Stocks fell sharply Monday and the dollar rose against the higher-yielding currencies as it fell vs. the yen as investors continued to avoid buying into the government's various bail-out plans for the nation's largest financial institutions.
Although it may seem obvious, the idea is worth keeping in mind, said Matthew Carniol, chief currency strategist with TheLFB-forex.com. The more that the Fed and the government need to do, the more it indicates just how dire the overall situation is. The best sign of a market bottom would be when the government announces it no longer needs to support these troubled institutions and when the Fed announces it can wind down its various lending facilities and can withdraw its swap lines with the other Central Banks.
The Royal Bank of Scotland Group is in talks to sell its retail and commercial assets in Asia to Australia & New Zealand Banking Group for about £1 billion, according to the WSJ, part of a new initiative to sell noncore assets and sharply narrow the banking giant's global ambitions. Meanwhile, HSBC Holdings unveiled plans to curtail its foray into U.S. consumer lending by pulling back from key businesses.
Both announcements only serve to further underscore just how bad the global economy is. Banks and other firms only withdraw from markets when global growth contracts and they expand when they feel confident in the future.
At Monday's close of floor trading on the NYSE the DOW was on 6762.92 with a loss of 300.11 points (-4.25%). The S&P finished on 700.81, down 34.28 points (-4.66%), leaving the November lows a distant memory. The technology-heavy NASDAQ closed on 1322.85 after falling 54.99 points (-3.99%).
The dollar traded in pure risk-aversion mode, finishing the session with gains of 0.71% on the euro, 1.35% against Australia's dollar and 1.82% on sterling as it fell 0.19% to the yen.
Treasuries were bought heavily as stocks declined, with yield on the 2-year note falling 8.7 basis points to 0.882% while yield on the 10-year note lost 13.9 basis points to 2.877%.
Crude for March delivery was recently trading down a massive $4.70 (-10.50%) to $40.09 per barrel as traders speculated that the slowing global economy would further crimp demand.
Gold for April delivery was recently trading lower by $15.00 (-1.59%) to $926.50 per ounce as traders saw less need for an inflation hedge.
KKR, the buyout firm run by Henry Kravis and George Roberts, has left shareholders of its two publicly traded vehicles with losses of more than 90% after write downs on takeovers, mortgages and corporate loans.
KKR Private Equity Investors, a fund that invests in LBOs arranged by the firm, fell 8.9% in Amsterdam trading today after reporting that the value of its holdings tumbled 32% in the fourth quarter. The buyout firm’s credit affiliate, New York-listed KKR Financial Holdings, fell as much as 38% after posting a fourth-quarter loss of $1.2 billion.
MetLife, the biggest U.S. life insurer, said net unrealized losses on corporate debt holdings increased 71% to $14 billion in the fourth quarter as the recession hurt firms’ ability to repay or refinance their bonds.
The loss compares with $8.22 billion at the end of September. Unrealized losses, which aren’t subtracted from earnings, are calculated as the difference between a holding’s market value and what the company says the investment is worth.
“The dramatic rise in the expected level of corporate defaults reflects our opinion of the weak credit profiles of many corporations,” Standard & Poor’s said in a Feb. 26 report in which the rating firm downgraded MetLife and other life insurers, including Hartford Financial Services and Lincoln National.