In spite of my repeated advice to clients to sit on their hands a steady stream of buyers was seen throughout yesterday’s sessions as punters tried to ‘bottom pick’. The steady destruction throughout the day and early evening left most longs hanging on the ropes. Only those with deep pockets were able to withstand the drama and this morning everything seems just a little bit rosier.
Rumour trickled around dealing rooms about the viability of a range of major banks with, in the UK, the focus settling on RBS/NatWest. The stock closed down over 20% dropping 44p to 145p a new low for the year/decade. The bank was the obvious target after the huge disaster of the ABN purchase had hit its co-bidder Fortis in Belgium. Lest people forget RBS paid for ABN, in the main, with borrowed money.
Whilst the focus has been on the exchanges the real drama was unfolding in the currency markets. At one point yesterday the Euro had fallen by over ¥10 from the close on Friday making a low print at ¥135.03. This represented a one day fall of 7% of one major currency versus another and added to the ¥25 fall already seen since July. Aside from the UK’s ejection from the ERM back in the ‘90s I cannot remember such a violent dislocation. The entire Euro plan is being called into question as the absence of any central lender of last resort is causing individual nation States to “make it up as they go along”. This is creating something of a problem for holders of the Euro itself. If nations start to pull out of the Euro project (and I do not actually believe things are even remotely this bad yet) it will make valuation of assets in the currency almost impossible. Better to dump them for the time being and put your cash into Yen, Dollars and even (cough, cough) Pounds.
The fact that two of the weakest nations have ‘guaranteed’ deposits should not distract depositors from what is perceived as safe and what is actually safe. If the s*** really hits the fan then I am afraid that neither the Greeks nor the Irish could possibly afford the cost. The guarantee would be worthless.
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'Falling Markets and Euro Problems' edited by SD, updated 07-Oct-08
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