We Just Got A Little Poorer Today
photo credit: Nick McCarthy
In case you’ve been under a rock today – U.S. stocks suffered their worst day in seven years as the Dow lost more than 500 points, the steepest point drop since the day the stock market reopened after the Sept. 11 terror attacks.
The Toronto stock market also lost more than 515 points today. It now has lost 18.7% from its most recent high June 18. The selloff since June has wiped more than $350 billion of market value from the stocks listed on the TSX, affecting your pension plans, RRSPs, mutual funds and other equities investments.
Oil prices also lost more than $5 a barrel to $95.71 extending a two-month slide from the record $147 a barrel.
The upheaval in the financial sector could trigger another round of commodities liquidation. Investors may unload commodities, fearing that the deepening economic crisis will further reduce demand for energy and raw materials futures.
As much as some will try to pin this on current governments, this mess isn’t caused by a political party. It’s caused by house prices falling in the US.
Simple as that.
Once house prices started to fall, investors walked out on real estate. Prices fell further.
Consumers tightened their wallets, credit tightened and home equity loans evaporated. This is the root cause of the US mortgage mess – sub-prime mortgages being the first to crash.
The symptons are starting to show here… Canada’s hot housing markets cooled as home sales fell 3.4% in August, bringing the year’s retreat to 19.3%, the worst since 1998. National house prices are down 5.1 per cent for the year, according to the Canadian Real Estate Association.
Hang on for a bit of a ride over the next few months. The market is adjusting and there will be more casualties. And we’ll feel each one in Canada. Cash is now king.
My big worry is derivatives. An “impossible to explain” investment tool that I’m sure is about to cause a lot of pain. They keep being mentioned each time a financial institution fails – and the liability of these investments is in the trillions.
This could be ultimately where we get hit the hardest.
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