A recovery to miss expectations?
There seems a pretty universal consensus that somehow the autumn will produce a recovery in economic activity that will at least justify present optimism about the outlook for share prices, or more accurately universal indifference and a feeling that they are unlikely to go any lower now.
This is what the great voting machine of the modern stock market is telling us. But has the market got it right or is it wrong as it was last summer? Let us not forget the market was wrong last summer, seriously wrong.
Financial meltdown
What followed was an awe inspiring drop in prices and a near financial meltdown. Nobody really saw it coming or if they did then it was just a roll-over prediction of doom ready for the occasion.
All it really needs for a repeat this autumn is for a new unexpected crisis to emerge. It could be the Chinese banks or Eastern Europe’s banking system or a series of financial collapses in America causing financial instability elsewhere.
Or could it be that the recovery this autumn is so weak that it panics everyone into a sell off? Or perhaps there is no recovery and some little boy jumps up and points out that the emperor is not wearing any clothes.
My point is that the risk is to the downside now. It could be that something unexpected happens to boost recovery. But what exactly could do that? The nationalization of General Motors, one of America’s largest companies?
Soviet US
That happened last week amazingly. GM emerged from bankruptcy and into state ownership. Is that the start of a recovery? It might be but it looks more like another step down rather then up in my book.
So when might markets resume their weakness, assuming the drift will continue over the summer? October is the usual rough month for stock markets, and there is no reason why it should be different this time. You might think that such a prospect would galvanize world leaders into action but their seemed little sign of it at the G8 meeting.
More stimulus packages would doubtless emerge but do not expect more.
The big story that the CNBC’s of the world are conspicuously under-covering is the slow motion meltdown of California.
More than $3B in registered warrants are now floating around. The SEC and state treasurer are attempting to suppress the black market in these “municipal debt securities.”
The treasurer asked the five big banks to continue accepting these questionable instruments, four refused; however partially nationalized Citi has complied, extending their acceptance for another week.
Now California counties are considering following suit and issuing their own warrants. Under U.S. law a state cannot technically go bankrupt, but a rose by any other name…
Disinterested Observer
July 11, 2009 at 9:52 am