Thursday Morning

Overnight saw a plunge in shares across the Far East and a continued fall in oil, which is now, at $72, exactly HALF the peak price in the summer, only three months ago. There has been no public statement by OPEC and it is not clear to me to what extent the US-friendly oil producers are happy to see this fall in price. The oil price factors in what traders THINK is going to happen as well as actual consumption. Traders are not best positioned to guess what comes next particularly at this time, so we might see some volatility in due course. Anecdotal evidence suggests that the crisis has yet to have a significant effect on oil consumption in Europe and the US but we are getting reports of factories closing in China, following cancelled orders from the west. A reducing oil price is excellent news for all of us; it might not have much effect on the crisis but it will make the winter much more bearable for those who are being hit with rising prices in the supermarkets, and reducing incomes.

We can expect the US 'Plunge Protection Team' to have been up all night trying to put in place a plan for today's trading. I fear that they have lost control now; all government effort is going into keeping enough capital in the banks to prevent bank seizures or a run on banks. At the time of writing, European bourses are opening around 7% down. The US futures are not quite as dire but neither are they very good indicators. What we are seeing is a flight from equities. Equities are seen as risky with poor income projections during this recession, which is widely forecast to become a depression. (The difference between a recession and a depression is the duration. Recessions last for around two years, depressions can last for decades).

I think that this stock plunge will continue during today in both Europe and the US. It has further to go and will probably now go all the way to final capitulation. I will try to put some numbers on this this evening. For orientation, expect falls of around 7% on each of the bourses today; we might see falls of 10%. We are in uncharted territory - taking the picture as a whole, nothing has happened like this since 1929.

I'll post again this evening. Ciao