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Stocks tumble, bonds rally on bailouts

Stock markets are falling worldwide Monday, as market participants react nervously to the US Treasury's proposed bailout bill and fears of global bank failures.

Bloomberg has more in, "Stocks worldwide tumble most since 1997, bonds rise on bailouts":

"Stocks around the world fell the most since October 1997, the euro and the pound sank and bonds rose as governments raced to prop up banks infected by growing U.S. mortgage losses.

The Standard & Poor's 500 Index fell 3.8 percent after Wachovia Corp. required a takeover by Citigroup Inc. and lawmakers predicted a close vote on the Bush administration's $700 billion bank bailout. The British pound dropped the most against the dollar in 15 years after European governments stepped in to save Bradford & Bingley Plc, Fortis and Hypo Real Estate Holding AG. Commodities fell. The cost of borrowing in euros for three months soared to a record as banks hoarded cash.

``People are wondering if $700 billion will be enough,'' said Diane Garnick, who helps oversee $500 billion as an investment strategist at Invesco Plc in New York. ``If you're not comfortable being in this type of market, then you shouldn't be making investment decisions now.''

The MSCI All-Country World Index of 48 nations lost as much as 4.5 percent, the steepest plunge since the Asian financial crisis 11 years ago. The S&P 500 retreated 46.58 points to 1,166.43 at 12:35 p.m. in New York. Europe's Dow Jones Stoxx 600 Index sank 5.5 percent to 251.43, the lowest since January 2005. The MSCI Asia Pacific Index fell 2.1 percent."

If you read on at the article above, you'll see just how bad the picture is for global share markets.

For example, the FTSE 100 is down 15 percent this September. Canada's S&P/TSX Composite Index is down 16 percent for the year, and that is the best performance among 23 developed markets tracked by MSCI. The Irish Overall Index is down 13 percent. That's not the figure for this month or this year; that's the figure for today's trading session alone.

So, as we noted back in July, the global bear market continues. That, of course, includes US stocks which are down considerably from their late 2007 highs.

In fact, the global bear market in shares seems to have spread due, in part, to problems in the US stock market and economy, a situation we noted back in January of this year.

Meanwhile, the bond market is rallying on many of these same economic concerns. In fact, investors are still fleeing to US government debt as a temporary safe haven, despite our current economic problems. Reuters reports:

"U.S. Treasury debt prices tore higher on Monday in one of the biggest rallies of the year as fears of spreading bank failures overshadowed moves by central banks to pump hundreds of billions of dollars to thaw markets.

While the U.S. government's $700 billion bank bailout plan looked closer to being passed by lawmakers, it did little to lift investors fears about the stability of global financial system. Many major stock indexes fell more than 4 percent, firing safe harbor bids for government bonds."

Bloomberg reports similarly, noting that government Treasuries now represent "dead money with yields below inflation":

"``The only reason to like Treasuries at this point is as a place to hide,'' said Stewart Taylor, a senior trader who helps oversee $6 billion in investment-grade debt at Boston-based Eaton Vance Management. ``The story of the Treasury market is you're willing to accept less than the inflation rate, meaning you're locking in losses, essentially.''...

...Investors were so risk-averse in the past two weeks that they were willing to accept almost nothing in exchange for the assurance they'd get their principal back."

That covers the bond and stock markets. If you're looking for more commentary on the US' $700 billion bailout bill and the continued efforts to pump "liquidity" into our financial system, see the related posts and articles below.

Related posts and articles:

1. "Roubini says US bank rescue plan is 'very flawed'" - Bloomberg.

2. "Paulson plan is a pig, even with lipstick" - Caroline Baum.

3. "Government intervention fuels the crisis" - Finance Trends Matter.

4. "House rejects $700 billion financial rescue plan" - Bloomberg.

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