The market now appears to be in the midst of it’s 2nd bear market rally. Or is it? Some people are feeling confused.
After the Dow hit another lower low a couple of weeks back the following question occured to me – what level would be seen as the beginnings of the long equity-led road to recovery? Closer inspection of the current toing and froing shows quite uniform reaction to support and resistance levels. The 1st bear market rally died at 9,400 resistance. This week ended with the market breaching the 8,600 level. A move above 9,000 next week would surely mean a worthwhile bet on a move towards 9,400.
The reaction to consumer data next week should be followed closely; a sanguine reaction to the surely inevitable bad news will be taken as a sign the market thinks it has priced in the slowdown, over the Christmas period at least. A negative turn and it’s back on the look out for a lower low, most likely.
The federal government has an $11.32 trillion credit limit, and it’s carrying a balance of $10.66 trillion, according to a Treasury Department spokesman.
The first piece I’ve read that is openly critical of the US’s 2nd bank bailout fund. And I also wondered where the stories on how the automakers cap in hand meeting yesterday with the authorities went, until I seen this! Seems it was more of a roasting session for the fat cats while the authorities wait and see what can be done. The thing about GM when compared to the banks, GM has arguably been dying on it’s feet for years now, so the only thing lawmakers are interested in is risk to a wider economy that is hanging by a thread.
It’s difficult to see an end to this train-wreck cycle at the minute.
Still the markets keep turning and you have to respect the never-say-die attitude of some of the participants.
When I began a grad job at a London Investment Bank, credit derivatives and for the uber finance geeks, securitisation, were all the rage. The Weekend FT was full of embarassingly glowing stories of how the demigods from JP Morgan & Co planned this bright new era of sophisicated and ubiquitous credit while sipping champagne by the pool at Boca Raton. Greenhorn Oxbridge types made weak references to arcane products they likely never fully understood and bandied about all the key terms that hopefully convinced others they could act the part. Not that dissimilar to a traders role in the brokerage houses anyway you might think. That’s true, and as such I use it to gauge the level of complicity amongt the rank and file of the sellside in this credit squeeze.
One conversation I will always remember that for me typifies what went wrong was with a debt markets guy who shall remain nameless. As usual I was giving it the big one about equities in general (I never really got the alleged sexiness of the more exotic debt instruments as it just seemed to be a repackaging of the same boring fixed income cash flows) and he was giving me one of those “you’re just one of those dumb market traders” looks. Obviously that just threw fuel on my fire. But anyway when he was explaining away his debt fetish for selling things off in tranches the following line stood out:
What I like is being able to outsmart someone. I don’t want to take on any risk, so if I can take a product and package it up in such a way I can take a guaranteed cut from it’s sale then that’s the best way to do things.
(Presumably Ex-)Debt Markets guy, circa 2005
So the new kids on the block thought it was cool because it made them feel smart. No one bothered to point out this newfangled method of repackaging was resulting in triple A assets backed by single A backed by junk. A great big house of cards that neither the buy side nor the sell side nor the ratings agencies bothered to question. The deceit was in selling it to the public (via that perennial medium of unquestioning bluster, the press) as an example of everyone’s-a-winner financial magic. But more worrying was the ability of the great & the good in the financial sphere to believe their own hype. You can count on your hand the number of market participants willing to bet against the tide of cheap debt.
Fundamentally it was the willingness of those hired to make important & complex decisions for themselves & the money they were in charge of to shirk that same responsibility in favour of doing the fashionable thing & feeling smug about it, that brought about the situation we find ourselves in.
The markets as a whole most resemble an infinitely large field of sheep. At any one time the sheep can be found grazing or whatever it is they do, in a number of flocks. These flocks pick an area according to several reasons that can be found by the use of confirmatorial bias, however in reality it is a completely arbitrary decision upon which the flock then acts. After a while the patch of grass disappears and it’s time to move on. But the sheep being stubborn don’t move on in an efficient manner; they proceed to kick the arse out of it until they’re feeding off nothing more than their own delusion that here lies a perfectly lush grassy veld. Eventually the flock, disillusioned with finding only assorted tree roots and babies heads, moves off to the next arbitrary stance where the process begins anew.
Catching up on the African agenda, looks like tentative steps to get around the piracy problem have been taken by the West. Hope to do my LC course next year so maybe I’ll get a part of the action at some stage in the future. Frankly I’m surprised it took this long for Royal to get in on the act. While Brigade is out in Ghanners, a landlocked AOR should in theory at least free up 539 Assault Squadron for maritime ops.
And there’s a lot to be done. The Ukranian vessel MV Faina (operating under a Belize flag of convenience) and it’s crew are still being held to ransom. Not to mention their cargo of 33 T-72s bound for South Sudan seemingly under Kenyan patronage (or Ethiopia?). Keep up to date with arms deals here.
Meanwhile it remains to be seen whether Somali pirate activity dies down. Further reports of hijacking attempts on Chinese & Russian vessels are filtering through. And the corporates are sensing blood, with some getting results. There is a deep rooted issue that is lost amid the intrigue & imagery created by the pirates actions. The lack of anything resembling governance coming out of Mogadishu, together with deep-rooted international ambivalence had allowed illegal poaching to run unchecked in Somali coastal waters despite the warnings. The long term solution to piracy is to defend the Somali waters against the poachers, many seemingly of Chinese origin.
With the Islamic Courts Union on the march once more, it’s all happening.
I use Gmail for email. I use Google Talk to chat. Now I am being forced to use Gmail to place a video call.
Perhaps I had better switch from Google Talk to Skype…
Let me explain my reasoning, I use Gmail currently with chat disabled. This improves my browsing performance especially when I have multiple tabs open. The web’s performance these days is bad enough with the proliferation of enormously cpu-intensive and memory leaking flash sites. I cannot run two youtube.com tabs simultaneously without my browser having a heart attack. Until developers like those in charge of Gmail realise the web part of the internet is not for bloated (and highly questionable in terms of usefulness) webapps, my user experience of this part of the net is no longer as smooth and productive as it used to be. And others like me.
And just after posting how much better web based email is compared with SMTP clients too, sigh…
I *love* not having to delete emails. Scanning my gmail is so much quicker than my old work’s outlook, with it’s puny single Gig of space and all those useless powerpoints flying around. That’s the work powerpoints that is. I quite enjoyed the viral ones.
p>
To get my new Africa category off the ground enjoy this FarCry 2 trailer complete with Black Hawk Down’s Bara Bara soundtrack.
On a more serious note, I find it puzzling that after years of virtually ignoring the destruction on a World War scale in the DRC’s various uprisings the BBC last night went with it as their lead story. Likely had more to do with the fact their African correspondent Orla Guerin optained an exclusive interview with the Tutsi rebel leader than a marked change in their coverage of Congolese affairs…
As always, there’s a lot more to this than serial guilt merchants like the BBC can ever hope to convey – I’ll be reading the experts opinion to remain current.
General Motors just hit a 60-year low this week. From a market standpoint, Microsoft may be the modern-day equivalent of General Motors. If Microsoft could go under in 60 years, then what multiple do you assign to its current earnings?
The time value of money is based on the premise we would rather receive a sum of money now rather than at some point in the future. The point Ashbaugh brings up above, is one I’ve always wondered with regards to other assets – how does a long term lease on a property of say 99 years, manage to sell for the same price as a comparable freehold? It is not a given that public companies will go bankrupt, but a leasehold tending to zero is a certainty.
And on the flipside, when will the eventual collapse of world oil supply begin to affect price? Is it fair to say the collapse of the recent oil spike shows us the market is not ready to rationalise this inevitability into pricing yet.
Does the market rely on mass head-in-the-sand behaviour to enable ’smooth’ flow of prices? Long term undeniable facts which would cause widespread price displacement are discounted in favour of historical valuation tools which by definition will not reflect these future realities.
The markets ability to deny the Elephant in the room should not be underestimated.
This Wired article reminded me of a rant I saved as a draft a while back lamenting the inability of traditional media to get the difference between blogging & writing a one-way diary or news channel. What the corporates and media online today call blogging is really a news page that comes with an rss feed. The richness of conversation and interaction largely enabled by blogging features such as trackbacks, etc is lost as generally they are not supported by those merely using blogging as a buzzword to show they are hip with the internets. Even Wired refuses to support trackback.
The flip side is obviously they do not want to fall victim to the myraid of spamsters using blog posts or comments as the new medium of choice. But between them they are sapping the web of an important part of it’s intrinsic value.
Watched Heat again last night. For some reason this time round I was struck by how much the tactics of the robbers in the bank heist scene resembled that of military ‘one foot on the ground’ type movement under fire. Until I read this at imdb:
Lt. Hanna is shown “checking chamber” on his handgun in at least one scene. This is a trademark of the character Nick Stone in a series of novels by Andy McNab, who was technical weapons training adviser on _Heat_ . Although not an uncommon thing to do with a handgun, it is rarely given such visual prominence in films. Also, the crew’s tactics in the bank robbery shootout are notably similar to the “response to enemy fire” tactics featured in the book and film of McNab’s Bravo Two Zero (1999) (TV).
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