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What’s Driving the Market Lower Today?

Posted by Larry Doyle on March 2, 2009 9:50 AM |

markets-down-arrowStock markets are expected to open lower by another 1.5% on the open this morning. What’s driving them lower….again?

1. News that AIG reported an actual 4th quarter 2008 loss of $61 billion. The government will inject ANOTHER $30 billion into this black hole. WHY? Very simply because AIG is the largest holder of CDS (credit default swaps) that serve as insurance for a number of banks and money managers. These CDS cover a wide array of assets but primarily the sub-prime mortgage space. Kevin Doyle of 12th Street Capital, and a guest here on my weekly No Quarter Radio program back in early January, shares that the index that tracks the sub-prime market is at its lows. No surprise there.

While the various media outlets are highlighting this story now, I wrote extensively about AIG and How Does One Lose $125 Billion? on February 24th. I not only wrote about the losses, but also delved into the culture that developed over the years at AIG under Hank Greenberg.  Not a pretty picture and seemingly not a lot of integrity in that company. Now we pay.

2. The market is also focusing on Warren Buffett’s annual letter to shareholders and specifically his comment about the economy being in a shambles for the balance of 2009 and perhaps well beyond that.  I provided a summary on February 28th in When the Oracle of Omaha Speaks .

3. HSBC announced it is exiting the consumer finance business here in the United States. HSBC paid billions to purchase Household Finance in late 2003. More than a little bit of buyer’s remorse with that purchase. Additionally, HSBC is in the process of raising $17 billion in new equity capital. 

Last night on my weekly radio show on No Quarter Radio, I addressed the enormous demands for capital by global governments, municipalities, corporations, and consumers and why that will drive interest rates higher and equity markets lower. The show is archived and available as a podcast on iTunes.

As I continue to roll out Sense on Cents and attract many new readers, please let me know what you think of the site. What do you like? What would you like to see me address?  I hope you find it beneficial as we navigate the economic landscape!!

LD






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