photo credit: macieklew
Markets have been wobbly for at least the last week or so in any case. But the big blow to confidence yesterday was the Washington-based World Bank’s announcement that the economy was in an even worse state than it had thought as far back as three months ago.
The economy is in a worse state than the World Bank thought
In March, the World Bank reckoned the global economy would shrink by 1.7% this year. Now, despite a three-month stock market rally, it reckons it’ll shrink by 2.9%!
The bank also reckons that poor countries will suffer more than developed ones. “Unemployment is on the rise, and poverty is set to increase in developing economies, bringing with it a substantial deterioration in conditions for the world’s poor,” the bank reported. Falling remittances from migrant workers, reduced exports, falling foreign direct investment and reduced aid will hit developing nations hard, it reckons.
But it also warned that stimulus packages and the like carried their own risks unless they are agreed on internationally. “Any country that acts alone – even the United States – may reasonably fear that increases in government debt will cause investors to lose confidence in its fiscal sustainability and so withdraw financing.”
Business insiders
It wasn’t just the World Bank’s glum prognosis that concerned the markets, however. Insiders in the US are selling out of stocks at the fastest pace since the credit crunch kicked off two years ago, reports Bloomberg. These insiders are company executives – people who should know their firms’ prospects better than anyone else basically. So the fact that they’re all taking profits doesn’t look too healthy for the bull case.
“If insiders are selling into the rally, that shows they don’t expect their business to be able to support current stock price levels,” Joseph Keating of RBC Bank told Bloomberg. Insiders also sold heavily in the first quarter of 2000, just as the air was starting to leak out of the tech bubble.
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