Stop listening to the happy talk out of Washington and Kuala Lumpur!
The latest Mortgage Bankers Association figures on home loan applications, which tracks demand for home purchase and refinance loans, plunged 17% in the most recent week. The purchase application sub-index is now plumbing depths not seen since October 2001, a sign that housing demand remains anemic.
Some pundits have made a big deal about the recent improvement in certain domestic and developed market credit indicators. The gains stem from the Federal Reserve's and Treasury's largesse, as well as the banking bailouts being put into effect in continental Europe, the U.K. and Canada, among other places. But the improvements have been minor when compared to the hundreds of billions of dollars in aid that has been thrown at the markets. There are also disturbing signs that the aid isn't getting at the core of the problem — the housing market.
The credit virus is now spreading its sickness to the four corners of the world.
In Hungary, the currency has been plunging for weeks on end as global investors pare risk and withdraw funds from higher-risk emerging markets. The forint recently traded at 214 against the dollar, a huge decline from the 143 level back in July. Magyar Nemzeti Bank, Hungary's central bank jacked up the nation's benchmark rate to 11.5% — an increase of a full three percentage points — to defend the currency and stem the flight of capital.
in Argentina, the country said it plans to seize $29 billion of private pension funds. This caused bond yields in the country to surge. The Merval stock index plunged more than 55% on the year. The government last raided pension fund investments to service its debt in 2001. But it didn't help. Argentina then defaulted in a move that sent shockwaves throughout the global capital markets.
As for Iceland, the market has all but collapsed. The country's three biggest banks have been nationalized. Its currency has lost more than half its value in the past two years. It's being forced to pursue a multi-billion dollar bailout from its Scandinavian neighbors and the IMF.
The most shocking of all: Its benchmark stock market gauge, the OMX ICEX 15 index, has plunged 89% year to date! To put that in perspective, if the Dow did the same thing this year, it would be trading around 1,460.
India is running into trouble. Overseas funds dumped a record $12 billion of Indian shares so far this year. Foreign exchange reserves have dwindled by $42 billion as the Indian rupee has imploded. It recently slumped from 39.20 against the dollar to 49.50 — a record low.
In short, currencies aren't just declining. They're crashing. Stock markets aren't just falling. They're collapsing. Foreign investors aren't just walking for the exits. They're running and trampling anyone in their paths.
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