I have been away from the trading desk, and the stock market’s bloodbath, during the past few days as I am on a business visit to Geneva. Just as well, but I can nevertheless associate with the frustration of the trader in the animated image (hat tip: Rob Fraim).

In order to have a bit more time to consult with the Suisse gnomes (disguised as private bankers), I am only doing a shortened version of “Words from the Wise” this week. Although I have managed to compile some very interesting excerpts from news items and quotes from market commentators, I will not be doing my customary review of the financial markets’ movements and economic statistics.

Confusion and irrational fear characterized financial markets during a remarkable week, with the CBOE Vix Index (the so-called “fear gauge”) spiking above 70 for the first time. According to data from Bespoke, the week’s US stock market crash of 18.2% ranks second as the worst Monday-to-Friday movement for the Dow Jones Industrial Average since 1900. Amid the dumping of stocks on all bourses, the US dollar, Japanese yen and precious metals were the only safe havens. (Also see related posts: Stock market performance round-up: Crash of 2008 and Stock market decline in perspective.)

The realization that the economic damage from the credit crisis was intensifying weighed on investor sentiment. Selling of equities therefore persisted despite a litany of initiatives announced by governments and central banks around the globe, aiming to boost liquidity and restore confidence in the banking system.

Source: Slate

The media headlines were cluttered with reports of various actions being taken to alleviate the financial turmoil (as dealt with comprehensively in the news section of this post). However, none was as succinctly formulated as that of the Central Bank of Jamaica (hat tip: Barry Ritholtz’s The Big Picture).

Next, a tag cloud of the text of the plethora of articles I have read during the past week. This is a way of visualizing word frequencies at a glance. As the saying goes: A picture paints a thousand words …

As far as the outlook for stocks is concerned, Paul Kedrosky (Infectious Greed) said: “I am trying very hard to look through all of this to see what things look like on the other side. And I can see faint outlines, for sure, but that other shore still seems awfully far away.”

On the other hand, Tim Bond, head of global asset allocation at Barclays Capital, was quoted in the Financial Times as saying: “We believe global equity markets are starting to offer a long-term buying opportunity that is typically only seen once in a generation. We are not calling the bottom in the bear market today, but we do suggest that the low will be seen within the next two or three weeks.”

Bond also suggested that returns from equities purchased during this interval may well be extremely higher over the next year and could – if history is any guide – turn out double-digit long-term returns over the next decade.

As a sign of these extraordinary times, mulling through my head at the moment are the lyrics of Peter Gabriel’s song “Perspectives”: “I need perspective, ‘cos I’m facing the wall. I need perspective, ‘cos I’m not that tall. I need perspective, heard the trumpet call. Don’t trust my eyes, want to know where things fall.”

Having said that, I summarized my views as follows in a post yesterday: “Nobody really knows what will happen next, although some indicators are starting to signal that a bounce may not be all that far off. But stock markets are unlikely to find a cycle low before measures are implemented to stem the decline in confidence. It may take a while yet before we see the bear’s corpse, but look out for a 90% up-day as a signal of the completion of the selling climax.”

Economic reports
Click here for the week’s economy in pictures, courtesy of Jake of EconomPic Data.

Source: Yahoo Finance, October 10, 2008.

In addition to Fed Chairman Ben Bernanke speaking at the Economic Club of New York on Wednesday, October 15, next week’s economic highlights, courtesy of Northern Trust, include the following:

1. Retail Sales (October 15): Auto sales dropped to an annual rate of 12.5 million in September from 13.7 million in August. Non-auto retail sales are expected to show noticeable weakness. Reflecting these aspects, the headline retail sales number is projected to have fallen 0.7% in September after a 0.3% drop in August. Consensus: -0.6% versus -0.3% in August, non-auto retail sales: -0.3% versus -0.7% in August.

2. Producer Price Index (October 15): The Producer Price Index for Finished Goods is predicted to have dropped by 0.4% in September reflecting lower energy prices, while the core PPI most likely moved up 0.1%. Consensus: -0.4%, core PPI +0.2%.

3. Consumer Price Index (October 16): A 0.1% increase in the CPI is our forecast for September following a 0.1% drop in August. The core CPI is expected to have moved up 0.1% after a 0.1% gain in August. Consensus: +0.1%, core CPI +0.2%.

4. Industrial Production (October 16): The 1.0% drop in the manufacturing man-hours index in September suggests a 0.8% decline in industrial production. The operating rate is projected to have dropped to 77.9 in September. Consensus: -0.8%; Capacity Utilization: 77.9 versus 78.7 in August.

5. Housing Starts (October 17): The elevated level of inventories of unsold new homes points to another monthly drop in housing starts (870,000 versus 895,000 in August). Consensus: 880,000.

6. Other reports: Inventories (October 15), NAHB Survey, Philadelphia Fed Survey (October 16), Consumer Sentiment Index (October 17).

Click here for a summary of Wachovia’s weekly economic and financial commentary.

A summary of the release dates of economic reports in the UK, Eurozone, Japan and China is provided here. It is important to keep an eye on growth trends in these economies for clues on, among others, the trend of the US dollar.

Markets
The performance chart obtained from the Wall Street Journal Online shows how different global markets performed during the past week.

Source: Wall Street Journal Online, October 10, 2008.

Now for a few news items and some words and charts from the investment wise that will hopefully assist in guiding our investment portfolios through these troubled times. Do remember to heed Charles Kirk’s (The Kirk Report) words: “The best we can do is manage our risk, stay opportunistic, keep our emotions in control, and keep our eyes open for signs that the worst is really behind us.”

That’s the way it looks from Cape Town (or rather from next to Lac Léman in Geneva). Au revoir.

Source: Slate

CNBC: Gloom, Boom and Doom economy
Discussing the market sell-off, with Marc Faber, the Gloom, Boom & Doom Report author.

Source: CNBC, October 7, 2008.

John Authers (Financial Times): Grim anniversary for US equities
“US stocks saw their second worst week on record as markets around the world plunged in an indiscriminate sell-off.”

Source: John Authers, Financial Times, October 10, 2008.

Fox Business: Ron Paul – “Rescue Plan is not good”

Source: Fox Business (via YouTube), October 10, 2008.

BBC News: Credit crisis – world in turmoil

“As global markets fall sharply, BBC News looks at the regions of the world most affected to see what governments are doing to alleviate the financial turmoil.

“The US Federal Reserve, the European Central Bank, the Bank of England, and the central banks of Canada, Sweden and Switzerland took the unprecedented step on October 8 of co-ordinating a half-point percent cut in interest rates in an effort to ease the credit crunch.”

Click here for the full article.

Source: BBC News, October 9, 2008.

Bloomberg: G-7 commit to “all necessary steps” to stem global meltdown
“Group of Seven finance chiefs, meeting after stocks plunged and as a global recession looms, vowed to prevent the failure of vital banks while failing to unveil new initiatives for thawing credit markets.

“‘The current situation calls for urgent and exceptional action,’ the finance ministers and central bankers said in a statement after talks in Washington yesterday. They pledged to ‘take all necessary steps to unfreeze credit and money markets’ without detailing how that would be accomplished.

“Signaling they would intervene to avoid a repeat of last month’s collapse of Lehman Brothers, the officials promised to ensure major banks have access to cash and are able to tap public funds for capital. By refraining from specific fresh measures such as embracing a UK plan to guarantee loans between banks, they still run a risk of disappointing investors.”

Source: Simon Kennedy, Bloomberg, October 11, 2008.

MarketWatch: US recapitalization plan for financial firms
“As the financial crisis threatens to spiral out of control, US Treasury Secretary Henry Paulson is taking extraordinary steps through the extensive authority granted to him under emergency rescue legislation.

“With the legislation’s main mechanism – an auction system to purchase bad mortgage-based securities – still weeks away from implementation, Paulson now plans to make big capital injections into large financial institutions and get equity in return.

“In a news conference Friday evening, following the Group of Seven meeting in Washington, Paulson said the plan is to offer a term sheet for needy banks. The government will not get voting rights status for its injection in most cases. Paulson said the government’s efforts were focusing on ‘liquidity’ needs and ‘systemic risk’.

“Paulson said recapitalization was now ‘necessary’ and would let ‘taxpayer dollars go further’, because it is a ‘more efficient’ use of capital than the auction process, which is meant to deal with illiquid assets.

“‘This a plan I am quite confident will work,’ Paulson said.”

Source: Albert Bozzo, CNBC, October 10, 2008.

Asha Bangalore (Northern Trust): Coordinated Move of Central Banks Necessary But Temporary Panacea
“The Federal Reserve Bank, European Central Bank, Bank of England, Bank of Canada, Swiss National Bank, and Sveriges Riksbank (Bank of Sweden) implemented a coordinated cut of their main policy rates this morning. Excluding the Swiss National Bank, the other central banks reduced the benchmark rates 50 bps.

“The People’s Bank of China eased monetary policy 27 bps and the central bank of the United Arab Emirates lowered the repo rate 50 bps, while the Bank of Japan issued a statement of support. Norges Bank (central bank of Norway) sat out today’s round but announced it would bring its next policy meeting forward by two weeks, to October 15, when it will ‘consider rates’ in the face of recent developments.

“The most important message from this historic action is that central banks are standing ready to provide liquidity to prevent a systemic implosion of the global financial infrastructure arising from growing perceptions of counterparty risk. The world’s major central banks are using all tools at their disposal to prevent a replay of the Great Depression.

“Is today’s action the elixir that will fix the wide array of financial and economic problems that have crept across the globe? The honest answer is ‘no’. Are additional coordinated actions likely? Possibly, but the nature of the action will be related to the monetary policy options available to each nation.”

Source: Asha Bangalore, Northern Trust – Daily Global Commentary, October 8, 2008.

Financial Times: Moscow to pump $37 billion into biggest state institutions
“Russia on Tuesday stepped up efforts to tackle the financial crisis with a commitment to pump $37 billion in long-term loans into its biggest state banks, amid signs that the turmoil was spreading to the real economy.

“Even as Dmitry Medvedev, the president, unveiled the plan to offer the five-year loans – mainly through Sberbank, the state-controlled bank – three big Russian companies announced cutbacks in production because of a shortage of finance.

“Investors shrugged off the rescue plan amid mounting fears that the state funding would not find its way to the real economy. A previous state package to boost liquidity by more than $100 billion is being hoarded by the biggest banks instead of being lent out to entities most in need of cash.

“‘The bigger problem is question marks over future growth,’ said Chris Weafer, chief strategist at Uralsib investment bank. ”The lack of financial lubrication is causing the economy to grind to a halt. These funds need to be ramrodded into the system.”

Source: Charles Clover and Catherine Belton, Financial Times, October 8, 2008.

Eoin Treacy (Fullermoney): Concerted efforts required to revive confidence
“Central banks and governments are finally coming to the realisation that this is a global crisis and requires a global solution. The simultaneous rate cuts announced this week were a signal that this is now starting to happen. However, investors have lost faith in the ability of the authorities to deal with this problem.