Boom & Bust cycle officially in BUST mode

In typical boom & bust fashion, equity markets were pummeled yesterday.

Times like these are more or less orchestrated so that moneymasters can consolidate their fortunes. In classic form, those left standing will buy up demolished equities - DIRT cheap - when the dust settles.

Stock markets around the world tumbled yesterday, extending last week's heavy selling as investors continued to bail out of riskier assets in favour of safe havens such as government bonds.

Emerging markets were hardest hit, with the MSCI emerging markets index on track for a 10th consecutive decline, its worst run since the Russian default in August 1998 triggered worldwide market turmoil.

• Dealing on India's stock market was suspended after stocks slumped 10 per cent in early trade. Trading resumed after verbal intervention by officials and a pause to calm the market, and the benchmark Sensex index ended down 4.2 per cent.

• Russian equities plunged 9.1 per cent, the Turkish market tumbled 8.3 per cent, Brazil and Mexico were each about 4.5 per cent down in afternoon trading and Sweden fell by 5 per cent.

• Leading stock markets were also hit, with an early 1 per cent fall in the S&P 500 pulling the broad US blue-chip index below its January levels for the first time this year, although it later recovered some of its losses, and the Dow Jones Industrial Average closed 0.19 per cent down. Many leading European indices fell at least 2 per cent.

• The London market suffered another downward lurch and the FTSE 100 slid towards a six-month-low.

• The decline gathered pace at the end of the trading day as banks made heavy trades to cover positions that had arisen from derivatives deals.

In an interview with the Financial Times, Ed Balls, economic secretary to the Treasury, acknowledged the recent financial market turbulence but insisted the UK economy remained on a sound footing.

"In the last week, there have been some movements in stock markets and forex markets around the world. From the Treasury perspective, we have to remain vigilant. "But while there are risks out there - not least from oil prices - the British economy is strong," he said.

The term zombie comes to mind. Essentially he's saying that, come what may, they intend to suck the lifeblood out of workers in Britain - just like the Fed does in America.

Volatility measures around the world have spiked sharply higher recently as investors worry about the chances of rising inflation prompting higher interest rates, and the potential for this to damp economic growth in both developed and emerging markets.

Yesterday, the Vix, a measure of volatility sometimes known as Wall Street's "fear gauge," reached a two-year high of 19.62, up 10 per cent on the day.

Germany's equivalent measure jumped more than 12 per cent.

Wow. They have an index to measure their paranoia.

Analysts suggested that the declines had been sharpened by the decision of many speculative investors to exit trading positions at the same time.

Once again, financial markets put Vegas to shame.

Steadier assets such as government bonds rallied as investors sought safe havens for their cash. The rush forced the yield on the 10-year US Treasury note to dip below 5 per cent, down sharply from a four-year peak above5.2 per cent recorded just a week earlier.

The term "investor" is a gross misnomer as applied to these folks. They are scavengers - not investors.

Brian Robinson, strategist at 4Cast consultancy, said: "Although the current environment is nowhere near as serious as the Russian crisis, Treasury traders need to look no further than to Latin American bond markets."

Emerging market bonds fell steeply as investors continued to unwind popular "carry trades," where they had borrowed at low rates to invest the proceeds in higher-yielding assets.

The spread, or risk premium investors charge above Treasury rates to hold emerging market bonds, widened to 2.23 percentage points yesterday, up a sharp 0.3 percentage points this month, to the highest since January according to JPMorgan's EMBI index.

That means that borrowers in emerging markets must pay more to borrow less.

But most market observers remained relatively calm. David Spegel, emerging markets strategist at ING, said: "This is a healthy correction. The markets were overvalued and there was a lot of speculation."

Yeah, right. Healthy, if you're a PARASITE!

Even then, a smart flea knows not to demand too much from his host, lest the dog die and leave his blood-sucking beneficiary in the lurch.