Whew – what a wild week! World stock markets and commodities tumbled, whereas government bonds and the US dollar surged amid mounting fears that the ongoing turmoil in financial markets was foreshadowing a hard landing for the US and Europe.

Now that the bailout deed has been done, attention is shifting to whether the plan will work and break the logjam in the credit markets.

This post considers the likelihood of three possible outcomes of the bail-out plan and its effect on the global economy, financial markets and currencies.

These are the quick market stats for the past week: the MSCI World Index up by 0.3%, the S&P 500 Index up by 0.3%, the Reuters/Jeffries CRB Index down by 0.1%, the US Dollar Index down by 1.6% and the ten-year US Treasury Note yield up by 4 basis points.

Investors not only returned to a shortened trading week after the Labor Day holiday on Monday, but also to a bruising on global stock markets, at least for those with long equity positions.

Have you ever seen a check for 1.072 quadrillion? Let me add that it is in Zimbabwean dollars. The sad truth of hyperinflation is that this astronomical number equates to only a tiny amount of US dollars.

The gyrations of financial markets ahead of the Labor Day weekend tested the patience of bulls and bears alike. Nervousness about the financial system was still paramount as investors realized that none of the problems were likely to be fixed anytime soon.

Almost exactly a year after the advent of the credit debacle, the term “credit crunch” squeezed into Britain's Chambers dictionary, defined as “a sudden and drastic reduction in the availability of credit”. Fittingly, the past week witnessed market participants focusing anew on deteriorating global growth prospects, arguing that slower growth could reduce inflation pressures.

Fortune smiled upon stock markets last week, with the S&P 500 Index scoring its first back-to-back weekly gain since April as the US dollar rallied strongly and oil and commodities plummeted. The S&P 500’s gain since the low of July 15 has been 6.7%, with the Financial SPDR up by 27.8%.

EURJPY: The first clear bearish candle closed just above the ascending trend line (some call it demand line) on the weekly chart. Trend remains on the upside but bullish momentum is weakening. Stochastic has crossed and turned downwards could signal top of 169.95 in place with possible retracement towards 165.61/64 area.

As oil prices seesawed through the past week, fresh uncertainty about the outlook for the beleaguered financial sector triggered another wave of volatility in financial markets. Economic data were mixed, whereas earnings were mostly better than feared. After all the action, the S&P 500 Index closed the week virtually unchanged, posting a small gain of 0.2%.

Financial markets witnessed another roller-coaster week as renewed concerns about the global economy and the health of the financial sector surfaced, resulting in a mixed week for world stock and bond markets, an improved US dollar and continued weakness in oil and commodities.

Full marks for eBay entrepreneurs for stepping in where forex traders have lost count of the zeros being added to the Zim dollar every few days. How about paying US$83 for the new Z$100 billion bank note! Although the novelty value of the Zim note is surging, the sad truth is that the note is not worth enough to buy a loaf of bread.

The SEC’s announcement to curb naked short selling, together with a dramatic drop in oil prices and a series of better-than-feared earnings announcements from US banks, triggered a recovery in investors’ risk appetite, resulting in a strong stock market rebound.

“Finance is the art of passing money from hand to hand until it finally disappears,” said Robert W. Sarnoff. This is certainly the way it looked last week as the fall-out of the credit crisis deepened.

Investors are running for the hills today, but are they running in the right direction? In this very informative webcast, Marc Faber and Frank Holmes discuss global investment opportunities and threats.

Enjoy the discussion.