So, as expected, Obama underperformed and the markets got scared. Really nothing he could have done there of much significant importance. Some people saw plain speaking in his repeated call for “passing this bill” but I don’t know if I heard much more than begging and praying from a man that has to trick us that he isn’t. If this less-than-revolutionary package would have a reasonable chance of working, who would expect it to be passed? Markets reacted by falling and the dollar absolutely soared against anything bar the yen. Not really a vote of confidence in my book.
Someone may contend that the economic outlook and credit environment in Europe deteriorated and that is what pulled markets down. Ask them when they last bought southern European government or bank bonds. (For some bulls this is probably when the austerity package improvements in Spain and Italy went through, in which case they are speculators. It has not helped Greece much, and any talk of austerity in the US is pulling markets down like a rock.) If a situation can honestly deteriorate much further after two years of constant crisis and not become a credit event, hopes have been way too high throughout.
So, with the “big guns” of actual policy now stowed again, we are back to watching the Fed, other central banks and tea leaves for signs of sentiment improvement. I’m happy to be in Asia! Someone may have their hopes for the G7 gathering, but that sounds to me like despair and is cause for concern rather than bliss. This meeting doesn’t even attempt to solve anything, it’s more like the biggest countries asking themselves why the sky is falling while enjoying the French food and wine. Likely, they will keep bashing Japan and Switzerland for daring to do by intervention what everyone else achieves with idiotic politicians and printing presses, and for a press statement come up with something like “Things are certainly uncertain and we will work together to support each other to figure out if we can stabilize things without political risk to ourselves. Strong action is needed: we will monitor things closely and keep meeting regularly at nice places throughout the globe.”
Market outlook for next week? Watch out for air pockets, turbulence, and lightning strikes. V2x closed a hair below 50 (hairy!) and the VIX shouldn’t be far behind. The Dow is kicking around trying to find support around 11000, and I refer back to my previous assessment that the strong support is somewhere in the region of 10400.