Dow Jones' record-breaking dive

Dow Jones Industrial Average (DJIA) plunged to its biggest single-day dive ever at 777.68 points yesterday (Sept. 29) after the US Congress disapproved the US$700-billion bail-out package to shore up the financial market. It then closed to 10,365.45 points, its lowest in three years.

The stock index decline easily beats the previous record of 721.56 points posted on Sept. 17, 2001, when the market reopens after the 9/11 World Trade tragedy.

The selling was so intense, according to some traders and stockbrokers, as they have witnessed around 3,073 stocks dropping on the Big Board versus only 162 stocks that rose.

On a related happening, the Dow Jones Wilshire 5000 Composite Index recorded for the first time a paper loss of US$1-trillion across the market for the day.

Houses on fire!

After we witnessed the rescue of mortgage couple Freddie Mac and Fannie Mae from the burning marketplace, this week we've seen the demise of the one-and-a-half century old Lehman Brothers investment house, the entry of Bank of America to Merrill Lynch's red hot premises via US$50-billion take-over payment, and the world's largest insurer AIG's US$40-billion dollar restructuring plea to the already Fed up agency.

All of them are victims of a lone market arsonist, known as Mr. Subprime.

Thus, Fireman Ben and his Fed department are now working double time to extinguish the market wildfire and prevent it from further spreading, lest it might reach White House and cause never-before-seen worldwide chaos and panic.

Remembering 9/11

Today, we remember the 9/11 tragedy. Many innocent lives were lost during this fateful day as a terrorist-controlled plane slammed hard into the towering World Trade Center.

But do you know that in spite of the tragedy, there were still some people who managed to rejoice on that fateful moment even if in their hearts they were deeply sorry with what had transpired on that day? No, they are not terrorists nor are they insane. So, guess who? They were traders who were then betting on the wrong side of the market.

I should know for I witnessed some colleagues jumping up and down for joy, cheering on the top of their lungs as they've seen the market suddenly went into their trading direction. Those colleagues of mine were shorting then the USD/JPY pair, and the yen during those periods were bearish versus the greenback.

For no apparent reason, there was a drastic turn of events and we saw the dollar falling on our Reuters chart. In a few moments, the TV screen flashed out a breaking news from Bloomberg that the World Trade Center was bombed. So, it was the reason for the dollar downfall. Such confirmation made those bear dollar traders leaped for joy and cheered the Japanese currency all the more.

On the other hand, I immediately lock in my position. As much as I would want to open up a sell dollar position versus the British pounds for some profit-taking; however, it was hard getting a good deal as spreads are pretty wide and wild! I just tuned in on Bloomberg and watched the mournful event as the plane crash footage was repeatedly being shown.

After an hour or so, our CEO called up an emergency meeting to discuss some market updates. There he revealed that there was a voluntary “gentleman’s agreement” among currency brokers not to profit from the event to help stabilize the value of the dollar. But "it's too late" as I said to myself. Since, I knew for sure that several fund managers, our firm included, had already taken huge positions. (True enough, after three days the value of the dollar had continued its preempted slide.)

After that announcement, he told everybody to go home already as the management decided to halt trading for that day. But before he called for the adjournment of the meeting, he led the closing prayer reciting "The Lord's Prayer", to our surprise, since he usually assigned it to his executive secretary. Perhaps, it is one way of showing that the management had sympathized with the terror victims. That was the common assumption. But it could have been a thanksgiving prayer too. We learned that our company partake a good slice in the big market opportunity that was transpired during that mournful day.

Russian ETF experiencing a record worst downtrend

The Russian stock market is now one of the world's greatest "boom-and-bust" markets.

The country's reserve of crude oil, natural gas, timber, precious metals, and base metals is incredible, which makes the economy sensitive to commodity prices. Russia is also home to great amounts of government and corporate corruption.

These two drivers are clobbering Russian shares right now. Oil has fallen US$40 a barrel in the past two months. Natural gas has fallen 44% in the same period. Gold, silver, nickel, platinum and palladium are all declining. The invasion of Georgia worsens the Russian debacle.

The chart below is a bird's eye view of a very bearish Russian ETF. The Templeton Russia Fund (TRF) is a basket of Russian stocks, which is down 40% since June.

US government rescues Fannie Mae and Freddie Mac

The US government has bailed out mortgage finance companies Fannie Mae and Freddie Mac last Sunday (Sept. 7). The move could be the largest bailout ever by the government to prevent more global financial market turbulence. Both mortgage firms, which guarantee almost 50% of the country's US$12-trillion in outstanding home mortgage debt, have suffered combined losses of about US$14-billion since last year.

On Monday (Sept. 8), the stock market rose on investors' sentiments that the bailout would stabilize the US housing sector and calm the jittery global financial markets. The Dow Jones Industrial Average (DJIA) closed up 289.79 points at 11,510.74 points, or 2.59% higher than previous level. The S&P-500 index finished up 25.48 points at 1,267.79 points, or 2.05% higher than previous. And the NASDAQ composite index ended up 13.88 points at 2,269.76 points, or 0.62% increase.

With this latest development, I will still maintain my wait-and-see stance if I am a long-term investor in the US. Feel the market tone if the bailout issue could really shore up confidence in the mortgage sector. The stock market's positive performance last Monday might just have been a result of speculation by short-term traders.

The kiwi tumbles against the greenback, euro and yen; but rises versus the aussie

The New Zealand dollar has declined against the US dollar from 0.7052 level last Friday (Aug. 29) to 0.6997 level this morning. The 20-day moving average seems to be a strong intermediate resistance for the currency pair.

Likewise, the kiwi eased against the euro and yen; but, was up against the Australian dollar.

The kiwi went down from 0.4780 euro last week to 0.4764 euro during the New Zealand market opening, and was also down to 75.94 yen from 76.85 yen. However, against the aussie, the kiwi was trading at 0.8170 level from 0.8145 level.

Korean won isn't winning

The South Korean won (KRW) is currently Asia's weakest currency, having lost 16% of its value against the US dollar so far. The Bank of Korea is estimated to have spent about US$10-billion defending the won in July of this year. However, some market analysts have hinted last August that the central bank may not anymore intervene aggressively, which spurred speculators into thinking that the government would allow the Korean currency to weaken in order to provide more buffer on its expanding exports.

The market buzz is, thus, capital flight. There have been heavy investment outflows. Foreign investors have sold a net US$23-billion of Korean equities this year.

Last Monday, the won plunged 3% to register a four-year low of KRW1,123.6 versus the greenback. The Korean stock market fell 4.1% to 1,414.43 points, posting its lowest level in 17 months. Bonds also tumbled as the yield on benchmark five-year treasury bonds leaped to its highest level this year at eight basis points to 5.62%. Moreover, consumer inflation hit a seven-year high in May at 4.9% year-on-year.

The situation is like a reminisce of the capital flight seen in the 1997 Asian financial crisis when the won lost half of its value against the US dollar, which had led the country into a full-blown currency crisis.