Markets are extremely volatile at the moment. In recent days, stock markets all around the world plunged. We’re seeing the worst market since the Great Depression. The Japanese Nikkei index lost a quarter of its value within 3 days (and didn’t yet recover because today is a public holiday in Japan and therefore, the Tokyo Stock Exchange was closed while stocks were soaring today), many stock exchanges suspended trading for several hours and even for days like it was the case in Moscow, Jakarta, Vienna, Sao Paulo…. Last week, the Dow had its worst week ever, European stock markets faced double digit losses and even after the $700 billion bailout had passed Congress and was signed into law, panic spread even more quickly and the consequences were massive selloffs. Energy prices have also nosedived due to an expected global cool down and the risk of a recession in the United States which would mean shrinking demand from industrial nations for oil & gas. Many investors seem to prefer staying out of the market and stash their money under their beds.
Obviously, the safest move would have been to stay out of the market, however, I invested on European stock markets convinced that money can be made in any market. And I managed to gain 16.6% in three days. On Thursday, I bought shares of the troubled German property lender Hypo Real Estate, which needed a €50 billion bailout by the German government to survive; of Centrotherm Photovoltaics, a manufacturer of photovoltaic cells and of Munich Re, the reinsurance giant.
Now let me explain why I chose those three: The shares of Centrotherm Photovoltaics fell steeply early last week, though the company won an order from an Asian customer to produce solar silicon and has on overall good performance. Next to Asia, they are also successful in America where they started cell production in early October. The company does not only provide the technology and equipment, it also offers plant engineering service and support. Given the strong decline in value since the beginning of this month, I was convinced that their shares were actually a bargain. And this investment turned out to be a good choice: A 34% increase in value within three days in a bear market.
The reason why I bought shares of Hypo Real Estate despite they were downgraded to “reduce” by all major banks, is that I expected the potential of a huge short-term gain as the shares are still incredibly cheap, though very risky.
My decision to buy shares of Munich Re didn’t turn out to be wise, but I avoided major losses. Munich Re’s shares are down by about 5 percent since Thursday. Nevertheless, I gained 16.6% in three turbulent days. However, I sold most of my Hypo Real Estate shares this evening. Nobody know whether today’s unexpected rally is a clue that markets hit rock-bottom on Friday and will recover now. Government intervention around the world brought back confidence to stock markets, at least for today. The German government approved a 500 billion euro rescue package to restore confidence and to stabilize markets. This is part of a joined European approach: Six European countries (France, Italy, the Netherlands, Spain, Germany and Austria) offer 1.5 trillion euros in guarantees and fresh capital. Investors who are seeing the steep price falls of last week as a buying opportunity are starting again to put money back into stock markets. There’s no other way to explain why stocks surged today. The Dow made its biggest one-day advance on a point basis ever. Nevertheless, economists don’t see the end of the meltdown as the credit squeeze continues and further risks could be unveiled. Unless confidence returns and the bailout and rescue packages work, things could get worse.
Credit card debt poses a threat to the U.S. economy as it’s been increasing for decades and with many consumers being unable to pay their credit card bills due to unemployment for instance as well as increased interest rates, a consumer credit crisis cannot be ruled out.
But we shouldn’t forget that the approaching presidential elections in the USA are likely to influence the economic development and the financial situation decisively as it has already been the case after elections in the past.
Even though the current crisis is painful for people all around the globe – be it laid-off investment bankers on Wallstreet or workers who lost their jobs in the automotive industry, be it retirees who see their savings shrink or entrepreneurs who struggle to get credit – there’s still something positive about the global economic downturn. Oil consumption in the United States and elsewhere is falling which could give us one or two years more time until we reach Peak Oil. Time to develop alternatives.