August 18th, 2011
09:06 PM GMT
In "Wall Street: Money Never Sleeps," Oliver Stone's fictitious financier Gordon Gekko famously pronounced "idealism kills every deal."
The pearls of Hollywood wisdom have rarely seemed more pertinent to the current market rout, after the leaders of France and Germany spectacularly failed to shore up confidence in the eurozone this week.
Then came the nail in the coffin: Morgan Stanley warned that the world's dithering politicians had pushed the U.S. and Europe "dangerously close" to a recession.
Two questions emerge: Are the world’s biggest economies heading towards a double dip? And if so, which will succumb first?
If there's one thing we've learned over the past few turbulent weeks it's that as long as lawmakers can't make up their minds, the markets are more likely to get their way.
And after the bond markets claimed the scalps of three eurozone members earlier in the year, this month it's the turn of stock markets to look menacing.
When examining the year-to-date declines in equities a pattern emerges.
Though Thursday's sharp falls on Wall Street have certainly alarmed investors, European markets are actually down the most since the start of the year.
In nearly eight months they have dropped by double digits, reflecting the ongoing concerns about the viability of a monetary union that encompasses 17 nations and some of the world's biggest economies like Germany.
At the time of writing, the Frankfurt Dax and Paris Cac-40 had each shed nearly 19 percent of their value so far this year. London’s FTSE-100 performed marginally better, down 14 percent while the top 50 European ‘Blue Chips’ or largest companies - as measured by the Eurostoxx 50 - were down more than 20 percent, despite a raft of earnings reports that on the whole often met expectations.
That means investors aren't taking their cues from the health of the corporate world anymore. They are firmly focused on the economy.
And with the absence of any economic policy that is ahead of the curve, confidence in what was once a flourishing recovery is now slipping away by the minute.
More worrying: currencies perceived as overvalued, like the Japanese yen, could dent huge, export driven economies.
The Nikkei is down the same amount as the FTSE this year. Ditto for Hong Kong’s Hang Seng - a worrying sign when the world was relying on Asia to provide the growth which we now know is lacking in Europe.
Meanwhile, in the U.S., the Federal Reserve said this month it would keep rates on hold at historic lows for two years because the world’s largest economy is still too weak.
Yet despite wrangling over the debt ceiling and a downgrade of its credit rating, U.S. treasuries appear to many an investor as a safe port in the storm.
Stocks aren't down that much since January. In percentage terms the Dow has fallen in the low single digits, despite some 400 point swings either way.
It's a white knuckle ride out there these days but remember some investors still make money even when the markets tank.
And as Gordon Gekko also once said: "Bulls make money. Bears make money. Pigs? They get slaughtered."
I wonder whether he was referring to Portugal, Ireland and Greece.
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