America To The Rescue

For the last several years, as the dollar has declined and U.S. stocks have underperformed their global peers, many have argued that the U.S. is losing its relevance on the global stage. Earlier, we noted how "as they have done for the past 25 years, investors all over the world are looking to America for leadership now that times are rough, and unfortunately today, we’re not getting it...yet."

Well today we got something, and the picture below tells the story better than any words can. As shown by the Bloomberg World Index, following over 36 hours of declines since Asian markets opened Sunday night, the only thing that could get global stocks on solid footing was a rate cut by the United States central bank and the opening bell in New York.

click to enlarge

While equity markets all over the world are in an apparent free-fall due to concerns over the sub-prime and CDO markets, two of the best performing stocks in the S&P 500 ten minutes into trading are Ambac (ABK) and MBIA (MBI). Ironically enough, one of the primary factors contributing to the declines is the potential for more cuts in the credit ratings of these two names.

Comments

[CloroxCowboy:]

The United States IS losing relevance. We've had our hegemony since the favorable (economic and industrial) outcome of WWII, which created a HUGE trade surplus, pegged currencies to the dollar, and quite logically pushed our economy through the roof.

But that was over 60 years ago... What goods do we produce now? Where is the mighty industrial capacity that launched us on to the world stage in the first place? Americans today hold service jobs. We sell things to each other that are made elsewhere. We live on credit...not just credit from other Americans, but mostly from the (quickly) developing world. Oil markets around the world deal exclusively in dollars, think that could have anything to do with the survival of our currency in the face of so much debt?

And with all that we're supposed to think that global stocks showing a short term rebound means the storm has passed? Something inside tells me global stocks and the US in general are standing on something far removed from "solid footing". I believe I'll pass on buying today.

2008 Jan 22 03:53 PM

[User 142738:]

Despite having a "HUGE" trade surplus after WWII, the U.S. had a debt-to-GDP ratio nearly triple of what it is today. In addition, the U.S. produces its fair share of the global food supply. Last time I checked, you couldn't eat crude oil.

2008 Jan 22 04:17 PM

[CloroxCowboy:]

I believe if you look at the entire debt to GDP graph you'll see that the huge spike in the ratio was caused by the waging of WWII, and quickly relieved in the years following its conclusion. The pattern is similar to the one seen during WWI and the Civil War before that.

Food certainly is one thing we make a lot of, but my point was that oil markets denominated in dollars may provide unstable support for our currency. If the world were to start trading oil in euros and I would expect to see an effect.

2008 Jan 22 04:35 PM