So, unsurprisingly, the appalling performance from Thursday kept up and resulted in some shifts on Friday as well, with the Dow down just under 2%, most European equity markets between there and half as bad, and the Asian ones like the Hang Seng deciding they missed out on the Thursday action by scoring a good 3% fall. Now, am I happy?
Well, kind of. The Friday markets exhibited fear: they were all over the map, with European markets starting the day at -4%, recovering to nil, and then falling back again to settle at 1.5%, give or take. The US markets were similarly down 1% at open (way better than their futures predicted overseas!) were up 1% give or take, and then closed down almost 2%. Asians were muted, but they’re just innocent bystanders anyway. What was remarkable was the +1% swings that would occur within 5-10 minutes, and then reverse, and this would go on and repeat for some time. There were forceful, sustained moves, indicative of herd behavior. Finally, we’re getting somewhere.
What we have not had yet, is panic. Amazing when some European markets have scored among their top 20 worst trading days, and we’re on the verge of a bear market. We’re still not seeing the magnitude, or the breadth of moves that would constitute wholesale selling. Signs start showing up; apparently there is more correlation now between US stocks than at any time since March ‘09 if you ask Bloomberg. Though, that was the market bottom: it had recovered a semblance of normality by then, which my beloved VIX will tell you. The really interesting comparison would be with September-November ’08, where there was real panic and the aid structures like QE and TARP weren’t in place. What I’m saying is that there are further falls to see, and again, I am referring to not nearly seeing volatility peak yet, and even despite the last week’s horrible performances, reiterate my calls for 10-15% further falls in the near future.
So, more bad news: Bernanke is set to speak from Jackson Hole this week, where inflation has picked up and dissent is spreading among his Fed chiefs. This isn’t going to be pretty. And, to be honest, the Fed has no mandate to support share prices, and besides the outlook on the economy (which is a function of idiotic politics and structural problems) there are no extraordinary causes for the turmoil, especially Fed-fast-fix ones. Neither will there be a meeting of the Fed, so… yeah, that’s another dull piece of news just waiting to bring the fear over. In summary, keep your caution, remember that bottoms don’t look like this and try to check for any light in this madness-driven tunnel.