TSX erases almost four years' worth of gains

The carnage across global stock markets continued into the second week of October. A bottom is at hand, some say, but then again, we've been saying this for awhile

By Jamie Sturgeon, Financial Post | 10. 10. 2008

Toronto stocks slipped below 9,000 Friday afternoon as North American markets continued their week-long freefall despite a pledge from the Department of Finance in Canada of more capital injections and an address from U.S. President George W. Bush intended to calm markets.

At 2 p.m. EST, Toronto's S&P/TSX composite index was down 743.1 points at 8,863.1, virtually erasing the gains of the previous four years. Canadian stocks were last closed below 9,000 in December, 2004.

U.S. stocks also declined steeply on Friday. The Dow Jones industrial average had lost more than 7% by early afternoon after having sunk as low as 8% earlier. The benchmark Standard & Poor's 500 Index had fallen by 7.4%.

"Fear is essentially gripping the market today," said Benjamin Reitzes, economist at BMO Nesbitt Burns in an interview. "That has not gone away."

Stocks in Toronto were down despite the Ministry of Finance's pledge to buy up to $25-billion worth of assets from banks in an effort to increase liquidity in the Canadian financial system.

Jim Flaherty, the Finance Minister, said the government would begin buying assets as early as next week to keep the flow of credit to consumers from tightening further.

The declines follow a deep sell-off across world markets on Friday.

In London, the FTSE 100 index of top European shares shed nearly 9% earlier to hit its lowest level since June, 2003. The Dow Jones Stoxx 600 index tumbled to its worst week on record at the end European trading on Friday.

Japan's Nikkei plunged 9.6% as Japanese stocks ended the week 24% lower -- the steepest decline since records began in 1949.

"I would say that this is the day that's the transcending moment, where there's been no negative news -- you could even make a case that there's positive news," said Paul Gardner, portfolio manager at Toronto-based Avenue Investment Management. "This is what you call despondency and capitulation."

Investors are looking to the weekend's meeting of leaders from the Group of Seven major industrial nations in Washington for the latest attempt to salvage confidence in global markets.

Coordinated interest rate cuts by the Federal Reserve and other major central banks this week failed to relieve investor fears that the freeze in credit markets will damage banks further and provoke a deep recession around the world.

"It's a proper strategy," said Mr. Gardner in Toronto. "But no one's listening."

"Essentially we're flying blind. No one has a clue what's going on," DZ Bank currency strategist Sonja Marten said. "The uncertainty is too great and volatility is incredible. It's a question of market confidence and somehow we're going to have to get it back."

U.S. President George W. Bush said on Friday the government would move aggressively to address the financial markets crisis, but he acknowledged that anxiety was feeding on itself which was sending stocks plummeting.

"The United States government is acting; we will continue to act to resolve this crisis and restore stability to our markets," Mr. Bush said in the White House Rose Garden. "We can solve this crisis and we will."

He also said the Treasury Department would work quickly to implement the US$700-billion financial sector rescue plan approved a week ago and that the Securities and Exchange Commission was stepping up its efforts to fight manipulation in the stock market.

The U.S. Treasury plans to start injecting capital into U.S. banks as soon as this month, according to a financial policy source familiar with Treasury Secretary Henry Paulson's thinking.

"You have to say we're at capitulation and despondency ... which technically, you're supposed to buy [into] aggressively," said Mr. Gardner in Toronto. "We're at the conditions for a bottom."

With files from Reuters