No morning call or lunch roll today. There’s nothing I would give you in quick quips that a quick sweep of Bloomberg, Reuters or BBC wouldn’t.
World stocks entered a bear market, people are talking about capitulation, politicians are talking about global co-operation (which is a funny concept because it hinges on local agreements first…) and others are looking for the G20, BRICS – well, anyone – to do something. Buffet, Bill Gates, set your phones to silent!
The commentary here is about whether we are in panic, which we seem to approach. Velocity of asset price changes has gone up a lot, and anyone taking a look at the DJIA 10 870 to 10 750 range in early New York trading yesterday would have noticed. There were several swift 0.5% moves stacked against each other, taking roughly 1-3 minutes, and this set the tone for the day in moves being quick, and then consolidating a majority of the time before moving on. Net intradayday volatility is not that high yet – markets move on openings to catch up to the falls elsewhere, and are trading back-and-forth violently, but not making moves that are necessarily stronger than their opening adjustments. This suggests traders are in a bit of a fudge, waiting for something (you can see similar mechanics before most big time-decisions and news) but that does not seem to be coming around. The conclusion is that everyone is jogging in place, not quite running but doing a lot of standing around and being prepared to run in whatever direction the next wind will blow.
Cliff notes: We will be in panic. The intraday moves are not violent enough to suggest “multiple equilibria” where essentially everyone throw out both their models and their earnings forecasts and trade on instinct alone. We do not have the huge wicks on our candlesticks relative gaps or net daily moves that would suggest marked turmoil in the market. But we do have a lot of volume, and on these levels of price action downwards, bulls will have to fight hard to overcome the increases in volume to claim back the markets.
Another thought: if you think politicians can save us, what was the “accepted” reason for the falls this week? The IMF and Fed were using negative language and highlighted the risks in the economy (so that even the institutional traders would get the picture). So, if they go out and decide on some likely feeble action, what will they have to do first? Claim accurately that the world is on fire. The question then is whether they have enough water to put it out. Although precedents have been forceful, they have not structurally helped support the markets or Greece, or banks to an extent, as we see now. Our dear world leaders would have to pull out a firehose this time around; the question is, Do they have it?
One solution would be for Germany et al to take a hint. You are worried about your credit rating if you accept joint eurobonds or keep directly bailing markets out, which might be impossible in the case of Italy or Spain. What do you think peripheral default would do to your credit rating once your banks go belly-up and world trade collapses on your exporters? Even if it was maintained, look at Japan and ask if it even matters.