Sense on Cents

Equity markets around the world are sufferring significant pullbacks overnight and this morning in the United States. What are the issues? Hope is a lousy hedge!! What does that mean? If we are relying on hope, rather than well defined plans to turn our economy and banking system, then investors are headed for the exits!

Let me highlight specific situations:

1. Banks around the world facing imminent downgrades in their credit rating due to continued pressures on their earnings capabilities and expectations of increasing defaults in their loan books.

2. Auto companies in the United States were supposed to deliver restructuring plans today. The market believes this situation is likely headed to a government backed bankruptcy. 

3. Hedge funds are receiving notification that Wall Street banks are significantly pulling in, if not totally reneging on, credit lines. What does this mean? Many funds will have to find financing elsewhere or liquidate the business which means selling assets which will put further downward pressure on many sectors of the market. (more…)