A volatile trading week last week, and looks almost certain this week as well for markets around the world.
Price swings have been extreme, to put it as an understatement. I suppose the markets really resemble the awesome rides at the Six Flags. They go through the occasional upward spikes from positive earnings and economic data, which are then followed by massive drops from credit concerns. Quite thrilling if you think about it.
There's a slew of negative news from the credit markets that still linger. Worse yet, the sad news is that they aren't contained only within US markets. Australia’s Macquarie Bank warned of losses at two of its high yield funds while Taiwan’s major Taiwan Life Insurance announced losses on its holdings of securities backed by sub-prime mortgages. Both these combined with others around the world raises fears from our international investing community as well. It’s a snowball effect really.
If you don't understand how this problem is hurting everyone, sit back and think about it. At the heart of the uncertainties are concerns over whether the sub-prime woes will spread to the rest of the economy and other countries around the world. This will eventually put a limit to the funds available to finance M&A activity and other corporate activities.
On top of this, it would only speed up the slowdown in consumer spending in the U.S. as a result of declining U.S. housing prices. Eventually, the impact to Asia and Europe will shake the world economy – remember, U.S. consumers are a major export market for many of Asia and European economies.
These sub-prime fears won’t disappear overnight, although we all probably would hope that they do. Any further news on these credit woes will hurt investors’ confidence, and we can continue to see dumping in the markets.
Hopefully better earnings will prevail in the coming days. AirTran’s US$445M Bid for Midwest may spark things up again tomorrow. Or it might just be another ride up the roller-coaster, and we know what happens when we reach the top.