up to 20 per cent, as a sharp slide in oil prices and difficult money market conditions triggered a rush to sell.
The heads of the Russian central bank, the finance ministry and the financial market regulator met on Tuesday night for an emergency discussion on ways to halt the crisis. Margin calls forced domestic traders to liquidate positions and brokers pulled credit lines. At least one Moscow bank failed to meet payments.
The rouble-denominated Micex Index closed 17.75 per cent down, the sharpest one-day drop since the August 1998 financial crisis, while the dollar-denominated RTS index closed down 11.47 per cent, its lowest level since January 2006.
The interbank money markets are in chaos with money market rates climbing to 11 per cent, their highest since a mini-banking crisis in summer 2004.
Chris Weafer, chief strategist at Uralsib investment bank: “We’re in completely uncharted territory where the prevailing emotion is of fear and numbness. No one knows where this could stop”.
In London, ETF Securities said more than 100 of its AIG-linked exchange traded commodity funds listed on the London Stock Exchange were suspended on Wednesday, September 17. ‘It is our understanding that the London Stock Exchange has suspended electronic execution … But off-book trading will continue,’ the company said in a note on its website on Wednesday.
The listed ETCs were suspended because of problems with liquidity because many market makers have cut exposure to troubled insurer American International Group Inc, ETF Securities told Reuters.
On ETF Securities website they say “ETF Securities is in discussion with its market makers, Authorised Participants and the Exchanges (London Stock Exchange, Deutsche Bourse, Borsa Italiana and Euronext) to seek to have trading in ETCs issued by ETFS Commodity Securities resuming in an orderly fashion as soon as possible. AIG continues to honour all of its obligations under our agreements with them, including processing all creations and redemptions in the usual manner and paying all redemptions due on time”.
With all this chaos around many are saying that we have finally reached the point of ‘capitulation’ where stocks are being sold on fear, volumes are huge and volatility is high.
After capitulation selling, it is thought that there are great bargains to be had. The belief is that everyone who wants to get out of a stock, for any reason (including forced selling due to margin calls), has sold. The price should then, theoretically, reverse or bounce off the lows. In other words, some investors believe that true capitulation is the sign of a bottom.
I don’t know whether we are there just yet. It seems each day we have a new issue. Fannie, Freddie, Merrill, Lehman, HBOS and now Morgan Stanley and Wachovia… Many do not see the sense in Morgan and Wachovia and are viewing it with suspicion.
If volatility is something you enjoy trading in, you are never, ever, going to get a better time than now.
Carnage Continues But Have We Capitulated?
On September - 18 - 2008
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