Newsletter of Economic and Market Events
Best Investments in 2008
U.S. Total stock market returned 38% in 2008, Stocks had historic losses, Bonds had historic gains of 14.9% and inflation was 0.1%. Only April and August had gains in all 3 major U.S. indexes - Dow lost -33.8% (worst year since 1931), S&P 500 lost -38.5% (worst year since 1937), while NASDAQ lost -40.5% (worst year since conceived in 1971).
Of the 5 largest sectors in the U.S. Economy: Healthcare lost -23.6%, Natural Resources -39%, Technology -41.6%, Real Estate -41.9% and Financials lost -54%. By size: Small Cap lost -32%, Mid Cap -37.3%, Large Cap -38.5%, while Micro Cap lost -39.4%. Gold rose 3.3% and oil fell a historic -56.3% with commodity prices (CRB) -36%.
Global markets fell a historic -47.2% of the World's largest economic regions: Asia fell -42.7%, Europe -45.8% and Latin America -51.8%. Of the World's largest Developed non-U.S. Economies: Britain fell -31.3%, Canada -35%, Germany -40.4%, Japan -42.1% and France -42.7%. In the Emerging markets which lost -60.3%: Brazil fell -41.2%, India -52.5%, China -65.4%, while Russia lost -72.4%. Hedge funds lost on average -19% (assets fell to $1.1 trillion from an all-time high of $1.9 trillion in June 2008).
Those who diversified with MPT did best, a trend which should accelerate – indicative are the returns of U.S. denominated assets which rose against all major currencies (except the Japanese Yen and Chinese Yuan). Government and sovereign bond returns muted one of the worst years for equities.
Separate yourself and your performance from retail investors by using Modern Portfolio Theory (MPT) and Tactical Portfolio Optimization. Institutional investors have for decades spread their investments across many asset classes seeking higher returns. Underperformance is caused by confining your investments to a few similar asset classes and neglecting risk management.
2008 complete News
2007-09 PANIC facts (click)
The Dow and S&P 500 Index have worst year since 1931 and 1937 respectively, NASDAQ it's worst year ever.
VIX (volatility index, fear) hits new record high of 89.53 spiking 32% from 67.80 (Oct 24) - spiked 22% to 81.17 (Oct 16), spiked 19% to 76.94 (Oct 10) and spiked 29% to 58.24 (Oct 6). TED spread (3-month Treasuries to 3-month Eurodollars) trades at 4.64% and the Libor-OIS spread (3-month London interbank offered rate to Overnight indexed swap rates) trades at record 3.64% on October 10.
Federal Reserve loosening cycle - FOMC cut Fed Funds rate on December 16 to 0%-0.25% and the Discount rate to 0.50% easing started with the Emergency FOMC inter-meeting Fed Funds rate cut on Jan 22 of 0.75% to 3.5% from 4.25%.
U.S. unemployment rate rises to 6.7% from 5% - 2.6 million jobs losts in 2008, most since 1945.
10yr Treasury ends the year at 2.21% trades 2.035% (12/18) rallying from 4.32% (Jun 13) up 52.8% in 6 months - the lowest yield in its 46-year history. 3 month Treasuries traded below 0%, Dec. 9 - first time since the U.S. began selling them in 1929.
- U.S. Treasuries return 14.9% highest since 1995 (18.5%). 19.7% is a record spread on yields between high-yield, high-risk corporate bonds and Treasuries, Dec 2008.
U.S. Dollar trades an all-time low of $1.6038 (July 15) to the Euro - falling from $0.8228 (October 26, 2000) a 95% decline in little more than 7 years. U.S. dollar rallies to $1.23 (Oct 23) from $1.60 (Jul 15) - up 22% in 3 months.
U.S. home prices fell (S&P/Case-Shiller) falls from a high of 206.52 (7/06) to 150.66 (Dec '08) - down 27.0% - 3.2 million foreclosures in 2008.
Oil trades $32.40 (Dec 19) down from an all-time high of $147.27 (Jul 11, oil trades above $100 for the first time on Jan 3) - down 77.2% in 4 months. CRB futures trade $327.50 (Dec 5) down from an all-time high of $618 (July 2) - down 47.0% in 4 months. Gold trades $681 (Oct 27) down from an all-time high of $1033.90 (Mar 17) - down 34.1% in 7 months. Platinum trades $752.10 (Oct 27) down from an all-time high of $2308.80 (Mar 4) - down 67.4% in 7 months. Silver trades $9.09 (Oct 24) down from $21.44 (Mar 17) matching its highest level since December 1980 - down 57.6% in 7 months. Copper trades $4.26 lbs. (May 5) down 70.6% to $1.25 (Dec 26). Wheat trades $13.49 (Feb 17) down 65.0% to $4.71 (Dec 5). Corn trades $7.79 (Jun 27) down 60.8% to $3.05 (Dec 5). Soybeans trades $16.60 (Jun 27) down 53.2% to $7.76 (Oct '06). Rice trades $24.35 (Apr 18) down 47.5% to $12.77 (Dec 5)
U.S. corporations raised $4.54 trillion issuing securities down from $5.14 trillion in 2007. Global merger activity fell 39% to $2.5 trillion from the record $4.1 trillion in 2007. Takeovers fell 43% to $873 billion from the record $1.54 trillion in 2007.
Banks and securities firms (Citigroup, UBS, Merrill, etc.) report over $1.012 trillion of mortgage-related writedowns from subprime securities - while raising over $750 billion of new capital.
Earnings season for 2008 the blended growth rate for the S&P 500 index was negative for all 4 quarter - the worst quarterly performance since 1991.
NASDAQ OMX Group becomes the world's largest exchange - operations of over 60 exchanges in 50 countries. NYSE Euronext agrees to buy the American Stock Exchange. CME Group (Chicago Mercantile Exchange and Board of Trade, merged July 2007) buys Nymex (NY Mercantile Exchange) the world's largest physical commodity futures exchange.
VISA becomes the largest U.S. IPO ever at $17.86 billion - surpassing the $10.62 billion record held by AT&T in 2000.
World leaders summit (G20) in Washington DC (November 15) to issue guidance to financial markets and the global economy and agree on a common set of principles to reform global regulation of the markets.
G20 Declaration on Nov 15, 2008 (click)
ECB cuts rates from 4.25% to 2.5%. Bank of England cuts rates to 2% - lowest since 1951. The central banks of China, Japan, Switzerland, Sweden, Danmark and New Zealand all lowered their rates.
Oct. 8, 2008, U.K freezes Iceland's bank assets, Iceland's krona falls 58% in 2 months, Iceland's resolution committee seizes and liquidates failing Kaupthing Bank, Landsbanki Islands and Glitnir, in receivership creditor claim $107 billion, assets had risen to $209 billion, 11 times Iceland's gdp.
China becomes the third largest economy passing Germany - behind the U.S. and Japan.
Barack Obama defeats John McCain to become 44th President of the United States.
Federal Reserve increases its balance sheet to $2.3 trillion from $924 billion (9/10) in 2 months. Federal Reserve increases currency swaps with foreign central banks to unlimited amounts and increased the Term Auction Facility, the Fed's emergency loan program, to $900 billion.
- Federal Reserve begins to purchase U.S. commercial paper from U.S. companies and Money market funds - a $1.8 trillion market. Federal Reserve allows GSEs (government sponsored enterprises) Fannie Mae and Freddie Mac access to their discount window - they guarantee $5.4 of $12 trillion of U.S. mortgages. Federal Reserve announces $200 billion of support for debt backed by consumer and small-business debt (credit-card, auto, student and SBA loans) and the Fed will purchase up to $100 billion of debt from Fannie Mae and the Federal Home Loan Banks and up to $500 billion of mortgage-backed securities backed by Freddie Mac, Fannie and Ginnie Mae.
- Federal Reserve's new regulations for mortgage lenders: banning repayment penalties, prohibiting lenders from issuing loans to borrowers that cannot repay while requiring the verification of their incomes and assets, and requiring escrow accounts for property taxes and homeowner's insurance, as well as: actual appraisal of a home's value and good faith lending practices. Federal Reserve, CFTC and SEC announce that a central clearinghouse for the $33 trillion credit-default swap market will be running by December 31.
$168 billion Stimulus plan signed into law - Tax rebates (to over 130 million Americans), Business tax breaks and Housing provisions (Fannie Mae and Freddie Mac may temporarily purchase mortgages up to $793,000 up from $417,000 while the FHA can insure loans for up to $729,000).
Housing bill signed into law creating the FHFA (Federal Housing Finance Agency, GSE's regulator) for Fannie Mae and Freddie Mac - FHFA then places Fannie Mae and Freddie Mac into conservatorship and through senior preferred stock and warrants will own 79.9% of each agency. Fannie Mae and Freddie Mac (own or back 31 million U.S. mortgages) modify mortgages. FHFA orders Fannie Mae and Freddie Mac to purchase $40 billion a month of underperforming mortgage bonds.
President Bush and the Treasury intercede extending $13.4 billion in loans to GM and Chrysler (another $4 billion in February - Ford did not seeking government assistance) and the Federal Reserve approves GMAC's request to become a bank holding company.
FDIC guarantees $1.4-1.8 trillion of bank-to-bank lending for more than 3 years (FDIC depositor insurance increases from $100k to $250k through Dec 31, 2013) as part of the EESA.
SEC issues an emergency rule (July 21 - August 12) to limit naked short selling in 19 major financial firms - the 'tick test rule' was repealed on July 6, 2007. SEC issues rules for short sales requiring delivery of securities by the settlement date, effective Sep 18. Short selling by Hedge funds of $100 million must now report positions to the SEC.
- SEC halts short selling of Financial stocks (Sep 19, effective immediately) protecting 799 financial companies - through Oct 2. SEC extends short selling ban of Financial stocks protecting 950 financial companies - through Oct 8.
Paulson's Treasury Dept. administers the Troubled Asset Relief Program, or TARP (Emergency Economic Stabilization Act of 2008, EESA) a $700 billion rescue of financial institutions by investing $125 billion in 9 large banks: Citigroup, J.P. Morgan, Wells Fargo, Bank of America/Merrill Lynch, Goldman Sachs, Morgan Stanley, Bank of New York Mellon and State Street.
- EESA/TARP also invests $125 billion in: AIG, Federal Home Loan Mortgage, PNC, U.S. Bancorp, Capital One, SunTrust, Regions Financial, Fifth Third Bancorp, BB&T, KeyCorp, Comerica, Marshall & Ilsley, Northern Trust, Huntington Bancshares, Zions Bancorporation, Synovus Financial, Popular, First Horizon National, ETrade Financial, Colonial BancGroup, Associated Banc-Corp, Webster Financial, City National, Fulton Financial, TCF Financial, South Financial Group, Wilmington Trust, East West Bancorp, Sterling Financial, Whitney Holding, Susquehanna Bancshare, Valley National Bancorp, Citizens Republic Bancorp, UCBH Holdings, Cathay General Bancorp, Wintrust Financial, First Merit, SVB Financial Group, Trustmark, Umpqua Holdings, Washington Federal - and 88 banks borrowing less than $200 million. EESA invests second $350 billion in other financial institutons: GMAC, American Express, CIT, Discover Financial Services, GM and M&T Bank.
Paulson's Treasury Dept. protects US money market mutual funds with insurance as some of the $3.6 trillion of funds 'broke the buck'. Treasury announces the Credit Union Homeowner Affordability Relief Program a $41 billion lending facility where retail credit unions could borrow up to $2 billion at favorable rates - about 8,400 U.S. credit unions with $775 billion in assets.
15 leading European nations commit $2.3 trillion and agree to a 14pt plan to aid troubled banks by adding capital through investment and by guaranteeing inter-bank lending. China announced a $586 billion (4 trillion yuan) economic stimulus package. Japan expands package to $385 billion - ¥10 trillion of stimulatory spending to save job cuts and ¥13 trillion to protect the banking system.
IMF provides loans to Hungary (approved $15.7 billion), Ukraine (approved $16.4 billion), Iceland (approved $2.1 billion), Latvia (approved $10.4 billion), Serbia (approved $516 million), Pakistan (approved $7.6 billion), Belarus (approved $2.5 billion) both Turkey and Romania seek loans - Britain was the last European country to receive an IMF loan in 1976. Japan promises $100 billion in loans to IMF raising their funding capacity to $250 billion.
Countrywide Financial (January 11, 2008) is purchased by Bank of America for $4.1 billion.
- Bear Stearns fails, the 5th largest U.S. investment bank, March 17, 2008 is purchased by JP Morgan Chase for $10 (down from $172, 2007) the Fed intervenes (non-recourse loan of $29 billion) in the protection of investment banking for the first time since the 1930s.
- IndyMac Bancorp (July 11, 2008) is seized from imminent failure by the Office of Thrift Supervision and files for bankruptcy with $33 billion of assets (exceeding Continental Illinois, $9.5 billion in 1984) costing the FDIC $10.7 billion.
- FHFA (Federal Housing Finance Agency) places Fannie Mae and Freddie Mac into conservatorship.
- Lehman Brothers Holdings (September 15, 2008) files $639 billion, largest U.S. bankruptcy - passing WorldCom which filed for bankruptcy (7/21/02 at $103.9 billion). Lehman's bankrupcy sets their credit-default swap liability to counterparties at $0.91375 creating $270 billion in payments.
- Merrill Lynch fails, the 3rd largest U.S. investment bank, September 14, 2008, is purchased by Bank of America for $50 billion.
- Federal Reserve approves Goldman Sachs and Morgan Stanley to become bank holding companies - ending independent investment banks.
- AIG fails with $1.1 trillion assets and 74 million clients in 130 countries subsequently receiving an $85 billion emergency U.S. Federal Reserve loan (total authorized assistance of $182.3 billion), September 16, 2008 - consequently relinquishes 79.9% percent ownership in the company.
- Washington Mutual (September 26, 2008) seized by Federal regulators filing a $327.9 billion, largest U.S. bank bankruptcy and sold to J.P. Morgan Chase for $1.9 billion - 2nd largest in U.S. history.
- Wachovia (October 12, 2008) purchased by Wells Fargo (as Citigroup exits) in an $11.7 billion all-stock offering.
- American Express (and AmEx Travel Related Services) becomes a bank-holding company.
- Citigroup receives $20 billion (in addition to the initial $25 billion) from TARP to protect $306 billion of troubled mortgages and assets - Citigroup assumes losses on the first $29 billion the Treasury will absorb 90% of the remaining losses and $27 billion of preferred with an 8% dividend.
- Bradford and Bingley nationalised (joins Northern Rock as U.K.'s 2nd mortgage lender) and rescues for European lenders Fortis (Benelux's banking and insurance group), Hypo Real Estate (Germany's real estate firm), Glitnir (Iceland's third-largest lender) and Dexia (Franco-Belgian's bank, world's biggest lender to global local governments).
Bank of America modifies (cuts interest rates and/or principal) 265,000 mortgages and 400,000 of acquired Countrywide's mortgages - the largest predatory lending settlement, $8.6 billion.
- J.P. Morgan Chase will modify 400,000 borrower's mortgages from their acquisition of Washington Mutual.
Citigroup will modify 500,000 borrower's mortgages.
UBS, Merrill Lynch, Wachovia, Citigroup, Morgan Stanley, Bank of America, JPMorgan Chase and Royal Bank of Canada agree to buy back failed auction-rate securities.
SEC charges Bernard L. Madoff with securities fraud for a $65 billion dollar Ponzi scheme. The largest U.S. securities fraud settlement - Enron shareholders and investors will share $7.2 billion.
Hurricane Gustav (Sep 1) made landfall in Louisiana (near New Orleans) and Hurricane Ike (Sep 13) made landfall on Galveston Island causing 145 deaths and $31.5 billion of damage - the 3rd most destructive U.S. hurricane (behind Katrina 2005 and Andrew 1992).
Over 4,000 U.S. soldiers lose their lives in Iraq - the Vietnam War claimed 58,000 American lives, the Korean War 36,000 and World War II 405,000.
2008 Beijing Summer Olympics begins with 100 heads of state in attendance, 204 nations participate (87 nations win medals) - Michael Phelps wins a record eight Olympic gold medals (totaling 14 career golds), Natalie Coughlin wins 6 medals and Usain Bolt wins three golds. The United States takes a total of 110 medals while China takes the most golds, 51. Great Britain takes 47 medals 19 are gold heading into the 2012 London games.
Month of December 2008
Dow: 8,776
Dow month: -0.60%, 6 mo: -28.94%, ytd: -33.84%
S&P 500: 903
S&P 500 month: 0.78%, 6 mo: -29.45%, ytd: -38.49%
NASDAQ: 1,577
NASDAQ month: 2.74%, 6 mo: -31.20%, ytd: -40.54%
FOMC easing stance - December 16 - Fed Funds rate cut of 0.75%-1% to 0%-0.25% from 1.00% the Discount rate is cut to 0.50% from 1.25%. "The focus of the Committee's policy going forward will be to support the functioning of financial markets and stimulate the economy through open market operations and other measures that sustain the size of the Federal Reserve's balance sheet at a high level. As previously announced, over the next few quarters the Federal Reserve will purchase large quantities of agency debt and mortgage-backed securities to provide support to the mortgage and housing markets, and it stands ready to expand its purchases of agency debt and mortgage-backed securities as conditions warrant. The Committee is also evaluating the potential benefits of purchasing longer-term Treasury securities. Early next year, the Federal Reserve will also implement the Term Asset-Backed Securities Loan Facility to facilitate the extension of credit to households and small businesses. The Federal Reserve will continue to consider ways of using its balance sheet to further support credit markets and economic activity."
10yr Treasury trades 2.035% (12/18) rallying from 4.32% (Jun 13) up 52.8% in 6 months - the lowest yield in its 46-year history. 3 month Treasuries traded below 0%, Dec. 9 - first time since the U.S. began selling them in 1929. U.S. Treasuries return 14.7% highest since 1995 (Merrill Lynch & Co.'s U.S. Treasury Master Index) - while the Standard & Poor's 500 Index is poised for its biggest yearly drop since 1931.
U.S. unemployment rate rises to 6.7%.
Oil trades $32.40 (Dec 19) down from an all-time high of $147.27 (Jul 11) - down 77.2% in 4 months.
EESA begins assigning second $350 billion in other financial institutions awaiting Congressional approval: GMAC, American Express, CIT, Discover Financial Services, GM and Chrysler.
President Bush and the Treasury intercede extending $13.4 billion in loans to GM and Chrysler (another $4 billion in February - Ford did not seeking government assistance) - Paulson is the "president's designee". Wages to auto workers must match the compensation of foreign auto company plants in the U.S.. Paulson's Treasury requests the remaining $350 billion TARP funds from Congress. GM and Chrysler also receive $3.3 billion in government loans from Canada and the province of Ontario. Federal Reserve approves GMAC's request to become a bank holding company.
CRB futures trade $327.50 (Dec 5) down from an all-time high of $618 (July 2) - down 47.0% in 4 months.
European Central Bank cut interest rates 75 bps to 2.5%. Bank of England cuts rates 100 bps to 2% - lowest since 1951. The Swedish, Danish and New Zealand central banks also lowered their rates. Bank of Japan lowers interest rate to 0.1%, increases purchases of government debt and announces plans to buy commercial paper for the first time as Japan's recession starves worsens.
Treasury announces the Credit Union Homeowner Affordability Relief Program a $41 billion lending facility where retail credit unions could borrow up to $2 billion at favorable rates - about 8,400 U.S. credit unions with $775 billion in assets.
Federal Reserve increases its balance sheet to $2.2 trillion from $924 billion (9/10) in 2 months. The Federal Reserve, CFTC and SEC announce that a central clearinghouse for the $33 trillion credit-default swap market will be running by December 31.
Japan expands $270 billion package to $385 billion - Y10 trillion of stimulatory spending to save job cuts and Y13 trillion to protect the banking system.
Canadian BCE's $35 billion deal, the largest leveraged buyout in history, led by the Ontario Teachers Pension Plan Board abandoned.
SEC charges Bernard L. Madoff with securities fraud for a $50 billion dollar Ponzi scheme.
Banks and securities firms (Citigroup, UBS, Merrill, etc.) report over $1.012 trillion of mortgage-related writedowns from subprime securities - while raising over $750 billion of new capital.
Month of November 2008
Dow: 8,829
Dow month: -5.32%, 6 mo: -30.14%, ytd: -33.44%
S&P 500: 896
S&P 500 month: -7.44%, 6 mo: -36.00%, ytd: -38.96%
NASDAQ: 1,535
NASDAQ month: -10.76%, 6 mo: -39.14%, ytd: -42.12%
U.S. & International Markets set new lows Global Markets fall from $62.6 trillion [10/31/07] to $27.6 trillion [11/20/08] losing $35 trillion: DJIA falls 48.2% from 14,279 to 7,392.27 [10/11/07 - Nov 21], S&P 500 falls 52.9% from 1,576 to 741.02 [10/11/07 - Nov 21] and NASDAQ falls 54.7% from 2,861 to 1,295.48 [10/31/07 - Nov 21].
MSCI Europe Index falls 54.7% from 1,388 to 628.89 [7/13/07 - Nov 21].
S&P Latin America 40 falls 68.2% from 5,862 to 1,862.84 [5/20/08 - Nov 20].
France's CAC Index falls from 6,168 [6/1/07] to 2,838.50 Nov 21 - a 53.9% fall.
Canada's TSX Index falls from 15,154 [6/6] to 7,647.11 Nov 21 - a 49.5% fall.
2008 Panic facts
World leaders summit (G20) in Washington DC (November 15) "to discuss the financial markets and the global economy" and "agree on a common set of principles" to reform global regulation of the markets: United States (George W. Bush, gdp $45,800), Canada (Stephen Harper, gdp $38,600), Australia (Kevin Rudd, gdp $37,300), United Kingdom (Gordon Brown, gdp $35,000), Germany (Angela Merkel, gdp $34,100), Japan (Tara Aso, gdp $33,500), France (Nicolas Sarkozy, gdp $32,600), Italy (Silvio Berlusconi, gdp $30,900), South Korea (Lee Myung-Bak, gdp $25,000), Saudi Arabia (Abdullah Bin Abdul Aziz, gdp $19,800), Russia (Dmitry Medvedev, gdp $14,800), Argentina (Cristina Fernandez de Kirchner, gdp $13,100), Mexico (Felipe Calderon, gdp $12,400), Turkey (Recep Tayyip Erdogan, gdp $12,000), South Africa (Kgalema Motlanthe, gdp $9,700), Brazil (Luis Inacio Lula, gdp $9,500), China (Hu Jintao, gdp $5,400), Indonesia (Susilo Bambang Yudhoyono, gdp $3,600), India (Manmohan Singh, gdp $2,600) and an European Union representative.
Barack Obama defeats John McCain to become 44th President of the United States.
Federal Reserve announces $200 billion of support for debt backed by consumer and small-business debt (credit-card, auto, student and SBA loans) and the Fed will purchase up to $100 billion of debt from Fannie Mae and the Federal Home Loan Banks and up to $500 billion of mortgage-backed securities backed by Freddie Mac, Fannie and Ginnie Mae - the Treasury will initially provide $20 billion of "credit protection" to these Federal Reserve GSE lending programs from TARP.
FDIC guarantees $1.4 trillion of bank-to-bank lending for more than 3 years as part of the EESA.
Fannie Mae and Freddie Mac (own or back 31 million U.S. mortgages) modify mortgages: resident homeowners 90 days or more late, owe at least 90% of current value, have not filed for bankruptcy - payments would not exceed 38% of their monthly household income through interest rate adjustments and/or longer repayment schedules. Citigroup will modify 500,000 borrower's mortgages.
U.S. unemployment rate rises to 6.5%.
European Central Bank cuts rates to 3.25% from 3.75%, Bank of England cuts to 3% from 4.5% (lowest level since 1955) and the Swiss National Bank cuts to 2% from 2.5%.
Britain announces a £25.6 billion ($38.8 billion) stimulus package spent in 2009-10 - tax cuts and spending increases to avert the U.K.'s first recession since 1991.
China announced a $586 billion (4 trillion yuan) economic stimulus package (almost 20% of China's 2008 gdp) - the plan bolsters low-rent housing, infrastructure in rural areas, roads, railways, airports, subsidies for farmers will be raised and tax deductions for purchases of fixed assets (machinery) to stimulate investment.
Japan promises $100 billion in loans to IMF raising their funding capacity to $250 billion - IMF provide a loan to Pakistan.
American Express (and AmEx Travel Related Services) becomes a bank-holding company.
Citigroup receives $20 billion (in addition to the initial $25 billion) from TARP to protect $306 billion of troubled mortgages and assets - Citigroup assumes losses on the first $29 billion the Treasury will absorb 90% of the remaining losses and $27 billion of preferred with an 8% dividend.
EESA invests $125 billion in smaller regional banks: AIG ($40 billion and $60 billion credit facility, 52.5 billion MBS & CDO purchased), Federal Home Loan Mortgage Corp. ($13.8 billion), PNC ($7.7 billion), U.S. Bancorp ($6.6 billion), Capital One ($3.55 billion), SunTrust ($3.5 billion), Regions Financial ($3.5 billion), Fifth Third Bancorp ($3.4 billion), BB&T Corp. ($3.1 billion), KeyCorp ($2.5 billion), Comerica Inc. ($2.25 billion), Marshall & Ilsley ($1.7 billion), Northern Trust Corp. ($1.5 billion), Huntington Bancshares Inc. ($1.4 billion), Zions Bancorporation ($1.4 billion), Synovus Financial ($973 million), Popular Inc. ($935 million), First Horizon National Corp. ($866 million), ETrade Financial ($800 million), Colonial BancGroup ($550 million), Associated Banc-Corp ($530 million), Webster Financial ($400 million), City National Corp. ($395 million), Fulton Financial ($375 million), TCF Financial ($361 million), South Financial Group ($347 million), Wilmington Trust ($330 million), East West Bancorp ($306 million), Sterling Financia ($303 million), Whitney Holding Corp. ($301 million), Susquehanna Bancshare ($300 million), Valley National Bancorp ($300 million), Citizens Republic Bancorp ($300 million), UCBH Holdings Inc. ($298 million), Cathay General Bancorp ($258 million), Wintrust Financial ($250 million), First Merit Corp. ($248 million), SVB Financial Group ($235 million), Trustmark ($215 million), Umpqua Holdings Corp. ($214 million) and Washington Federal ($200 million) - and 88 banks borrowing less than $200 million.
Month of October 2008
Dow: 9,325
Dow month: -14.06%, 6 mo: -27.26%, ytd: -29.70%
S&P 500: 968
S&P 500 month: -16.98%, 6 mo: 30.11%, ytd: -34.06%
NASDAQ: 1,720
NASDAQ month: -17.74%, 6 mo: -28.69%, ytd: -35.14%
See chart
U.S. & International Markets set new lows - DJIA falls 44.8% from 14,279 to 7,882.51 [10/11/07 - Oct 10],
S&P 500 falls 46.7% from 1,576 to 839.80 [10/11/07 - Oct 10] and
NASDAQ falls 47.8% from 2,861 to 1,493.79 [10/31/07 - Oct 24].
MSCI Pacific Index falls 56.8% from 173.1 to 73.11 [11/1/07 - Oct 28] and
Japan's NIKKEI Index falls from 18,297 [6/20/07] to 6,994.90 Oct 28 - a 61.7% fall.
Germany's DAX Index falls from 8,131 [6/20/07] to 4,014.60 Oct 24 - a 50.6% fall.
Britain's FTSE Index falls from 6,754 [7/13/07] to 3,665.20 Oct 27 - a 45.7% fall.
Brazil's BOVESPA Index falls from 73,920 [5/29] to 29,435 Oct 27 - a 60.1% fall.
Russia's RTS Index falls from 2,498 [5/19] to 549.06 Oct 28 - a 78.0% fall.
India's Bombay SENSEX Index falls from 21,113 [1/9] to 7,697.39 Oct 27 - a 63.5% fall.
Shanghai Composite falls 72.8% from 6,124 (Oct 16 '07) to 1,664 (Oct 28) in 1 year - last year the Shanghai Composite was the best performer up 161%.
2008 Panic facts
FOMC easing stance - October 29 - Fed Funds rate cut of 0.50% to 1.00% from 1.50% the Discount rate is cut to 1.25% from 1.75%.
US GDP for 3Q was -0.5% the worst since 3Q01 of -1.4%.
Emergency FOMC inter-meeting (Oct 8) Fed funds cut of 0.50% to 1.50% from 2.00% the Discount rate is cut to 1.75% from 2.25% - ECB (European Central Bank) cuts by 0.5% to 3.75%, Bank of England cuts by 0.5% to 4.5 central banks of Switzerland, Canada, Sweden, China, Hong Kong, Taiwan, South Korea and Australia also cut rates.
Emergency Economic Stabilization Act of 2008 (EESA) a $700 billion rescue of financial institutions by purchasing devalued mortgage-linked assets (Paulson's Treasury Dept. will administer the Troubled Asset Relief Program, or TARP) - protection and tax beaks for taxpayers (equity positions in the financial institutions participating), limits on executive's compensation, independent oversight and transparency, help to prevent home foreclosures (modifying troubled loans), raises FDIC to $250k from $100k and an insurance option into which banks would pay. Federal Reserve receives authority to pay interest on reserves, the SEC receives the power to change mark-to-market accounting rules and the FDIC supports interbank lending.
EESA invests $125 billion in 9 large banks (10/26): $25 billion in each Citigroup, J.P. Morgan, Wells Fargo and Bank of America/Merrill Lynch, $10 billion in each Goldman Sachs and Morgan Stanley, $3 billion in Bank of New York Mellon and $2 billion in State Street. - with preferred stock (5% dividend for the first 5% years and then convert to 9%), warrants (right to buy common stock equal to 15% of the total investment in the firm) and compensation limitations.
Federal Reserve increased currency swaps with foreign central banks to unlimited amounts (up from $620 billion) and increased the Term Auction Facility, the Fed's emergency loan program, to $900 billion - to easy liquidity problems. Federal Reserve begins to purchase U.S. commercial paper from U.S. companies and Money market funds - a $1.8 trillion market (90-day unsecured at 1.88% plus a 1% credit surcharge and 90-day secured asset-backed rate at 3.88%, 10/27).
Federal Housing Finance Agency orders Fannie Mae and Freddie Mac (FHFA is their new regulator) to purchase $40 billion a month of underperforming mortgage bonds - to promote greater stability and liquidity in the U.S. mortgage market.
Bank of America modifies (cuts interest rates and/or principal) 265,000 mortgages and 400,000 of acquired Countrywide's mortgages - the largest predatory lending settlement, $8.6 billion. J.P. Morgan Chase will modify 400,000 borrower's mortgages from their acquisition of Washington Mutual.
G7 (United States, Japan, Germany, France, Italy, the United Kingdom and Canada) agrees to recapitalizing banks with public and private funds, insure depositors and unfreezing credit markets. G20 (G7 plus China, Brazil, Russia, India, Mexico, South Korea, Saudi Arabia, Argentina, Australia, Indonesia, South Africa and Turkey) commits to "using all the economic and financial tools to assure the stability and well functioning of financial markets" - they account for about 90% of global gross domestic product. IMF's 185 member nations endorse a commitment to "use all available tools" to prevent systemic failure. World Bank agrees to help developing countries strengthen their economies, bolster their financial systems and protect the poor against the financial turmoil in international markets.
IMF provides loans to Iceland, Ukraine, and Hungary - Britain was the last European country to receive an IMF loan in 1976.
15 leading European nations commit $2.3 trillion and agree to a 14pt plan to aid troubled banks by adding capital through investment and by guaranteeing inter-bank lending. European governments (Germany, Ireland, Sweden, Austria, Denmark, Iceland and Greece) guarantee all private savings accounts. European Union countries raised minimum guarantees for bank deposits to €50,000 while the ECB raised overnight lending to $250 billion. The United Kingdom (£50 billion and £450 billion in loan guarantees), Spain (€100 billion), Russia ($36 billion), Portugal (€20 billion), Norway ($55.4 billion), Sweden ($205 billion), German (€500 billion), Netherlands (€200 billion), Austria (€85 billion), Switzerland ($60 billion) and France (€360 billion) establish plans to support their domestic banking systems. Japan's package includes government guarantees for loans to businesses is $270 billion.
Gold trades $681 (Oct 27) down from an all-time high of $1033.90 (Mar 17) - down 34.1% in 7 months. U.S. dollar rallies to $1.23 (Oct 23) from $1.60 (Jul 15) - up 22% in 3 months.
SEC extends short selling ban of Financial stocks protecting 950 financial companies - through Oct 8.
VIX (volatility index, fear) new record high of 89.53 spiking 32% from 67.80 (Oct 24) - spiked 22% to 81.17 (Oct 16), spiked 19% to 76.94 (Oct 10) and spiked 29% to 58.24 (Oct 6). TED spread (3-month Treasuries and 3-month Eurodollars) trades at 4.64% and the Libor-OIS spread (3-month London interbank offered rate and Overnight indexed swap rates) trades at record 3.64% on October 10.
Wachovia will be purchased by Wells Fargo (as Citigroup exits) in an $12.7 billion all-stock offering.
Lehman's bankrupcy sets their credit-default swap liability to counterparties at $0.91375 creating $270 billion in payments. Washington Mutual's credit-default swap liability to counterparties is $0.43.
CERN lauches the GRID to analyze data from the Large Hadron Collider (LHC) a computer network that links more than 100,000 processors at 140 global institutes - in 1990 CERN invented the World Wide Web allowing access to information over the Internet.
Earnings season for 3Q08 - according to a consensus of Wall St. analysts the blended growth rate for the S&P 500 index for 3Q08 was negative -19% for the fifth consecutive quarter.
Month of September 2008
Dow: 10,850
Dow month: -6.00%, 6 mo: -11.52%, ytd: -18.20%
S&P 500: 1,166
S&P 500 month: -9.05%, 6 mo: -11.80%, ytd: -20.57%
NASDAQ: 2,091
NASDAQ month: -11.66%, 6 mo: -8.25%, ytd: -21.15%
FOMC neutral stance - September 16 - Fed Funds rate remains 2.00% and the 'discount rate' remains 2.25%.
FHFA (Federal Housing Finance Agency) places Fannie Mae (with Herb Allison of TIAA-CREF) and Freddie Mac (with David Moffett of U.S. Bancorp) into conservatorship - dividends on both the common and preferred shares will be eliminated. Interest and principal payments will continue to their companies' securitized bonds and subordinated debt. The Treasury will 'backstop' both agencies with up to $100 billion (each) of a special class of stock - the Treasury through senior preferred stock and warrants will own 79.9% of each agency. Their portfolios "shall not exceed $850 billion as of 12/31/09, and shall decline by 10% per year until they reach $250 billion" - Fannie's is $758 billion and Freddie's is $798 billion.
U.S. 10yr Treasuries rally from 4.32% (Jun 13) to 3.25% (Sep 16) - up 24.7% in 9 weeks.
Short selling by Hedge funds of $100 million must now report positions to the SEC. SEC halts short selling of Financial stocks (Sep 19, effective immediately) protecting 799 financial companies - through Oct 2. SEC issues rules for short sales requiring delivery of securities by the settlement date, effective Sep 18. Britain's Financial Services Authority (& other Global exchanges) banned short-selling of financial stocks from Sep 18 - Jan 16, 2009.
Federal Reserve approves Goldman Sachs and Morgan Stanley to become bank holding companies - ending independent investment banks. Paulson's Treasury Dept. protects US money market mutual funds with insurance (using a $50 billion fund, through April 30, 2009) - as some of the $3.6 trillion of funds 'broke the buck'. Federal Reserve broadens eligible collateral - previously, only Treasury securities, Agency securities, and AAA-rated mortgage-backed and asset-backed securities could be pledged.
U.S. unemployment rate rises to 6.1%.
Lehman Brothers, the fourth-largest U.S. investment bank, files for the largest U.S. bankruptcy - listed total debts of $613bn.
Merrill Lynch, the third-largest U.S. investment bank, is purchased by Bank of America for $19.4 billion.
AIG ($1.1 trillion assets and 74 million clients in 130 countries) receives an $85 billion Federal Reserve loan in return for relinquishing 79.9% percent ownership in the company.
Washington Mutual is seized by federal regulators and sold to J.P. Morgan Chase for $1.9 billion - the largest bank failure in U.S. history, $307 billion in assets.
The nationalisation of Bradford and Bingley (joins Northern Rock as U.K.'s 2nd mortgage lender) and rescues for European lenders Fortis (Benelux's banking and insurance group), Hypo Real Estate (Germany's real estate firm), Glitnir (Iceland's third-largest lender) and Dexia (Franco-Belgian's bank, world's biggest lender to European local governments).
Hurricane Gustav (Sep 1) made landfall in Louisiana (near New Orleans) and Hurricane Ike (Sep 13) made landfall on Galveston Island causing 145 deaths and $31.5 billion of damage - the 3rd most destructive U.S. hurricane (behind Katrina 2005 and Andrew 1992).
U.S. home prices fell for the ninth consecutive quarter by 17.4% (compared to 3Q07) - S&P/Case-Shiller falls from a high of 206.52 (7/06) to 161.56.
Largest U.S. securities fraud settlement - Enron shareholders and investors will share $7.2 billion: payments from CIBC ($2.4 b), JPMorgan Chase ($2.2 b), Citigroup ($2 b) and approximately $600 million from Arthur Andersen, Lehman and Bank of America.
Month of August 2008
Dow: 11,543
Dow month: 1.45%, 6 mo: -5.59%, ytd: -12.97%
S&P 500: 1,282
S&P 500 month: 1.18%, 6 mo: -3.61%, ytd: -12.67%
NASDAQ: 2,367
NASDAQ month: 1.81%, 6 mo: 4.23%, ytd: -10.75%
FOMC neutral stance - August 5 - Fed Funds rate remains 2.00% and the 'discount rate' remains 2.25%.
UBS agrees to buy back $18.6 billion in failed auction-rate securities, Merrill Lynch agrees to $12 billion, Wachovia $9 billion, Citigroup $7.3 billion, Morgan Stanley $4.5 billion, Bank of America $4.5 billion, JPMorgan Chase $3 billion and Royal Bank of Canada $850 million - about $330 billion of auction-rate securities are outstanding.
U.S. unemployment rate rises to 5.7%.
Genentech rejects Roche Holding's $43.7 billion offer.
2008 Beijing Summer Olympics begins with 100 heads of state in attendance, 204 nations participate (87 nations win medals) - Michael Phelps wins a record eight Olympic gold medals (totaling 14 career golds), Natalie Coughlin wins 6 medals and Usain Bolt wins three golds. The United States takes a total of 110 medals while China takes the most golds, 51. Great Britain takes 47 medals 19 are gold heading into the 2012 London games.
Month of July 2008
Dow: 11,378
Dow month: -7.87%, 6 mo: -10.06%, ytd: -14.22%
S&P 500: 1,267
S&P 500 month: -1.02%, 6 mo: -8.06%, ytd: -13.69%
NASDAQ: 2,325
NASDAQ month: 1.44%, 6 mo: -2.68%, ytd: -12.33%
Markets set new lows - DJIA falls from 14,279 to 10,731 (Oct 11 - July 15, 23.6%) S&P 500 from 1,576 to 1,200 (Oct 11 - Jul 15, 22.4%). Bombay Sensex falls 41% from 21,206 (Jan. 10) to 12,514 (July 16).
2008 Panic facts
The Fed allows GSEs (government sponsored enterprises) Fannie Mae and Freddie Mac access to their discount window - they guarantee $5.4 of $12 trillion of U.S. mortgages.
SEC issues an emergency rule (July 21 - August 12) to limit naked short selling in 19 major financial firms - the 'tick test rule' was repealed on July 6, 2007.
Housing bill signed into law: creating the FHFA (Federal Housing Finance Agency, GSE's regulator) for Fannie Mae and Freddie Mac (increasing limits to $625,500 from $417,000), modernizes/authorizes the FHA to insure up to $300 billion in refinanced mortgages, creates an affordable housing trust fund and $15 billion of home buyer's tax credits (States can offer an additional $11 billion to refinance subprime loans while increasing down payments to 3.5% from 3%) and grants $3.9 billion to buy and rehabilitate foreclosed homes.
U.S. Dollar trades an all-time low of $1.6038 (July 15) to the Euro - falling from $0.8228 (October 26, 2000) a 95% decline.
Oil trades $147.27 an all-time high - July 11. Reuters-CRB (Commodity Research Bureau) Index of 17 commodities trades at an all-time high $618 - July 2.
ECB raises interest rates to 4.25% - the 9th increase for the Euro since 12/05.
IndyMac Bancorp is seized from imminent failure by the Office of Thrift Supervision (FDIC, second only in size to Continental Illinois, 1984).
Federal Reserve's new regulations for mortgage lenders: banning repayment penalties, prohibiting lenders from issuing loans to borrowers that cannot repay while requiring the verification of their incomes and assets, and requiring escrow accounts for property taxes and homeowner's insurance, as well as: actual appraisal of a home's value and good faith lending practices.
InBev buys Anheuser Busch for $49.9 billion to become the world's biggest brewer.
Earnings season for 2Q08 - according to a consensus of Wall St. analysts the blended growth rate for the S&P 500 index for 2Q08 was negative -22.1% for the fourth consecutive quarter - without financials 4.5%.
Month of June 2008
Dow: 12,350
Dow month: -2.28%, ytd: -6.89%, 6 mo: -6.89%
S&P 500: 1,280
S&P 500 month: -8.57%, ytd: -12.81%, 6 mo: -12.81%
NASDAQ: 2,292
NASDAQ month: -9.12%, ytd: -13.57%, 6 mo: -13.57%
FOMC neutral stance - June 25 - Fed Funds rate remains 2.00% and the 'discount rate' remains 2.25%.
U.S. unemployment rate rises to 5.5%.
U.S. 10 yr. Treasuries fall 31% from 3.29% (Mar 17) to 4.32% (Jun 13) - in 3 months.
Federal Reserve, Regulators and 17 banks agreed to changes in the clearing of credit-default swaps, a $62 trillion market - insuring against the failure of any one bank.
Treasury Secretary Henry Paulson recommends an overhaul of Financial Regulation: designating the Fed as the primary regulator for market stability (including oversight of investment banks), creating one bank regulator by combining the Office of Thrift Supervision to the Office of the Comptroller of the Currency, merging the Securities and Exchange Commission with the Commodity Futures Trading Commission, and creating a national regulator for insurance companies.
U.S. home prices fell for the eighth consecutive quarter by 15.9% (compared to 2Q07) - S&P/Case-Shiller falls from a high of 206.52 (7/06) to 167.69.
Month of May 2008
Dow: 12,638
Dow month: -1.42%, ytd: -4.72%, 6 mo: -5.48%
S&P 500: 1,400
S&P 500 month: 1.08%, ytd: -4.63%, 6 mo: -5.47%
NASDAQ: 2,522
NASDAQ month: 4.56%, ytd: -4.90%, 6 mo: -5.19%
Yahoo rejects Microsoft's offer of $44.6 billion to challenge Google.
Myanmar/Burma Cyclone Nargis on May 2, 2008 is responsible for over 134,000 fatalities.
2008 Sichuan, China earthquake (8.0) on May 12, 2008 is responsible for over 69,000 fatalities.
Month of April 2008
Dow: 12,820
Dow month: 4.55%, ytd: -3.35%, 6 mo: -7.97%
S&P 500: 1,385
S&P 500 month: 4.77%, ytd: -5.65%, 6 mo: -10.59%
NASDAQ: 2,412
NASDAQ month: 5.84%, ytd: -9.05%, 6 mo: -15.63%
FOMC Easing move - April 30 - Fed Funds rate to 2.00% from 2.25% and the 'discount rate' to 2.25% from 2.50%.
Bank of England (BOE) follows Fed's lead with $100 billion swap of mortgage securities for BOE government bonds - the move is to encourage credit markets and bank lending.
U.S. Dollar trades $1.60 to the Euro - falling from $0.82 (Oct '00) a 95% decline in little more than 7 years.
Earnings season for 1Q08 - according to a consensus of Wall St. analysts the blended growth rate for the S&P 500 index for 1Q08 was negative -17.5% for the third consecutive quarter - without financials 7.2%.
Month of March 2008
Dow: 12,262
Dow month: 0.29%, ytd: -7.55, 6 mo: -11.75%%
S&P 500: 1,322
S&P 500 month: -0.60%, ytd: -9.95%, 6 mo: -13.37%
NASDAQ: 2,279
NASDAQ month: 0.35%, ytd: -14.06%, 6 mo: -15.62%
Markets set new lows - S&P 500 from 1,576 to 1,256 (Oct 11
- Mar 17, 20.3%), NASDAQ from 2,861 to 2,155 (Oct 31 - Mar 17, 24.7%), and MSCI
Pacific Index from Oct 31 to Mar 17 (23.0%).
2008 Panic facts
Emergency FOMC inter-meeting (Mar 16) Discount rate cut of 0.25% to 3.25% from 3.50% - 25 basis points above the Fed funds rate of 3.00%. The Fed allows the 20 primary dealers of U.S. Treasury securities (non-commercial / investment banks) access to their discount window.
FOMC Easing move - March 18 - Fed Funds rate to 2.25% from 3.00% and the 'discount rate' to 2.50% from 3.25%.
U.S. 10 yr. Treasuries rally 38% from 5.32% (Jun 13) to 3.29% (Mar 17) - in 9 months.
Gold trades $1033.90 an all-time high - Mar 17. Platinum trades at all-time high of $2308.80 - Mar 4. Silver trades $21.44 (Mar 17) matching its highest level, December 1980. Reuters-CRB (Commodity Research Bureau) Index of 17 commodities trades at an all-time high $579.95 - Mar 5.
Bear Stearns is purchased by JP Morgan Chase for $10 (down from $172, 2007) - the Fed intervenes (non-recourse loan of $29 billion) in the protection of investment banking for the first time since the 1930s.
U.S. home prices fell for the seventh consecutive quarter by 14.4% (compared to 1Q07) - S&P/Case-Shiller falls from a high of 206.52 (7/06) to 172.16.
VISA becomes the largest U.S. IPO ever at $17.86 billion - surpassing the $10.62 billion record held by AT&T in 2000.
Month of February 2008
Dow: 12,226
Dow month: -3.35%, ytd: -7.83%, 6 mo: -8.47%
S&P 500: 1,330
S&P 500 month: -3.48%, ytd: -9.40%, 6 mo: -9.71%
NASDAQ: 2,271
NASDAQ month: -4.94%, ytd: -14.37%, 6 mo: -12.52%
$168 billion Stimulus plan signed into law - Tax rebates (to over 130 million Americans), Business tax breaks and Housing provisions (Fannie Mae and Freddie Mac may temporarily purchase mortgages up to $793,000 up from $417,000 while the FHA can insure loans for up to $729,000).
U.S. Dollar trades $1.52 to the Euro - falling from $0.82 (Oct '00) a 85% decline in little more than 7 years.
NASDAQ OMX Group becomes the world's largest exchange - operations of over 60 exchanges in 50 countries.
Month of January 2008
Markets fall most since 9/11 - DJIA falls from 14,279 to 11,508 (Oct 11 - Jan 22, 19.4%), S&P 500 from 1,576 to 1,270 (Oct 11 - Jan 23, 16.3%), NASDAQ from 2,861 to 2,202 (Oct 31 - Jan 23, 23%), MSCI Europe Index from Oct 31 to Jan 23 (23.3%),
MSCI Pacific Index from Oct 31 to Jan 22 (22.1%) and Latin American from Oct 31 to Jan 22 (26.2%).
Emergency FOMC inter-meeting (Jan 22, first since Sept. 17, 2001) Fed funds rate cut of 0.75% to 3.5% from 4.25% - biggest rate cut by the Fed since October 1984.
FOMC Easing move - January 30 - Fed Funds rate to 3.00% from 3.50% - first time since 1914 that the Fed made 2 rate cuts in 10 days.
U.S. unemployment rate rises to 5%.
Oil trades above $100 for the first time, $100.09 - Jan 3.
Countrywide Financial is purchased by Bank of America for $4.1 billion.
NYSE Euronext agrees to buy the American Stock Exchange.
CME Group (Chicago Mercantile Exchange and Board of Trade, merged July 2007) bid $11 billion for Nymex (NY Mercantile Exchange) the world's largest physical commodity futures exchange, 130 years old and went public in Nov '06.
Earnings season for 4Q07 - according to a consensus of Wall St. analysts the blended growth rate for the S&P 500 index for 4Q07 was negative -25.1% for the second consecutive quarter - without financials 12.1%, the worst quarterly performance since 1991.
Best Investments in 2007
U.S. Total stock market returned 6% in 2007, Stocks have underperformed while Bonds were above their historic average and inflation was above average 4.1%. Gains were punctuated by sell-offs in February/March (NASDAQ -7.9%), July/August (NASDAQ -12.4%) and November (NASDAQ -11.2%).
Of the 5 largest sectors in the U.S. Economy: Natural Resources performed best 36.7%, Technology 15.5% and Health 7.1% while Financials -18.9% and Real Estate -19% returns were negative. By size: Mid Cap 6.7%, Large Cap 3.5% while Small Cap -1.2% and Micro Cap -9.4% lost. Gold rose 31.6% and oil 57.4% had historic gains with commodity prices (CRB) 16.7%.
Global markets rose 21.8% of the World's largest economic regions: Asia driven by China (Shenzen 167.7% / Shanghai 96.6% / Hong Kong 39%) and India 47.1%, followed by Latin America 48.5% and Europe 7.0%. Of the World's largest Developed non-U.S. Economies: Germany returned 22.3%, Canada 7.1%, Britain 3.8%, France 1.3% while Japan -11.1% was negative. In the Emerging markets which returned 56%: Brazil 43.6% and Russia 19.2%. Hedge funds returned on average less than 5% with Private Equity outperforming hedge funds (PE had problems in Q4 acquiring funding).
Those who diversified with MPT did best, a trend which should accelerate – indicative are the returns of non-U.S. markets just mentioned. U.S. returns in 2007 were muted because of the 'credit crisis' caused by non-performing, non-prime U.S. mortgage loans.
Separate yourself and your performance from retail investors by using Modern Portfolio Theory (MPT) and Tactical Portfolio Optimization. Institutional investors have for decades spread their investments across many asset classes seeking higher returns. Underperformance is caused by confining your investments to a few similar asset classes and neglecting risk management.
2007 complete News (click)
2007-09 PANIC facts (click)
Federal Reserve loosening cycle - FOMC cut inter-meeting 8/17 - the 'discount rate' to 5.75% from 6.25% citing tighter credit and shaken financial markets. Central banks in the U.S., Europe and Asia had injected more then $400 billion (Aug 9-16) into the banking system providing liquidity to global credit markets. Libor traded up to 240 bps over 3-month Fed funds rate. Fed Funds rate currently stands at 4.25%.
Congress, Federal Reserve and other Federal agencies proposed new guidelines for subprime mortgage loans (7.5 million and approximately 5 million Alt-A or non-traditional / non-prime loans) because of growing delinquencies, foreclosures and bankruptcies. Effecting over 2 million Americans with over $1.9 trillion of subprime mortgage loans.
U.S. 10 yr Treasuries end the year at 4.02%. Inverted Yield curve of U.S. Treasuries ends Jun 7 '07 it began on Dec 27 '05 (75 weeks) - the last U.S. Bond yield inversion was from Feb 24, '00 - Dec 22, '00, 8th time since 1980. Investors shied away from shorter U.S. Treasury maturities impacting global debt markets (10 yr typically exceeds 2 yr yields by aprox. 90 bps). Inversions had averaged 30 weeks (9 to 59 weeks) and -46 bps (-8 to -133 bps). The "carry-trade" (borrowing in low-interest rate countries) fueled M&A activity worldwide.
- U.S. Treasuries returned an average of 8.7% in 2007 - compared with 3.0% in 2006, 2.9% in 2005, 3.5% in 2004 and 2.3% in 2003. U.S. 10 yr. Treasuries rallied 27.8% from 5.32% (Jun 13) to 3.84% (Nov 26) - in 23 weeks.
Dollar ends the year at $1.46 - traded $1.49 (Nov 23) to the Euro – falling from $1.17 (Dec '05) a 26% depreciation in 2 years. British pound hits a 26-year high trading above $2.11 to the dollar while the Canadian dollar traded above $1.10.
U.S. GDP in 2007 advanced by 2.2%. GDP advanced by 3.3% in 2006, 3.2% in 2005, 4.4% in 2004, 3.0% in 2003 and 1.9% in 2002.
Earnings for S&P 500 companies in the 3rd quarter of 2007 was negative for the first time since Q4 2001 - Q1 2002.
2007 sales of single-family homes declined 13% and prices dropped 1.8% - the first decrease since 1968 and probably since the 1930's (NAR records began in 1968).
$100 billion in reported losses at more than 20 of the world's largest banks and securities firms holding SIVs (Structured Investment Vehicles holding non-performing, non-prime U.S. motgage loans).
U.S. venture capital climbed to a 6 year high of $29.4 billion in 2007 (3,813 deals), $26.6 billion in 2006 up from $19.7 billion in 2003 - $40.6 billion in 2001 (4,500 deals).
Gold ends the year at $838 - traded $848 (Nov 7) - highest in 27 years (when it traded 2 days above $800, 1/18/80, $835 and 1/21/80, $850). Platinum trades at all-time high of $1551.50 (Dec 26). Silver traded $15.90 matching its highest level in December 1980. Uranium traded at an all-time high of $136.
- Oil ends the year at $96 - traded at an all-time high of $99.29 (Nov 21) - up almost 100% from Jan '07 lows.
- Reuters-CRB (Commodity Research Bureau) Index of 17 commodities trades at an all-time high $479.50 (Dec 31) up 26% in 2007.
Total global foreign-exchange reserves surpass $6 trillion - the U.S. dollar accounts for 63% while the Euro accounts for 27%.
ECB raised interest rates to 4% - the 8th increase for the Euro since Dec '05. The Bank of England raised rates up to 5.75% and the Bank of Japan raised interest rates from 0.25% to 0.50%.
Global mergers and acquisitions exceed $4.4 trillion - a record surpassing the $3.55 trillion in 2006.
Europe (24 markets, including Russia and eastern Europe) at $15.7 trillion passes U.S. in stock market value ($15.6 trillion) for the first time since WWI.
BRIC emerging markets - Brazil became the last member to reach $1 trillion in overall stock market value. Russia surpassed $1 trillion in September of 2006, then China (January '07) and India (May '07).
China's CSI 300 index surged 161% - the Chinese stock market overtook the Japanese market (8/07) in capitalization. Shanghai Composite Index rallied from below 1000 (Jun 6 '05) to 6,124 (Oct 16, '07) more than 512%, in little more than 2.3 years - as over $2.3 trillion of Chinese savings (earning less than 3%) flooded into Chinese stocks.
- PetroChina became the first $1 trillion company as it debuted on the Shanghai Exchange, 11/5 (Exxon Mobil is valued at $475 billion). The People's Bank of China raised borrowing and lending rates in order to cool inflation. Additionally, the Chinese government reduced the tax on personal savings and raised bank reserve requirements to encourage savings and curb a possible asset bubble. 60 million brokerage accounts were opened in 2007.
- China adds gold (also aluminum and steel) becoming the world's largest producer - 276 metric tons of gold in 2007 overtaking South Africa (largest producer since 1905).
Sovereign wealth funds 2007 high-profile purchases: China $20 billion in China Development Bank (Dec. 31), Singapore up to $5 billion in Merrill Lynch (Dec. 24), Singapore $9.75 billion and undisclosed Middle Eastern $1.8 billion in UBS (Dec. 10), Abu Dhabi $7.5 billion in Citigroup (Nov. 26), China $2.7 billion in China Everbright Bank (Nov. 7), Abu Dhabi $1.1 billion in Och-Ziff (Oct. 29), China $1 billion in Bear Stearns (Oct. 22), Qatar 20% of the London Stock Exchange and 10% in the Nordic bourse (Sept. 20), Abu Dhabi $1.35 billion in Carlyle Group (Sept. 20), China $3 billion and Singapore $2 billion in Barclays (July 23), Abu Dhabi $750 million in ICICI Bank (India's largest bank) (July 13), China $3 billion in Blackstone Group (May 20) and Abu Dhabi undisclosed stake in HSBC (May 2).
- Sovereign wealth fund (SWF) first established in the 1950s (Kuwait's Kiribati, the oldest) estimated value of $1.8 trillion. 31 SWFs from 23 nations, the largest is Norway's Government Pension Fund ($326 billion) - 13 are based in the Middle East / North Africa, 10 Asia-Pacific, 4 Sub-Saharan Africa, 3 Non-Pacific Asia and Norway, about half the funds were established since 2000.
UAW workers at General Motors, Ford & Chrysler (Cerberus Capital Management) divested their multi-billion dollar health care obligation to a UAW-run VEBA trust.
Steriods dominated Major League, Olympic and International sports as Barry Bonds, Marion Jones, Flyod Landis and many other faced accusations / reprisals.