As the FT notes this morning:
The chart looks like this:
All Asian markets were hit in the same way.
The reason is that traders believe that the US is heading for recession.
The explanation is consistent: the Federal Reserve has left it too late to cut wildly over-inflated interest rates.
And if that is the belief about the US, it is going to doubly so be the belief about the UK, which is looking a lot more vulnerable to the excesses imposed upon it by the Bank of England, which has been out of control throughout the current inflationary period, getting just about every policy decision wrong.
There may, of course, just be a stock market crash to deal with. We have had them before. I well recall those from 1987 and onwards. But, they always leave an aftermath because what they actually represent is a loss of confidence following a period of exuberance.
As I have long maintained, stock market prices in major markets have looked overvalued for considerable periods of time now. You cannot have the world facing all the issues it does, from war, to Trump, to trade war, to climate change, and more, and have stock markets at record highs. That has never made any sense at all.
So, the day of reckoning has arrived. There may be a correction. There could be something much worse. I have no idea. Nor has anyone else. Markets will act irrationally while this goes on.
But what I do know is that none of this will help Rachel Reeves achieve her goal of growth. That can't happen without major government intervention against a background of stock market panic.
Has Reeves got a Plan B for when her anticipated growth does not materialise? It looks like she will need to use it very soon.
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Quite.
There was a short piece in the Grauniad that Warren Buffet has sold off some Apple stock and increased cash holdings due to fears about US economy. https://www.theguardian.com/business/article/2024/aug/03/berkshire-hathaway-warren-buffett-sells-off-apple-increases-cash-holdings
He’s the kind of bellwether other investors would follow.
Does Rachel “blackhole” Reeves have any workable plan other than regurgitating failed Thatcherism? Two economic degrees and a stint working for the BoE and she’s still treading water not walking on it!
I doubt if Racel Reeves has a useful plan B. I think she is just going to announce (with tears in her eyes) that unfortunately it would not be fiscally responsible to implement the extravagant policies that Labour proposed pre-election. At which point the country will return to the economic equivalent of partying for the rich and lockdown for the poor.
All those share buybacks gone to waste.
Thank you, Tony.
Dunno about that. These shiny yachts and cars, palatial residences, FMTY SWs, coke, and school and university fees don’t pay for themselves.
@ Col S.
That’s value extraction for you !
Recession, austerity, it all appears to be melding into one to me into some sort of perma-hardship for ordinary people.
It seems to me that most of us are being chucked on the human scrap heap as redundant assets by the elite.
Classic Neoliberal Corporate Capitalism. If it can’t be monetised then it’s worthless. BlackHole Reeves may have Economic degrees and BoE experience (a good thing?) but she appears to be Economically Illiterate.
Thank you and well said, Richard.
Today’s FT reports on Reeves’ plan to woo 300 industrialists to invest here(, copying what Macron successfully hosts at Versailles). The FT cautioned that the government will have to spend at least £27bn pa over this term to bring the UK up the OECD average.
On the commute, a friend and former Fed and BOE official asked me why would anyone invest in a country with such high utility and transport costs, poor skills and productivity, fascists on the march and no access to the EU?
All excellent questions
“no access to the EU”
Could this be why many companies relocated or increased their presence in the Republic of Ireland?
Yes
Thank you.
The Republic did well, but there were clusters of different firms in Paris, Amsterdam, Berlin and even Lisbon.
It’s interesting how French tv often features Ireland as the largest beneficiary of Brexit.
It is arguable that the EU has been an economic beneficiary from the UK’s temper tantrum. Another reason for them to think carefully before letting the UK back in.
Not that the Brexiters will ever admit it. Nor from the look of it will Reeves and co.
Monetary illiterate therefore economically illiterate Scammer & Co with their right hand not knowing what the left hand is doing. In other words just a continuation of failed and mindless Thatcherism. The country deserves better!
https://www.theguardian.com/business/article/2024/aug/05/manufacturers-and-unions-join-forces-to-press-for-uk-industrial-strategy
Radio 4 Today programme illustrated the sheer arrogance of those benefitting from our current ‘industrial strategy’ such as it is.
The political/economic nuclear dead end that are the ‘small modular reactors’ represented by a guy from Rolls Royce parrotting the 15 year old propaganda that ‘this time it will be different’ – saying how marvellous this technology is ( or ‘will be’) – but ended by stating – how many millions government will have to invest – why? why? why?
Shortly after that, there was the bullish oil and gas industry gangster – boasting that 50% of our energy will still be fossil fuel by 2050 – and demanding money with menaces – saying if we dont licence or subsidise new fields – we will still have to pay for the clean up of those closed down and pay a fortune to foreigners for imports.
If anyone arguing for a decent minimum wage or benefits which covered a minimum cost of energy food and accomodation used this kind of tone – they would be drummed out of town – and off the airwa
“If anyone arguing for a decent minimum wage or benefits which covered a minimum cost of energy food and accomodation used this kind of tone – they would be drummed out of town – and off the airways.”
Well not exactly just a big demand from Scammer & Co why they don’t know a “big blackhole” has been found in the nation’s finances. Don’t see why this is any different from Thatcher’s big lie that government has no money of its own. This is a nation in the process of petrification where gormless voters swallow any nonsense thrown at them!
I was living in Australia in 2008 when the financial crisis went round the world. Kevin Rudd gave every taxpayer $1,000 and encouraged us to spend it in Australia on Australian-made goods and services if possible.
There were lots of other reasons that contributed to Australia not going into recession during that period, but it shows that a different attitude and way of doing things is possible.
Blackhole Reeves = “The government has no money of its own” Thatcher. The UK now a land of endless lies!
Did not also the BoJ putting up Rates spark this ending the lucrative carry trade ie borrow Yen at almost Zero and buy dollars to buy higher yielding stocks? This is Massive unwinding of speculative positions couple that with a poor Non-Farm payroll report last Friday and panic ensued. Prospects for drumming up investment in the UK look much harder to achieve for Rachel Reeves currently in the USA, on the back of a summer of rioting throughout the UK and with no sign of the underlying causes being addressed.