March 2 (Bloomberg) -- Stocks fell worldwide, sending the Dow Jones Industrial Average below 7,000 for the first time since 1997, and Treasuries rose after Warren Buffett said the economy is in “shambles” and American International Group Inc. reported a $61.7 billion loss.
Berkshire Hathaway Inc. retreated 7.7 percent after reporting the worst annual drop in book value since Buffett took control in 1965. HSBC tumbled 20 percent after announcing a rights offering, driving down Bank of America Corp. BHP Billiton Ltd., the world’s largest mining company, lost 3.9 percent as copper and nickel fell and oil slid 7 percent.
“The bear market has only begun,” said Robert Prechter, the founder of Gainesville, Georgia-based Elliott Wave International Inc. who is famous for predicting the 1987 stock market crash, said on Bloomberg Radio. “I don’t see the clear weather yet.”
The Dow average decreased 144.24 points, or 2 percent, to 6,918.69 at 9:34 a.m. in New York. The Standard & Poor’s 500 Index dropped 2.2 percent to 718.60. Treasuries rose as investors sought a haven, driving the yield on 10-year notes down to 2.96 percent from 3.01 percent.
Worst Start to Year
U.S. stocks have fallen for three straight weeks as the government rescued Citigroup and drugmakers fell on President Barack Obama’s health-care plan. The S&P 500 is off to the worst start to begin a year with a 20 percent loss.
Options investors are paying twice this decade’s average to protect against losses in U.S. stocks through 2011, signaling the bear market that already wiped out $10.4 trillion of equity value may last two more years.
“There’s a real panic in the markets, with some people wanting to buy long-term insurance at any price,” said Peter Sorrentino, who helps manage $16 billion, including $130 million in options at Huntington Asset Advisors Inc. in Cincinnati. “People have lost hope.”
Contracts to protect against a decline in the S&P 500 for two years cost $15,160 on the Chicago Board Options Exchange, compared with $6,875 in 2007, according to price-adjusted data compiled by Bloomberg. The current level shows traders expect the benchmark gauge for U.S. equities to fluctuate twice as much in the next two years as it has since 2000.
Berkshire Hathaway Class B shares lost 7.7 percent to $2,367.78 in Germany. Fourth-quarter net income fell 96 percent to $117 million on the falling value of holdings including derivative bets. The 9.6 percent drop in Berkshire’s book value last year compares with the 37 percent retreat in the S&P 500, including reinvested dividends, the best relative performance since 2002.
Buffett said the economy will be “in shambles” this year, and perhaps longer, before recovering from the reckless lending that caused the worst “freefall” he ever saw in the financial system.
HSBC tumbled 20 percent to 393.75 pence. Europe’s largest bank by market value said it plans to raise 12.5 billion pounds ($17.7 billion) in a rights offer, increasing concern that financial firms need more capital.
Bank of America slid 11 percent to $3.51.