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Jon Markman's Speculations
May 22, 2010, 12:03 a.m. EDT · Recommend (3) · Post:
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Greek bailout makes no sense in any language
First Take "º
Tesla beckons to the true believers
By Jon Markman
SEATTLE (MarketWatch) -- Stocks traded over the past week with all the panache of the drunk uncle at a shotgun wedding, stumbling through four and a half weak-kneed sessions before snapping to attention at last call in the final half hour.
The concept of a random walk doesn't really do the week justice, as the selling virus that started in China and Greece last month suddenly developed into a worldwide pandemic that saw the major developed markets lose more than 7% and emerging markets lose 10%-plus.
The multidecade bull market could have a classic last phase with a rush into gold in a "paper-chase trade," according to Damien and Derek Hoffman of the finance blog Wall St. Cheat Sheet. David Weidner reports.
It was a global margin call, and no risky asset classes were spared a scrape with the capital-eroding bug. The weird thing, though, is that there really weren't any especially nasty headlines this week. The U.S. economic news wasn't red-hot, but markets have blithely cold-shouldered much worse in the past 12 months. So what's really going on? A few thoughts spring to mind:
Remember how last year stocks rose and rose out of the March low even though the economy looked terrible? At that time, a lot of experts were saying it was just a bear-market rally and that the public should not get involved. Then it turned out that stocks were rising because they were anticipating an improved economy in six months. Well now the opposite is occurring. Stocks fell even though the economy looks great. And the inverse of the prior explanation might be a legit reason: Investors are anticipating a worse economy in the next 12 months. If you think about how much taxpayer money is going to service interest payments now instead of creating productive assets, this is not an unreasonable concern.
Remember how last year the G20 leadership huddled in London and came up with a firm plan to attack the financial crisis in a coordinated fashion? And then they stuck to their scripts, all flooding their countries with fiscal spending and ultra-low interest rates. I said many times last year that the unanimity was amazing and unprecedented, like cats and dogs sleeping together. Well now again we have the opposite. German finance officials declare an end to short-selling of bonds and credit default swaps without telling the rest of their European Union partners. And then we learn that the British, Italian and U.S. finance officials plan no such move -- and moreover U.K. officials essentially say that if you want to short German bonds you are welcome to do so in London.
And of course we have never gotten a straight answer out of the euro zone as to which countries support the $1 trillion rescue package for Greece, or exactly how it will be financed. And don't forget that while interest rates are still scraping along at 300-year lows in the United States and the U.K., China and Australia are either raising rates or increasing bank reserve requirements.
Data: FactSet Research Systems Global stock shakeout: Stock markets around the world have fallen sharply from recent highs.
In short we've gone from total global lockstep approach to battling the global financial crisis to every man for himself. One minute it's all "kumbaya" and the next minute it's all chaos theory.
The importance of this is that the variation in approaches have allowed the credit bears to worm their way into the chinks in the governments' armor and arbitrage the differences. You could even go so far as to say that we're seeing a revival of the "manipulated short sale" first invented by the likes of Daniel Drew in the 1830s America, where bears spread lies and fear in such a way that their enemies start accusing each other of wrongdoing instead of focusing on their jobs.
The repricing of expected risk and expected return is occurring in a step-wise fashion rather than in a long, slow glidepath.
Global Dow
That is to say, rather than price/earnings multiples for the likes of IBM and Boeing declining over many months to account for tighter business opportunities in a slowed-down Europe, now the global financial system decides to get it done all at once. One day you're priced for certain 15% growth and the next day you're priced for a more uncertain 12% growth. Big drug makers like Pfizer have been stuck in this devaluation trend for 10 years.
The Silicon Valley maker of electric cars whose hot-rod Roadster has tickled the fancy of every well-heeled geek on the road, plans to go public. Someday.
3:09 p.m. May 21, 2010 | Comments: 71
- jmv1 | 12:30 a.m. Today12:30 a.m. May 22, 2010
"Commentary: BP's Hayward is haywired on spill, er, leak http://bit.ly/dvk6Cn" 5:24 p.m. EDT, May 21, 2010 from MarketWatch
"Obama seeks fuel-efficiency increase for trucks http://bit.ly/beE75W" 4:40 p.m. EDT, May 21, 2010 from MarketWatch
"Steps to a higher credit score can be mystifying http://bit.ly/ayDqIx" 3:34 p.m. EDT, May 21, 2010 from MarketWatch
"Dow gains 125 points Friday, trimming weekly loss to 4% http://on.mktw.net/af5NJ3" 3:06 p.m. EDT, May 21, 2010 from MarketWatch
"Financials help support stocks; indexes head for week drop http://bit.ly/caXgUS" 3:03 p.m. EDT, May 21, 2010 from MarketWatch
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