)Dow) Futures plunge (-546) on U.S. recession fears

[UpInArms]

Source: Reuters

NEW YORK (Reuters) - U.S. stock index futures sank in holiday-shortened trading on Monday as fear of a U.S. recession gripped investors, indicating Wall Street was likely to join a global equity markets plunge that may usher in a bear market when trading resumes on Tuesday.

While cash equity markets were shut for the Martin Luther King Jr. Day holiday, index futures were very active in electronic trading through the Chicago Mercantile Exchange. U.S. stock markets reopen on Tuesday.

<snip>

If U.S. stocks open on Tuesday at the levels futures are currently indicating, it would push major indexes dangerously close to bear market territory -- or a 20 percent drop from their peak in October. That would mark the death of the bull market that began in early October 2002.

<snip>

Dow Jones industrial average futures DJc1> dropped 546 points or 4.5 percent. Should the Dow close lower on Tuesday by the amount the futures suggest, it would rank as the fourth-largest point loss ever for the index.

S&P 500 futures were down 62.5 points, or a 4.7 percent drop, far below fair value, a mathematical formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract. Nasdaq 100 NDc1> futures slid 77.5 points, or 4.2 percent.

Read more: http://www.reuters.com/article/bondsNews/idUSN2140979520080121?sp=true

[highnooner]

1. tomorrow is not going to be pretty

[Dr.Phool]

2. Looks like "Bloodbath on Wall Street" tomorrow.

Gonna make the "Texas Chainsaw Massacre" look like a picnic.

[Torn_Scorned_Ignored]

24. 'Wave of panic' as market slides

12.18pm.

"There is a wave of panic emerging as the fear unfolds," Martin Slaney, head of derivatives trading at GFT Global Markets in London said in an email, prior to the start of trading.

Austock Securities client adviser and strategist Michael Heffernan said there was "blood on the floor'' with the market falling three per cent in the first few minutes of trade.

"I think the blood bank is trawling all broker's floors to recover the blood,'' he said.

"We are all feeling what it would be like to do fifteen rounds with Mike Tyson but in reality there are some great stocks at fantastic value.''

Mr Heffernan said sooner or later the market would come back.

"While it will finish down today, sooner or later investors are going to see the value in good stocks and I say they are great value. So investors should never look back.''

http://business.theage.com.au/wave-of-panic-as-market-slides/20080122-1nbp.html

[Ghost Dog]

55. "there are some great stocks at fantastic value"

--> This is becoming, for me, almost as much of a cliché as the old one about receiving stocks advice from the lift operator.

[phantom power]

3. I think we're all going to feel the love.

By "love," I of course mean something like financial prison-rape.

[ozymandius]

4. I really feel leaden about posting the Stock Market Watch tomorrow.

It will be lively, no doubt, but lively like a train wreck.

[UpInArms]

5. it's all feeling mighty weird

dollar is going up (read a headline about Chopper Ben not being wise to cut the interest rates) and the commodities are definitely churning all around - check out the foreign markets on PMs here (http://www.kitco.com/market/) -- eewww! looks like a bloodbath everywhere!

[ozymandius]

7. That's just the thing: Ben's hands are tied. He cannot slash rates enough

to stimulate this dead thing. If rates are slashed then the dollar takes another sledgehammer blow to the heart. It will still take eighteen months, at least, for us to feel some hint of the stimulus. In the meantime, we have stagflation. Not much fun for Chopper Ben.

[54anickel]

57. Oh PUHLEEZ! They're rushing to the dollar for safety?!?!...just peeked and

PMs are falling - gold down $20...

Your cash ain't nothin' but trash
Your cash ain't nothin' but trash
Your cash ain't nothin' but trash
And there ain't no need in your hangin' around


I see a big meeting is coming up today - they are scared...figuring out how to direct this transfer of wealth before it gets outta hand.

http://money.cnn.com/2008/01/22/news/economy/bush_congress.ap/index.htm

But both sides have negotiated in good faith. Republicans and Bush declined to insist on extending Bush's 2001 and 2003 tax cuts that expire in three years, while Democrats offered up tax breaks for business and limited their roster of spending proposals. Democrats also agreed to waive budget rules requiring tax increases to finance the measure.

The rush to produce an economic stimulus bill comes as recent data on the economy is increasingly negative and as the issue has become a top priority with voters.

[0007]

6. It will be a slow motion second by second train wreck.......

Expect junior to be cheer leading and pumping up the pimps tomorrow evening.

Then again He'll probably just print more dinero to keep the market up.

[Dr.Phool]

8. It's gonna be a real chore early in the morning.

Your daily post is my second stop every morning. Right after the coffee pot.

It's much appreciated.

[UpInArms]

9. here's that Chopper Ben article: Will the cure be worse than the disease?

http://money.cnn.com/2008/01/18/news/economy/cure.fortune/index.htm

(Fortune Magazine) -- The wobbly economy is overtaking Iraq as the issue weighing most heavily on the minds of America's voters. And Washington has noticed. The White House and Congress are almost certain to enact some kind of stimulus package. But like all such temporary, feel-good measures, it will generate a quick blip in growth that will quickly evaporate. In reality only one player has the power to do anything swift and decisive: the Federal Reserve. And its chairman, Ben Bernanke, has already made his intentions abundantly clear. Unfortunately, the cure he's prescribing may be worse than the disease.

Just how low will the economy go? There are conflicting signals. It's clear that the economy is losing steam. The plummeting value of America's houses is chilling consumer spending, layoffs are mounting, and banks and other creditors burned by the subprime crisis are far more reluctant to lend to everyone from small-business owners to private equity firms. But GDP increased by 4.9% in the third quarter, and economists estimate that GDP was still growing in the fourth quarter. Exports are strong, thanks to the weak dollar. The Fed did a brilliant job last summer by flooding the banks with money to prevent a full-scale credit crunch. Credit is far more expensive today, but it's also becoming more plentiful, as demonstrated by the falling rates on everything from LIBOR - the rate at which international banks lend to each other - to junk bonds. So while a recession is a real possibility, it's not inevitable - even the Fed is not forecasting one this year. And if we do get one, it may be brief and shallow, like the one we had in 2001 - with economic growth falling by perhaps half a percentage point for a couple of quarters, and unemployment rising from its current 5% to 5.5% or 6%.

By cutting rates early and often, Bernanke is acting as though a recession - even a mild one - would be a calamity that must be avoided at all costs. He has already reduced the Fed funds rate (which banks pay when they borrow from each other) by one point, to 4.25%, and promises to "take substantive additional action as needed to support growth," a pledge that Wall Street interprets as meaning at least another half-point cut at the Fed's meeting on Jan. 29, if not sooner.

Many on Wall Street back Bernanke. "I'll defend the Fed," says Bear Stearns chief economist David Malpass. "Part of the slowdown is the result of banks' tightening credit, and you help that by lowering the Fed funds rate." Mickey Levy of Bank of America agrees: "You need to lower rates to offset the drag on housing."

But Bernanke is setting the stage for an even bigger recession down the road. Just as the ultra-low rates of the early 2000s created many of the problems we're experiencing today, pumping money into the system would probably stoke inflation, forcing the Fed to hike rates sharply in the near future. "It's better to take a small recession and kill inflation immediately instead of facing high inflation and a really big recession later," says Carnegie Mellon economist Allan Meltzer.

...more...

and by the way - I got to bring home so extracurricular reading tonight from the office - it's the Fed's 4th quarter Economic review - with such tantalizing headlines as:

Rising Foreclosures in the United States: A Perfect Storm

Booms and Busts: The Case of Subprime Mortgages

Risks of Identity Theft: Can the Market Protect the Payment System?

and many more!

I am so excited - bedtime reading material!

oooohhhh!!!!

[Roland99]

23. In this age of super-short-term results, will the Fed take a longer-term stance?

Cutting those rates and causing a quickening in the rate of increase in inflation followed quickly by hikes in interest rates will help no one and hurt everyone.

[UpInArms]

28. wow

do you know, the only stance that is more short term or wider than the fed's is Larry Craig's?

:blush:

[Roland99]

42. BWA HA HA HA HA HA HA HA!!!

[Yael]

48. !!!

:rofl:

[kineneb]

10. keep up the good work

in spite of the potentially gloomy news. It is one of the first subjects I check on DU.

Hang in there.:grouphug:

[NMDemDist2]

12. ....

:hug:

[Pale Blue Dot]

13. And like you, I'll be at school all day.

Teaching and worrying about the futures of my students, checking in here when I get a chance.

I hope I'm wrong about what's about to happen.

[Radio_Lady]

50. Finnfan, looks like your end of January prediction is right on the money.

[Ghost Dog]

14. Me, I'll be quite quiet tomorrow.

Heard and said enough in the 'holiday thread' "European / Asian markets plummet" (and linked threads) today here: http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=102x3149187#3149886
and have plenty of work to be getting on with bringing this house & garden up to scratch.

Swiss Franc now at 1.603 to the Euro; 1.443 Dollars per Euro, according to this widget thing on my desktop.

Looks like plenty of demand for dollars (and yen) there, as investors were liquidating some dollar-denominated holdings today (thus creating (temporary) demand for the currency), I guess.

Some unwinding gold and silver positions too.

DailyFX says:

Dollar Surges but Tuesday could be Ugly for US Stocks
Monday, 21 January 2008 20:36:52 GMT
Written by Kathy Lien, Chief Strategist

- Carry Trades Plunge as Volatility and Risk Aversion Rises

- ECB: All Talk and No Action

Dollar Surges but Tuesday could be Ugly for US Stocks

On Friday, we argued that the dollar may rally this week as traders reflect on whether it is realistic to expect the Federal Reserve to deliver an intermeeting rate cut or 75bp easing at the end of the month. As we predicted, the dollar has started off the week strongly, but for reasons other than the ones that we have proposed. Stock markets around the world have plunged. In fact, that’s an understatement because the one day slides in many of the indexes are the worst since 9/11 of 2001. The UK’s FTSE index is down over 5 percent, the German DAX is down over 7 percent and Hong Kong’s Hang Seng Index fell more than 5 percent. Even though the US stock markets were closed for Martin Luther King’s day, Dow futures fell 546 points or 4.5 percent. If the futures do not retrace materially before the market’s open on Tuesday and the Dow closes the day down by the amount that the futures suggest, the index would see its fourth largest point loss ever. Such big moves in the equity markets certainly make an intermeeting rate cut by the Federal Reserve more likely. If stocks do not begin to recover anytime soon, the Fed will be forced to take measures to restore confidence in the US financial markets. Although part of today’s volatility could be attributed to the fear of a US recession and the lack of liquidity, the move began in Asia and was sparked by speculation that the Bank of China could be forced to write-off a fourth of its $8 billion subprime exposure. The announcement by the Chinese Bank would indicate that the mortgage mess has spread from the US to Europe and now into Asia. The world may be able to deal with a slowdown in the US economy, but the combination of a material slowdown in both US and China would be too much for everyone to handle. The lack of economic data on the US calendar this week will allow the equity markets to drive currency movements. Should Tuesday come anywhere close to being a record breaking day in US stocks, we expect to see the biggest drawdown in carry trades since the inception of the Euro. This will in turn lead to more dollar strength against everything except for the Japanese Yen which will decouple from the rest of the dollar pairs due to its carry trade status.

Carry Trades Plunge as Volatility and Risk Aversion Rises

Carry trades live and die by 3 things; volatility, risk appetite and the direction of monetary policy. Unfortunately, in the current market environment, all 3 of these factors are not favoring carry trades. Volatility across the financial markets has surged. The VIX which is a measure of US equity market volatility closed last week not far from its 4 year high. Today, the VDAX-New Index which is a measure of European equity market volatility surged 39 percent, the largest rise since 2001. Risk appetite has plunged with equities selling off while central banks around the world are shifting from monetary tightening to monetary easing. Therefore it is not surprising that carry trades are coming close to reporting the biggest drawdown since the inception of the Euro. Even though the Bank of Japan has a monetary policy announcement tomorrow, it should be a non-event as traders focus on equities and whether they recover or extend Monday’s sell-off.

ECB: All Talk and No Action

The Euro dropped 200 points today on the back of broad dollar strength, weaker economic data and increasingly dovish comments from ECB officials. In contrast to the central bank’s fears of rising inflationary pressures, German producer prices dropped 0.1 percent last month. This was not much of a surprise since wholesale prices dropped for the first time since October 2006. ECB members are growing less hawkish which reduces the risk of an interest rate hike from the ECB in the first quarter. We believe that the massive drop in European equities and the continual problems in the subprime and financial sectors will force the central bank to remain on hold over the next few months and possibility even for the remainder of the year. ECB members are already growing less dovish. Last week, Mersch switched his bias from hawkish to dovish and today, Wellink warned that the Eurozone economy is likely to slow more than the central bank initially expected. Once again, we expect the ECB to be all talk and no action.

/... amongst other things http://www.dailyfx.com/story/bio1/Dollar_Surges_but_Tuesday_could_1200951424040.html

[Ghost Dog]

15. Morgan Stanley (not Roach) comment:

The dollar’s general weakness in the first trading days of the year suggests that investors, collectively, are not yet fearful enough for the ‘Dollar Smile’ to work. Specifically, this descent in the dollar implies a general presumption that the US – being the epicentre of the current global slowdown – will suffer the most and that the rest of the world (RoW) will be relatively unhurt from such a slowdown in the US. In addition to this geographical dichotomy, risky assets may need to fall much more for fear to become the main driver of investment. We believe that the ‘Dollar Smile’ will eventually start to work, when the RoW starts to slow, with a delay.

..

From yield differentials to the ‘Dollar Smile’

The dollar has been weak in the first two weeks of the year. This implies several opinions among investors. First, investors must have the view that the collateral damage from a US slowdown will be ring-fenced and the US will likely suffer the worst of the consequences while the RoW will largely be spared the downdraft in demand. Second, investors may be increasingly discouraged by the low yield premium on USD assets. Our measure of ‘hedging costs’ for USD-based real money portfolio investors have changed drastically, providing less of a support for the dollar.

However, we believe that both of these opinions will change, allowing the dollar to rally this year against the EUR and the GBP. In turn, the JPY and CHF could rally against the strengthening dollar, for as long as the US is in a recession, which we believe will likely persist through 1H08. One by one, various parts of the RoW will start to show signs of a slowdown/deceleration. Even though we are of the view that this ‘economic re-coupling’ will be tentative and partial, financial coupling will likely push investors back into ‘fear mode’ and bond rather than equity flows will, perversely, support the dollar – consistent with our ‘Dollar Smile’ framework.

Back in September 2001, our proxy of hedging costs also breached the 0% threshold. Yet the dollar remained strong until the Bush administration imposed temporary tariffs on steel in February 2002. In our view, this episode in 2001/02 was a demonstration of the safe haven status of the USD. This is related, but distinct, from the discussion on whether the dollar is still the top reserve currency. The fact that three-quarters of all hedge funds worldwide, no matter where they are located, are ‘dollar-based’ is important, as it suggests that when risk-taking is curtailed in general, the dollar will be bought. We remain comfortable with this view.

On economic and financial de-coupling

A key part of this discussion about the reliability of the ‘Dollar Smile’ framework is whether the RoW can remain de-coupled from the US, both in economic and financial terms.

/... http://www.morganstanley.com/views/gef/index.html#anchor5987

[debbierlus]

18. I have been watching this unfold over the last few weeks

Tomorrow could be a day in stock market history.

[Yael]

49. I almost never post in it, but I keep a tab open all day and check often

Thanks for your threads!

[Phred42]

11. 25+ Years of Insane Conservative Economic Policies

coming home to roost.

batten down the hatches!

[ckramer]

16. At 9:37 pm EST, Dow future is up 45 points

I think tomorrow will be a green day.

[pa28]

21. I suspect you are right.

The foreign markets have been reacting to us. I don't think it's some kind of given that tomorrow will be a blood bath (or start red anyway). Maybe doomsday is coming but I'll wait to see it myself.

[RantinRavin]

22. current DOW futures

DJIA INDEX 11,650.00 -456.00 OPEN:12,130.00 HIGH:12,140.00 LOW:11,569.00 21:47

[ckramer]

29. Do you have a link for these numbers?

check out my link:

http://quotes.ino.com/exchanges/futboard/current/

[Roland99]

25. Where did you get that? Bloomberg's latest numbers are still dire...

DJIA INDEX 11,650.00 -456.00 21:47
S&P 500 1,268.00 -57.30 21:48
NASDAQ 100 1,776.00 -73.50 21:42
S&P/TSE 60 713.40 -33.50

[ckramer]

27. check out this link

http://quotes.ino.com/exchanges/futboard/current/

[dysfunctional press]

32. it's currently showing the "last" at 11691...

if it closed friday at 12099.30...how is that "up"??

[ckramer]

34. I don't know what that 11691 number means

but Dow future is up even as we speak.

If the market is to open the next minute, the DOW would be green.

[dysfunctional press]

38. that 11691 represents what the dow would have opened at at that moment.

and since it closed friday at 12099.3- it most certainly would NOT be green.

[dysfunctional press]

30. i think that means that it's up 45 points from the lowest point- when he posted it...

it's now showing +78.0, with a level of 11,662.00

and since it closed friday at 12,099.30, 11,662.0 ISN'T "up".

http://money.cnn.com/data/premarket/

[leveymg]

17. There hasn't been a Bull Market in the U.S. since 1999. The Dow is lower than the day W took office

Now, that's a great return on your investment Dollar.

Whoever compiles these market reports inhabits an alternative universe, and has a promising future writing science fiction.

[RantinRavin]

20. Ummm...the DOW is NOT lower

AT THE CLOSING BELL WHEN BUSH TOOK OFFICE on January 22, 2001
Dow - 10,578.24


Current - 12099.30

[skids]

35. Depends what currency/commodity you valuate it in...

The dow is not an inflation-adjusted figure.

[whistle]

19. Recession??? Economic meltdown is closer to the truth...

...the U.S. produces almost nothing of economic value any more. So what does the Dow Jones industrial average futures reflect? Gambling bets that's all. Since July 2007 the Federal Reserve has inflated the U.S. dollar by printing paper to bail out hedge funds and Wall Street speculators sticking the American tax payer with the bill by cranking up the national debt. Without expanded wars in Iran and Central Africa Wall Street has nothing left to bet on, so down it goes!

[happygoluckytoyou]

26. so THE BUCK STOPS HERE.... go go gop go go gop

walla walla wallmart... substandard wages...
union killing piss-trickle-down economics... don't forget to wear your piss-helmet

[ckramer]

31. Now at 10:20 EST, Dow future is up 107 points

http://quotes.ino.com/exchanges/futboard/current/

[dysfunctional press]

33. you are misreading the numbers.

it's showing the last price at 11687...it closed friday at 12099.30...how is that "up"?

[ckramer]

36. Future closing number != the market closing number n/t

[dysfunctional press]

39. what?

:shrug:
you lost me there.

but you ARE misreading the numbers.

[ckramer]

44. Look at the oil future number - it's 87.90

Do you really think crude oil was closed at $87.90 last Friday?

Duh.

[dysfunctional press]

47. the friday numbers aren't on that board.

that 87.90 under the last column indicates the last price in the futures trading- it also pretty much represents what the opening price would be, were the market to open at that instant. the same as with the dow numbers. and they are definitely WAY DOWN from friday's close.
if you don't believe me, call a broker.

[DemReadingDU]

37. looks down via Bloomberg

http://www.bloomberg.com/markets/stocks/futures.html

[dysfunctional press]

40. it is down...ckramer is a little...confused.

:crazy: is more like it...

[ckramer]

41. I wouldn't trust these numbers from Bloomberg

Or the numbers from Money.CNN.

They are not reliable or real time.

[Yael]

51. You are misreading the numbers. You are looking at after hours future trades, not the index

And the +/- you are seeing is from futures trades IN PROCESS, not the index which will not see any effect until starting at 9:30 tomorrow morning.

The comparison is that wherever futures trades land on a holiday (like this) the market can expect to follow somewhat closely.

IE -- take youe 11,000 whatever and subtract it from 12,100.

THATS the indicator.

[Yael]

52. What real time are you talking about? It is 12:17 am EST

[FarCenter]

43. Second day of down markets in Asia

Headlines from Daily Yomiuri http://www.yomiuri.co.jp/dy/

Japan's benchmark stock index plunged more than 4 percent in Tuesday morning trading in the second day of a frenetic sell-off over fears of a possible global slowdown.

Hong Kong index plunges 6 percent amid second day of global sell-off

China benchmark stock index falls more than 6 percent in second day of global sell-off

South Korea's main stock index falls 4.3 percent in early trading

Australian shares plunge in early trade after Europe, Asia sell off

Taiwan shares plunge 5 percent amid broad regional sell-off

[FarCenter]

45. Panic sparks plunge in global markets

http://www.ft.com/cms/s/0/604d71dc-c853-11dc-94a6-0000779fd2ac.html

...


“The news that some monoline insurers have seen their ratings lowered, potentially with more to come, has opened up a very nasty scenario,” said Andrew Milligan, head of global strategy at Standard Life Investments. “Financials may very well face another hefty round of write-offs, which would reduce their future potential to extend credit to businesses, thus causing a vicious spiral to develop.” On Friday, Ambac, the second-biggest bond insurer, lost its triple-A credit rating from Fitch Ratings, a move set to undermine the company’s ability to attract business and hit billions of dollars of securities it guarantees.

Michael Cox, of the Royal Bank of Scotland, said: “We now believe there are no public markets open to the monolines in their quest to raise capital...The only potential solution we can see that would enable triple-A ratings to be retained now is a co-ordinated bail-out by interested parties – banks and/or politicians.”

In Asia, Indian shares on Monday ended 7.4 per cent lower; Hong Kong closed down 5.5 per cent; and Japan’s Nikkei average slid nearly 4 per cent, falling a further 4 per cent in early trading on Tuesday while South Korea’s Kospi index lost a further 3.9 per cent. In early trading on Tuesday, Hong Kong skidded another 5.5 per cent while Shanghai was down nearly 4 per cent.

[Trajan]

46. I hate to reduce such a complex problem to one issue ....

Wages ....

Wages, wages, wages, wages ....

Republicans first, then many 'conservative' democrats, have practically destroyed the unionization of the American workforce, which has led to a general, widespread loss of buying power for Average Joes everywhere as wages have stagnated for YEARS .....

Now that the 'easy money' of refinanced loans is gone, and the liquidity has evaporated; The bill is due on the ARM resets: Where is the money to pay for those mortgage increases ? ....

IF the American worker had decent union representation, they would have increased their wages these last 25 years ... Instead: wages have languished as expenses mounted daily, for years and years .....

Those wage increases that have been denied for so long now ? .... THAT is what could have staved off this end: Wages pay the bills, and create wealth for the wealthy ...... They also pay mortgages; even ever increasing mortgages ....

This is conservative economic policy in action: This is the end they will always find with that policy .... Conservative economic policy is always short sighted, self focused and short term .....

Conservative economic policy is a loser every time ....

[Yael]

53. But Shrub is sending us all $800. That should fix everything.

:thumbsup:

:sarcasm:

[nolabels]

54. If that happens to the market four or five times in near future then I will feel relief

The price of real estate in our area has dropped about 25% in the last year. We are fine with that and it wouldn't really bother us or hurt us that much if it lost another 25% or more.

The stupid speculators or other's thinking they were going to get something for nothing are now paying the price, it's just too damn bad :shrug:

[Ghost Dog]

56. Yes, the blowout of this bubble is absolutely necessary, the sooner the better,

at the macroeconomic level.

Big players in markets will lose big. But as per usual it will mostly be the little people who get seriously hurt.

[clspector]

59. and damn the flippers all to hell, too

I can't think of anything worse for a neighborhood than the wave of flippers that rush into an area when it's "hot." They artificially inflate the value of a house then leave the neighbors with a higher tax bill and make the neighborhood less stable because of people moving in and out willy nilly.

[AngryAmish]

58. EVERYBODY PANIC!1!!