Tuesday, 18 October 2011

Market Talk: Risk-off day in all major asset classes

A sharp reaction from the financial markets came today after the participants expect further economic turmoil. US Stocks slump as the Goldman Sachs reported its second quarterly loss in almost 12 years and as IBM shows signs of weekness. Commodities drop, precious metals leading with Gold down 2.46%, and silver down 1.86%. Just a Manic Monday.

US Stocks

At this moment the two leading US indexes, the S&P and the DOW trade at par, bouncing from an extended rally. Presently the S&P500 is quoted at $1202.51, gaining a measly 0.14% and the DOW dropping 0.14%. The culprits seem to be the disappointing news comming from the quarterly reports of Goldman Sachs, Bank of America and Morgan Stanley. Suspicion of accounting window dressing is high as the operating income schrinks to lower and lower level. Instead, they are posting extraordinary income that may well prove to be accounting gimmics.

Goldman Sachs, the leading investment bank, reported today an troubleing loss of almost $0.84 per share, with lower revenues from all departments: The financial advisory department, the equity underwriting department, debt underwriting department, fixed income, currencies and commodities department and institutional clients services. But the real surprise came from the prop trading desk of Goldman Sachs which reported a wopping $2.5 billion loss, first time ever since the fall of Lehman Brothers. There is trouble brewing in their kitchen. Here is a breakdown of their quarterly earnings (source: ZeroHedge):


Commodities haven't fared well either, as margin investors are liquidating their most risky assets. Incidentally, or not, these are the agricultural commodities and the precious metals. Concerns about the slowing Chinese growth (in real terms) and about the state of the Greek debt have aided to the overall uncertainty in the markets. Not even news of UK inflation reaching 5.2% (as measured by the CPI) could prop up gold prices (Gold is viewed as a hedge against inflation). With countries like the UK and the US, and with institutions like the ECB still favoring ultra-loose monetary policy (printing money), gold's and silver's correction will likely prove short term in nature.

Watch out for the $1600 level in gold. If it spikes under that, there may be long term chart damage.

Snippet Photo Source: The Wall Street Journal

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