** Singing in Synch **

New month, old news?
Is it really already August? Woah, the year has been flying by (not sure many would say it’s due to how much fun they’re all having), with hundreds of billions, in fact trillions of dollars continuing to facilitate the return of confidence in global markets. On the first day of trading for the new month (beware, August is an historic underperformer), markets pick up where they left off – continuing to rise on the back of broker upgrades across financials and cyclical industries. Asia has risen convincingly (avg. 0.5% gain), a good start in Europe (also +0.5%avg.) and a lot of optimism surrounding the US’s performance for today. All on the back of what was a surprisingly positive month of July (Dow passing 9,000 again since Oct ’08, FTSE equalling it longest winning streak) – a distinct break between macro fundamentals and corporate earnings anticipation shining through. Does lowering earnings forecasts to practically zero and then heralding any subsequent out-performance really count as a sign of recovery though, or more-so a masterful manipulation of the human psyche through media with a strong consistent message of hope?

All looks quite nice for now. Purchasing Manager’s Indices (PMIs) are released globally today, normally an indication of global manufacturing output trends, China’s having been released (and rising above 50) setting the barometer for others to match. How much of this though is really a rising confidence level resulting in higher inventory levels and not just an absolute requirement to replenish levels following a total lack of investment in the preceding 18mths remains to be seen. Commodities are especially rallying, with Gold back above $950/oz, and Oil breaking past that all-important $70/brl again (it’s been quite hectic out there) – this following the breaking of the 2-mth trading range in Cable, currently sitting at $1.68/GBP, as currencies continue to provide an awesome casino-floor for short-term traders.

Image problem – “Sachs” doesn’t it?
As Ahmadinejad struggles to cope with a-less-than-endearing public image issue, and arrests and attempts to imprison all those opposing him, a Wall-Street-money-maker-supreme, Goldman Sachs, is reportedly suffering from an “image problem” of their own – they are too closely associated with the Gordon Gekko types strutting down Wall Street apparently – now hold on, how exactly is that a problem? Every banker actually wants to be likened to a movie star don’t they? Gordon Gekko is often touted as an idol, rather an example of not-what-to-be (does anyone grow up wanting to be Charlie Sheen’s character..no..didin’t think so). Seriously though, Goldman’s are being advised to tone-down their money-chasing aura – it never seemed to trouble them in the past, and I doubt they’ll care very much for it now. Still, a great opportunity for recession-hit advertising and PR firms to seek new business – am sure the boys at Goldman’s can afford to pay handsomely for the best service.

All together now…
A few key indicators are indeed reflecting the confidence being projected by the TV-genic US economic team (aforementioned PMI numbers, decent street-beating earnings and a weakening US$ reflecting a greater appetite for the “risk-trade”), and apart from Greenspan (what exactly is he still doing appearing on TV, shouldn’t he be hiding in his retirement retreat fishing for trout or something) the current administration are all singing from Obama’s hymn-sheet – declaring the worst-of the recession is behind us and making very strong confident allusions to a recovering economy. Technically of course, we are still in a contraction, but they are clinging on to that silver-lining and (deservedly it has to be said) patting themselves on the back for preventing any further total market free-falls and an economy that was looking dangerously close to a depression-like era. There seems to be such great momentum at the moment, that even our friend Nouriel Roubini was caught declaring that signs (in commodity markets at least) are pointing to “a light at the end of the tunnel”. All sounds lovely doesn’t it?

So, is everything going to be OK from here on? There is no doubt the unprecedented government interventions were a necessary political move, with Obama’s tenacity to puncture the American-Darwinist-model of capitalism preventing a total collapse of the system. Some still believe the medium-term implications will cause far greater systemic issues – an article in the Economist focused on the impending “Commercial Estate Crisis” and foresees the precedent of bail-outs as further softening the budget constraint financial institutions once felt, not to mention the growing allure of moral hazard.

Singing in synch…but from a hymn sheet
Whether you question the differences between macro top-down analysts (bewildered by the sense of optimism sweeping through the markets) and technical company analysts (impressed by the possibility of close to 20% earnings growth) there seems to be something afoot with the co-ordinated weekend appearances by Geithner and Summers. Obama himself admitted there were a few months left of the recession to live through, but otherwise touted the efficacy of the economic council’s actions so far.

Could it be the administration is paving the political path for some further policy decisions? Do they know that this momentum must be maintained to run-through some bad news they are aware of that will surface towards the end of August (in an ugly repeat of ‘07 and ‘08) and knock confidence with such force a 180* run from markets might occur? The more sceptical must be wondering why the economic team choose the weekend before what historically ends-up one of the worst months for markets, to preach a reassuring, concerted message – great cheerleading guys. Let’s just hope that all this singing from the same hymn-sheet bestows more faith upon the markets than simply the hope of a continued miracle.