Dismal Markets

Dismal markets…ebullient doomsayers…
Has anyone ever taken comfort from looking down upon the bewildered masses reeling after the shock of a despair-inducing event and loudly declaring “I told you so!” – judging by the markets’ reaction over the last few days (falls of 3% across the global majors overnight) to what had been an impending gathering of negativity, no one would hear such petty and unhelpful cat-calls from the rafters filled with smiling doomsayers (an image representing an oxymoron in itself) – they are all too busy scrambling for the door.
Not clear why so many out there though, are all now professing to have seen the latest turn of events coming – when first talking with a number of managers back in April/May I detected a worrying human trait of “am-I-missing-out?” beginning to interject itself into the normally rational-thoughts of money-managers. This gathered pace through May and some were still even wondering whether they should start entering the markets in early June. All of a sudden, everyone professes to have “seen it all coming” and were never fooled as the rest. Well, as nice as that would be to believe, someone out there had to have been the fool sitting at the poker-table.

Now, we of course should not tilt too heavily and dramatically to the other side, equally as we berate those that were swept up in the TARP-induced elation. Markets certainly performed wonderfully back in March until the early parts of June, but the euphoria that encapsulated a number of corporate executives as they allowed themselves to give-in to the temporary sense of relief (who wouldn’t have following the dismal months that preceded the sharp enlightening market rally) began to wear-off once all the smart-money had declared itself invested – by beginning to sell-out. At the time Sheikh Mansour in Abu Dhabi decided to sell his wonderfully profitable stake in Barclays, some cited the top-of the-market for financials, and indeed it now resembles the point of the top-of-the-market as a whole - since the beginning of June the S&P is off -6.3%.

Insider selling…outside sentiment…
Two pieces of news stick out as the culprits for the troubling markets today/yesterday – the World Bank’s unhelpful declaration that it had made a slight error in its outlook for world growth the last time they took a look at the situation - was it just a coincidence the questionable forecast was provided around the same time as the hyperactive attempts by world leaders at the G20 in London to re-assure investors?. Additionally, there is the revelation that corporate executives had been heavily disposing of their positions in their own stocks, in addition to those of their peers. The news that the very captains of industry attempting to steer through the murky waters of the recession initiated a disposal of their holdings (insider sellers are outstripping purchasers so far this month by more than x22) they had invariably accumulated since March sent a signal to the rest of the “fools” out there that indeed the smarter money had outplayed them.

Markets certainly did not shine through at the start of what may turn out to be a difficult week for equities – all the majors across Europe and the US ended up heavily-off yesterday (S&P -3%, DJIA -2.4%, FTSE -2.6%) and Asia’s markets opened today’s sessions with an equally apathetic demeanour, causing Japan’s Nikkei to drop -2.8% and drag the rest down in correlation (normally rare for Japan and Asia) as any hope of a sustained export-led recovery withered away – Taiwan and Korea reversed recent out-performances, falling -2.3% & -2.8% respectively. Even after a slight turn-around in Europe kicked-in, with the announcement that manufacturing and service industries contracted at their slowest pace in 9mths, markets all across Asia struggled to recover – a see of red greeting the eye there.
As aforementioned, a slight reversal in early trading in Europe, swinging from an avg. -50bps loss across the majors to a +50bps gain. Some signs of stabilisation starting to creep in – nothing too dramatic though.
US futures are also trading slightly higher for now (DJIA +26pts, S&P +4.2pts), as expectations continue to mount ahead of the FOMC meeting.

Oil and Gold continue to fall, with the return to $66/brl negatively impacting upon the Middle East markets in particular (UAE markets -4% avg). The sell-off there has been magnified with the sudden (and continuing) sell-off in Russia in the last few days (-8% in 48hrs), and of course the general reduction in risk-taking. Commodities have been selling-off, and the traditional “summer-driving” season in the US will maintain political pressure on lower oil prices – estimates for trips taken at home during the summer holidays across the US are almost 60% higher than the average for the last 3yrs, as middle-class households return to discovering their own vast backyards rather than jumping on a plane to a foreign-land on credit-card fuelled debt. No US senator wants his constituents crying foul-over higher prices at the pumps when they’re queuing to drive-off for a much-needed break.
Currencies have seen a strengthening of the Yen as investors pile into what they see as a relatively safe play, with US$ making gains against both GBP and Eur in recent days. With US Treasuries fluctuating ahead of another auction of $100bn or so, the short-term outlook for Cable and other major cross-rates is a choppy-one. Investors are going to have to place bets and the most likely head-off for their holidays – most will decide it’s sometimes better not to do anything.

It’s good to admit..but not too much…
The media has played a big role in the volatile market performance all have been subjected to over the last 18mths, and it is still irritating to witness a sudden, and really now quite boring, change in tone of the major reporting mediums after one or two negative sessions –from one week to the next, the very same indicators they were citing as expressions of a positive trend and a move towards higher markets suddenly become violent ripples of looming disaster – come on guys, how about a little more prediction and less reaction. Try to guide the people than simply jump-on-the-mass-bandwagon. A number of recent admissions by the finance-focused channels in particular not helping create much confidence in their so-called neutral and considered approach to reporting the facts.

Amidst all this market turbulence and to add to the fun, Sarkozy fuelled another potentially flammable debate in “sensitive-to-Islamic-issues” France, declaring that women wearing a Burkha are actually “demeaning themselves”. Even if a quasi-revolution were not taking place in Iran as we speak, this type of debate would garner much focus. Imagine what his counterpart’s reaction would be over in Italy when confronted with the same sensitive Islamic issue – in Berlusconi, there is a political leader (not to mention billionaire – always helps in Italy) that admits to enjoying the company of women at his many (infamous) “house-parties” – preferably wearing as little clothing as possible, and suspiciously glancing at their watch every hour, on the hour.

It seems to be the season for admitting to things this week, as Chris Brown pleaded guilty to a count of assault - against his then girlfriend Rihanna - subjecting himself to hours of community service and a prolonged period of probation (the judge did call him an “admirable character”(!) for admitting to his mistake though). If only the corporate executives out there, that have suddenly turned to selling the very same-story they are asking the rest of the investment community to buy, would admit a little sooner that they do not actually believe in the “recovery”, the rest of the markets might not get caught-up in false economic greenshoots and have to pay for bruises and a black-eye of their own.