The body punches keep on coming MARCUS GEE

From Saturday’s Globe and Mail

October 24, 2008 at 11:25 PM EDT

"When we came in to work today, the futures market was telling us the world was about to end," said Sid Mokhtari, a market technician at CIBC World Markets Inc. "In the end, we managed to hang in there relatively okay. But sellers still have the upper hand, and we’re still searching for a bottom."

Where that bottom is, no one really knows. As country after country announces it is expecting, or already experiencing, a recession, it is becoming clear that this is no fleeting panic.

"This is a once-in-a-lifetime crisis, and possibly the largest financial crisis of its kind in human history," said Bank of England deputy governor Charles Bean. "In terms of impact on the real economy we are still early days."

With a speed that is taking everyone’s breath away, the world has gone in a few short weeks from credit crunch to credit crisis to global financial meltdown and now to full-blown economic emergency.

CIBC

Goldman Sachs

Governments have spent hundreds of billions of dollars to bail out banks, guarantee bank deposits and inject money into the credit markets.

They have cut interest rates and announced the first-ever global economic summit.

And yet the bad news just keeps on coming. Yesterday was a typical day of extraordinary tidings.

Russia closed its stock market early for the weekend to prevent a selloff. Data from Britain showed its economic output shrank for the first time in 16 years. Iceland reached a deal with the International Monetary Fund to get $2-billion (U.S.) in aid, making it the first Western country to get an IMF bailout since 1976.

The price of oil, already less than half its giddy peak of earlier this year, fell further to near $64 a barrel, defying an attempt by OPEC to put a bottom under the price by cutting production. Yields on 30-year U.S. Treasury notes fell to the lowest level in 30 years, a sign that investors continue to flee to the relatively safe port of government-backed bonds. Even gold, a traditional haven for investors, plunged in value.

And then, even grimmer, came the stock markets. The bad news rolled with the rising sun from east to west, starting with big drops in Asia (Japan down 9.6 per cent, Hong Kong 8.3 per cent) then Europe (Germany and Britain off 5 per cent, France 3.5 per cent). In North America, the news was better, with Toronto down just 37 points and New York 312 points - a disastrous day for the New York exchange in better times, but a routine drop by recent standards. The real shocker came early in the day when trading in futures was halted for the Dow Jones industrial average and the S&P 500, the two main New York indexes, because shares had fallen more than 5 per cent, triggering an automatic cutoff.

Layoffs, one sure sign that the crisis is hitting the real economy, are beginning to pile up. Goldman Sachs, Chrysler and Xerox all announced yesterday that they were cutting thousands of workers. The solitary splash of sunshine was the news that existing-house sales in the United States rose 5.5 per cent in September, but that was offset by data showing median home prices dropped to $191,600, down 9 per cent from a year ago.

Ed Yardeni, a New York market analyst, calls it a "negative feedback loop," with one bout of bad news feeding another. "It’s a bit like a California forest fire," Mr. Yardeni said. "The fire squads are out there trying to contain it, but it just keeps spreading till you’re out of trees or the wind changes."

Since the crisis erupted in mid-September with the bankruptcy of investment banker Lehman Brothers, U.S. stocks have lost 23 per cent of their value, Canadian 24 per cent, Mexican 30 per cent, Argentine 43 per cent, Brazilian 35 per cent, German 29 per cent, Russian 52 per cent, Japanese 28 per cent, Indian 35 per cent, Australian 20 per cent and Singaporean 35 per cent.

In Toronto, the markets are back to where they were in early 2005, erasing more than three years of gains. But with the market still hanging nervously above 9,000 points, it would have another 3,000 to fall before plumbing the depths reached in late 2002, when the main index fell below 6,000.

Brian Lipton, an investment adviser in Gaithersburg, Md., says every sound investment strategy - from careful asset allocation to diversification - hasn’t worked in a market that has become an "equal opportunity destroyer."

Nouriel Roubini, an economist at New York University, said that in this market, "trying to buy equities is like catching a falling knife. There are no buyers in these dysfunctional markets, only sellers, and panic is the ugly state of this destabilizing game."

With files from Barrie McKenna, Washington, and Steve Ladurantaye, Toronto