Stock take


No confidence: For banks, this is some bear market. Shares in Commerzbank, Bank of America, Société Générale and Citigroup have all more than halved this year.

So has Morgan Stanley. The cost of insuring its bonds against default exceeds that of Italian banks and, like Goldman Sachs, is at its highest level since Lehman’s collapse.

A recent analyst note defended the bank, saying fears were driven by a report it had $1.78 trillion (€1.34 trillion) in derivatives exposure. In fact, its net credit exposure is just $457 million, “well below” its peers.

There was also concern over a report suggesting Morgan Stanley had $39 billion of exposure to France. The bank protests that its net exposure is actually zero.

Such confusion reflects both the opacity of bank balance sheets and investors’ utter lack of trust.

Remember, Dexia passed EU stress tests this summer. Top French banks have written down their Greek debt, which has halved, by just 20 per cent. In the US, panicked authorities acceded in March 2009 to bankers’ requests that they suspend mark-to-market accounting.

Regulators and bankers can whine, but their actions haven’t inspired confidence.


No quarter:The third quarter has been disastrous for global equities, which have declined in value by about $10 trillion. Of the 45 indices that make up the MSCI World Index, 36 recorded declines of more than 20 per cent (official bear market territory).

The German Dax and French CAC both lost a quarter of their value, their worst quarter since 2002. The FTSE’s 14 per cent decline was also its worst performance since 2002.

The SP 500 fell by 14 per cent, although the average stock in the index fell by 18 per cent. In fact, 218 of the stocks in the index fell by a fifth or more in September alone.


Mixed messages:Clearly, the old “Sell in May and go away” adage proved its worth this year. Market gains have historically been concentrated in the October-April period. Furthermore, the Stock Trader’s Almanacnotes October has been a “bear killer” on 11 occasions in post-1945 bear markets. October has also been a time of market crashes, however – in 1929, 1987, 1997 and 2008, to name just a few.

Market technicals, too, are sending mixed messages. UBS notes just 7 per cent of US stocks are trading above their 200-day moving average. That “roughly” coincides with lows seen in 1998, 2002 and 2009.

Rather unfortunately, indices were also at these levels between October 2008 and March 2009, when they fell by 30 per cent.

One final (and completely meaningless) nugget. The SP 500 closed at 1099.23 this Monday, October 3rd. Exactly three years earlier, on October 3rd, 2008, it closed at 1099.23.