Sadly, I am talking about stock market falls rather than a girl… At least I know something is going down on me!
As expected in the last few days, the Fed did nothing to support asset prices, but are instead deciding to do OT (operation twist) with a minute amount of money – US$400 over 9 months, and markets subsequently had to retreat off their unsubstantiated highs. Take a razor and just cut 3% off from pure speculation. So, if this is what it looks like when things are bad, and markets are effectively sailing on their own, how can we forecast when things will turn?
I’ll tell you to hold that thought right there, because things aren’t “bad” per se. Surely they are bad compared with what they have been pre-2008 or post-2009, but they are not compared to what they will be. Things are not looking up in Greece because of new austerity: if you demonstrate or go to strike about not getting certain benefits you expected, why are you gonna sit down and play it quiet when they cut your salary or fire you (to effectively make you a full-time protester – who in their right mind would hire in Greece?) as well? If your government can’t stimulate growth or reach budget targets when it’s “easy” and they get all the support of the eurozone, why would now be any better an opportunity, especially when the rest of the world as you know it seems to be collapsing as well? The liquidity barometer of EUR(Scandies) just hit “dry”, and I would love to peek into some proper yield spread data at the moment. Still, the euro is fighting it out above US$1.353 and the Dow Jones is above 11 000, but I guess this was just an effect of some traders having gone home early or that European traders were soundly off their desks – today will not be a good day.
Is there any light at the end of the tunnel? US politics? Hah, don’t think so! Maybe in the medium-long with Obama intent on balancing the seesaw of brinksmanship to force some more meaningful discussions, but in the short term, keep firmly out. Europe? Well… don’t expect things to be looking up anytime soon, and if the “safe havens” of the Scandinavian currencies are down this firmly against even the euro, it is as mentioned above a barometer of liquidity needs and avoidance of foreign exchange risk. The austerity cuts, new banking regulations, lower world growth, etc., all make it painfully clear – as if the refusal by a few major companies in banking with european banks wasn’t enough! – that a liquidity crisis is just around the corner. Greece? I’ll wait a month to see if things look up, but the problem isn’t intent; it’s implementation. Maybe the europowers will throw it a lifeline, but don’t expect that to make things better for more than 2-3 months tops, and then we will be back here.
So, to answer the beginning question, how do we tell when things are finally turning? When we get all the major risk factors out the way. Europe needs its act together on debt and figure out how to stimulate growth and shut Germans up and the US needs to figure out how to handle jobs, unemployment and housing and their politics. This will not be easily accomplished without a liquidity crisis actually happening and putting all efforts on actually fixing things. One thing that pulled the markets up in 2009 was worldwide political and central bank unity, one thing that is pulling them down now is a total cacaphony of dissonances.
The short takeaway from here is that the markets should not have fallen by 3% overnight. They should have fallen 1% but never risen as hard in the last few days to begin with. Buffet says to be greedy when others are fearful and fearful when others are greedy, but what about when the others are trading on just plain stupidity? Yesterday’s call for 17 600 on the HSI is revised down to 17 000 flat given today’s 4% fall and strong negative trend.