August 18th, 2011
09:06 PM GMT
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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.

Are we entering another recession?

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.



soundoff (13 Responses)
  1. Noah Wild

    As a matter of fact, Gordon Gekko said: "Idealism kills every deal."

    August 18, 2011 at 10:48 pm |
  2. Casper

    Yes, I hear it over and over again: "Greed is Good !"

    August 19, 2011 at 8:26 am |
  3. subaru

    The freshly printed dollars makes its way to the stock markets of China, India and other developing countries. Some countries have put a lock in period on investments. Stock exchanges of these countries have become casinos for the printed dollars and American Banks are posting stronger and stronger results as they make huge profits from these markets. The money also goes into real estate of China, India and other south east asian countries. There is big bubble there about to burst as real estate has appreciated 7 times in 7 years and stock markets 5 times in 7 years. The printed dollars are not used for real economic development of USA. It is used in casinos/stock exchanges of Asia.

    August 19, 2011 at 10:46 am |
  4. ruzuzuzu

    The impending recession in the US may not be the same as happened in 1930 and 1987. This one may have a longer hangover. In 1985 the economy of the Western world (the US and Europe) was 55% of that of the world. In 2007 the economy of the western world was 38% that of the world. In 2025 the share of the western world may go down to as low as 20%. This reduction in the relative wealth of the western world will give the long hangover to the recession.

    August 19, 2011 at 11:16 am |
  5. João

    You gotta love the way Americans look at facts. The Dollar goes down vs the Euro..and the Euro is the one in danger?
    Portugal, Greece and Ireland bailouts are somewhat the same as california's.

    August 19, 2011 at 11:19 am |
  6. Henry

    I believe France and Germany are doing this on purpose to drive down the value of the euro but will not openly admit it. They will do anything to protect their industrial base, The U.S. is also trying to devalue but nobody will admit it, Remember when bill Clinton did it, but at that time there was a better industrial base. I could be wrong just my opinion

    August 19, 2011 at 11:31 am |
  7. laboom

    Joao, you know nothing about the international economy, please stop, its embarrassing.

    August 19, 2011 at 1:31 pm |
  8. milstonfilston

    I wonder, If journalists careers wrested heavily on economic trends, they would be such eager speakers of doom and gloom ...just a thought.

    August 19, 2011 at 1:53 pm |
  9. Erick

    I agree with Gordon Gekko.Bull and Bears make a lot of money

    August 19, 2011 at 6:43 pm |
  10. Mike

    It's not so much that lawmakers can't make up their minds, inasmuch as lawmakers who want progress need to be willing to put their jobs and reputations on the line. Progress requires a willingness to be sacrificed, or to become a martyr for a cause and how many lawmakers have that courage? That is the uncomfortable truth when times are tough and it applies equally in the boardroom as on the battlefield. Lawmakers will have to recognise that the cause is bigger and more important than they are. There are plenty of examples of individuals out there who go through years of pain, suffering and misery to make the world a better place, but it looks as if such individuals are in short supply amongst the lawmakers in Europe and the US.

    August 19, 2011 at 7:44 pm |
  11. Micol

    Henry above has a point: except for aircraft and (foreign owned) cars, the US industrial export base is greatly shrunk over the last decades, so a falling Dollar, esp against the Yuan, would have the perverse effect of expanding the merchandise trade deficit, not shrinking it.

    If the price of corn and soybeans were not as high as they are, the US trade picture would be frankly awful. The world's leading economy depends on agriculture, Toyotas and coal as its core export products.

    And, by the way, what is this intellectual/political game with the word "recession'" Economists, who are wrong about most things, define a recession as two consecutive quarters of falling GDP. Whether such arbitrary conditions exist or do not exist seems about as relevant as debating how many angels can dance on the head of a pin. The public and household sectors are both awash with debt (the corporate sector is awash with cash – one day economic historians will have lots of fun explaining that oddity) and underlying demand is exceptionally weak. The former driver of the economy, homebuilding and middle class house trading, has dropped dead on the sidewalk, and there is nothing obvious in line to replace it.

    Call it a recession. Call it a slump. Call it what you want, it is certainly not prosperity. Even an economist – well, a few of them, at least – can see that.

    August 21, 2011 at 3:06 pm |
  12. ray

    Gordon Gecko is a made up character, you people are all idiots!!!!

    amazing.... study the basics of economy and how demand/supply works and that's all it takes to measure which way things will go, so some stupid Wall Street movie.

    August 21, 2011 at 10:48 pm |
  13. Oguebie

    I'll be putting up a link shrotly for everyone, but we had a technical glitch that I'm trying to resolve, but the wireless in that area is scarce. I'll post something as soon as I get it fixed. I apologize for the delay!

    November 5, 2012 at 5:37 am |

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