World stock markets dropped significantly overnight, with the decline being attributed to G20 meeting pessimism, global banking sector news, and renewed U.S. auto industry concerns – see article. European markets (France, Germany and London) were off between 2% – 4%, while overnight Asian markets (Hong Kong, Japan) were both off by about 4.5%. The reasons given for this were:

• skepticism by many European participants in the G20 meeting that begins Thursday that the meeting will result in a coordinated incremental financial stimulus has been reported;

• the CEO’s of both Bank of America and JP Morgan Chase are reported to have said business conditions had become more difficult since they reported being profitable for January and February. Concurrently Spain announced it was bailing out Caja Castilla-La Mancha (its first bank rescue in 16 years), and there were reports UBS is terminating another 8,000 jobs;

• auto company shares were under pressure following the position taken by the White House that said Chrysler and GM had not as yet submitted acceptable plans to receive billions more in bailout money and were going to receive further financial support for a further 60 days to see if they could develop restructuring plans that were acceptable. BMW, Daimler, Honda, Nissan and Toyota shares dropped between 3.7% – 7.7% on that news. See a separate post today on the Chrysler/GM bailouts.

• additionally, Japan reported that industrial production plunged by 9.4% in February, and that production was down 38.4% on an annual basis.

From my perspective the market volatility that exists on near-term financial news is noteworthy, perplexing, and very worrisome.

• first, as reported in a previous post, it has been reported that over U.S.$13 trillion has been committed so far worldwide to bailouts and stimulus packages. Even if these things work, it will take time for these packages to mature and take effect. In my view the G20 countries committing more at this point will not result in an instant fix, or for that matter a ‘certain fix’ in the long-term. The market in my view ought to assess it this way, and not have what I think is a ‘knee-jerk’ reaction to the G20 apparent expressed ‘skepticism’;

• second, why is it a great surprise to the market that business conditions have not immediately turned around and improved – or for that matter that they are becoming more difficult in the face of continued U.S. job losses et al. Why are the economists on the staffs of the investment banks not up to speed on these things – and why has that advice resulted in the Bank of America and JP Morgan Chase reports caused the market volatility it is alleged to have?;

• third, as I understand it the White House has not said it won’t support Chrysler and GM going forward, it has simply said it needs to be satisfied the restructuring plans have a good chance of working; and,

• fourth, I consider Japan’s industrial production data as very worrisome, and can see why the Asian and European markets responded as they did based on the release of that data.

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