Monday, October 27, 2008

Panic driven rout continues in MSM, World Economy heading for hell in a handcart

The MSM kept free-falling today, so far down ~7% and showing no sign of a pulse what so ever. The world, as you will know, is finally waking up with a shock to the notion that the credit crunch/financial crisis is going to mean the 'real' economies in USA, Europe and Asia take a huge hit. Duh.

Lets be honest, the news is not exactly peachy, even in the region. Kuwait had to rescue its second biggest bank; UAE is calling for GCC coordinated action after they issued a blanket guarantee for bank deposits and inter-bank debts; Kuwaiti investors are calling for the Government there to put a floor on the local stock market using state funds; Saudi has bailed out several billion $ in free 'loans'; and Dubai's Real Estate/foreign influx driven bubble economy, built on the back of excess money from Saudi, Abu Dhabi, Europe and Kuwait, is looking like the voodoo-nomics on LSD while breathing nitrous oxide it always was.

Traders in Muscat now seem to be making a habit of the 'run around in circles waving your arms and screaming uncontrollably' approach to crisis management and fund analysis, as advocated by President Bush recently.

Gulf News MSM
Muscat Securities Market slumps to lowest in over a year
By Sunil K. Vaidya, Bureau Chief
October 26, 2008
Muscat: Oman's Muscat Securities Market (MSM) hit a new low when the MSM 30 Index crashed by 587.9 points (8.290 per cent) to its lowest level - 6,506.030 - in over 12 months. The panic stricken market had no buyers even for blue chip companies like BankMuscat, Omantel, and Gulfar as fear of further falls gripped the market.

"It is a virtual panic condition," said an analyst on condition of anonymity. ...

So, yes, it's looking increasingly like a global meltdown, and you know the headlines start to get real bad when journalists start worrying about their jobs. Its one of those irregular English nouns:
- if they lose their jobs its a slow down
- if you lose your job its a downturn
- if I lose my job its a recession
(for more fun irregular verbs and nouns, check out here)

And remember this is still before the coming crisis in credit card and unsecured personal debt, especially in the USA and UK. IMHO, that will make the current sub-prime mess look minor.

So, as the oil price drops too and waits for OPEC to turn down the taps, who in their right mind would invest?

Well, I still think that if you have cash, too much cash, there will come a time in a few years when you'll be kicking yourself for not buying now, or v. soon, in Bank Muscat and Galfar especially. But as some commentators have said, it's turbulent times ahead so don't go silly because although its ceap now it could be even cheaper tomorrow... The key for me is the oil price. A few months dip will be almost immaterial as long as it stabilises ~$60-70.

And it's hard to fathom the current silence from the Government. It's like they feel so stunned that their previous and repeated attempts to hold the MSM 30 index at ~9000 failed. Or they're so busy meeting their own margin calls... Or perhaps they think that if they act pre-emptively people will actually panic even more? Perhaps.

Photo: The latest in high-tech trading software currently being used in Muscat's Stock Exchange

In Oman's corridors of power the global mood and especially the precipitous drop in oil price is bringing on a lot of nasty flash-backs to 1998, when the country almost went broke. So it's cold compresses all round in the Council of Ministers right now, along with some pretty serious contingency planning if a case of the 1998s returns. Luckily Oman is not up to its eyeballs in debt anymore, at least on a Government level.

Remember the cover of the Hitchhiker's Guide to the Galaxy folks...


  1. Turbulent times they are...

    An aspect you've not blogged about is the currency exchange rates... right now the greenback is doing really quite well... I know I'll be stocking up on some foreign currency come payday... Rands, CAD's, Pounds, Euro's - all best rates in years right now.

  2. Fear the day that CBO might have to come in.

  3. AL
    You're right. Holding rials was a great deal lately. In euro or pound terms the Market reduction is not that bad, on the scale of things.

  4. Kudos on creating a thoroughly amusing article with the most grave of subject matters.

    In my opinion the dollar's recent strength is what I refer to as a blip; the markets' reaction to the "unified front of governments guaranteeing this and that". As soon as the printing presses actually start churning out the rescue package billions at the hands of the de-facto dictator of the world Mr. Paulson, the dollar (together with the other currencies) will continue to decline.

    If you're into the risk and making the buck with the excess cash - do the forex trading and the daytrading. If you're into the preservation of your wealth for the long term, then do like my motto of the season: the gold, the silver, and the copper-jacketed lead :)

  5. Boxster

    Thanks. Yes, I agree the dollar climb will be short-lived against the other major currencies [euro, swiss franc]. But I'd still choose the dollar over the pound even at these rates for a while yet.

    Gold is not a good long term investment, as it only roughly protects against hyperinflation. But I agree in these times having a % of your portfolio in precious metals is a v good idea. I bought my gold over the past 2 years, and got out of the market in late 2007, and I'm v glad I did.

    To that list I would add:
    - a mix of cash [US$, Euro, SF, Aussie & Canadian $]
    - fertile land with water rights,
    - shares in good quality companies [Nestle, P&G, PepsiCo, BHP],
    - shares in vice industries [booze, fags, casinos, energy, generic drugs]

    But I wouldn't go all survivalist just yet Boxster!


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