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File photo shows a stock index board at the Korea Exchange in Seoul |
In the wake of Lehman Brothers Holdings Inc. bankruptcy, a US government bailout of American International Group Inc. and a run on the remaining vestiges of Wall Street, investors haven't just shunned risk, they've cursed its very existence while moving to keep as much as they can on the sidelines.
The CBOE Market Volatility Index,commonly referred to as the "fear gauge," has tacked on another 5.6% to 38.25 Thursday, hitting its highest level since late 2002.
Nerves are frayed all across the globe. Stocks tumbled whether the markets were in Asia, Europe or the US. Even the Russian bourse at one point had to stop trading.
Helping drive the fear and ensuing flood out of equities has been the seemingly never-ending run of crises.
What started out as a $50 billion subprime crisis has since morphed into a credit crisis that has seen three of the five large bulge-bracket investment banks fall like Goliath, except there's no David, just a specialized insurance known as a credit default swaps.
In Asia, talk of assests of local AIG unit being sold didn't offer any reassurance. Neither did news of the sale in London of bank HBOS to rival Lloyds TSB, nor talk of U.S.investment bank Morgan Stanley and top U.S. savings and loan Washington Mutual (WaMu) being up for sale.
For many investors, each move from the Federal Reserve and the government only serves to delay what will be an inevitable long-term unwind.
The most recent move, Wednesday night's decision by the world's major central banks to band together and flood global money markets with massive amounts of U.S.dollars, has moved markets but the impact remains little.
Overall, an estimated $24 billion has flowed out of equity funds in September and into money-market accounts.
The reason - each government measure is seen as just a stop-gap, and not an address of the inherent problems with the current banking system.
Fear of the unknown has also pushed investors to government bonds, chasing safety above all else, even yield. U.S. Treasury bill yields inched toward zero as investors bailed from money market funds.
But then, the Federal Reserve had to receive a $40 billion injection from the U.S. Treasury to help it manage its balance sheet, after the Fed offered $85 billion in loans to rescue American International Group on Wednesday
It doesn't help too that Reserve Management Corp.'s Primary Fund reported that it's losing money, marking the first time in 14 years that these funds, generally regarded as super-safe, have faced a loss.
And with the sliding Dollar, cash isn't king.
Making it even more "uncomfortable" are predictions from varios quarters that the gloomy economic data, tight credit conditions and the recent financial market have pushed up chances for a US recession. Those who had been unsure before are now without doubts.
The only silver lining it seems, is gold.
Long considered a safe bet, it remains the safest instrument in the short term as it has ni counterparty risk.
Many seem to believe in the haven of gold as it chalks gains to more than $909 an ounce on Thursday.
And then, there is steel - - nerves of steel - - that is.
The financial storm has pushed valuations down to attractive levels and some are starting to go bottom-fishing. But the question really is, has the bottom been reached?
Some like Mark Mobius,executive chairman of Templeton Asset Management say investors should not just ask not what but also where to invest in.
Mobius who does not expect the U.S. financial sector to return to normal any time soon sees bargains in select markets.
The financial guru who helps to oversee $28 billion in emerging market assets is of course partial to markets like Brazil, Thailand and Turkey, none of the markets that made the news during the tumultuous week.
Bank stocks in emerging markets have clearly not been hit as hard as in the developed markets. But they have been bullish for the past few months particularly with the peak and dips of oil prices.
Whether it's bonds, cash or equities, one thing is certain - - short selling is definitely out.
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