So now we ask the question. If a tree falls and there was nobody to hear it, did it make a noise?
Last night the FTSE futures fell to a cash equivalent of 3685 some 200 points off the 4.30 close but in the bright new dawn we are now almost unchanged at around 3875. Was I dreaming or did the American markets really hit new 11 year lows last night?
The S&P is now almost exactly 50pc from the highs of October ‘07. For those of you who think that investment mangers are actually any good at all at their jobs it is instructive to point out that this high was reached many months after the credit crunch began! After Northern Rock imploded, and after house prices (a lagging indicator’s lagging indicator if there ever was one) in both the UK and the US had already started to slip.
Traders were left in a state of shock by the close last night with virtually every market slumping throughout the evening session. Markets always need that ‘blow out’ move to trigger the end of any major move and investors will be hoping that this was just such an event. Unfortunately the banking sector has yet again taken a pounding and sorry to say the recovery of the rest of the economy does rather rely on ‘strongish’ banks to get it going. A massively weakened financial sector is not going to be able to lend to anyone which means that any green shoots will probably get mown down.
This morning sees the Dow up almost 300 points the Nikkei rallying strongly and the dollar and yen giving up some ground but the impact is difficult to see in early European market talk as we are (as mentioned) virtually unchanged. It is difficult to get any clear indication of where we are headed but at least the markets seem to be finishing the week off with a bang. A small worry might be the actions of the US when they come in this afternoon as they tend to get very contrary when their markets are moved by outside influences. A three hundred point rally whilst they are tucked up in bed almost qualifies as un-American activity.
The individual bank stocks seem to be finding a little support at these levels and yesterdays fall out in the FTSE managed it without any real help from the banking sector (most investors ire seemed focused on Prudential and the other insurers with a sideline in smashing the miners into the ground as well). Anglo American, Rio, BHP, Kazakhmys etc all hit new lows for the year yesterday and considering that these companies do actually sell a physical product the destruction in valuations seems massively overdone. Divvy yields for companies that are operating well above payment cover can be had for well over 4pc. Which when equated to Bond and Cash yields look very tasty.
Various reporting stocks yesterday moved in the extreme. IG Index reported huge growth with turnover up 45pc, increased profits, but a new bad debt problem. The stock was crushed. This makes absolutely no sense in that the growth is permanent whereas the bad debt is history. Mothercare reported good numbers as well (especially in the current environment) with turnover up 9pc and the stock soared. Funny old world.
Nice to see that Goldmans have now decided that oil might not reach 200 bucks anytime soon having called at the height of the market for a continuation the subsequent slump must have left a few red faces around the office. The speed of retraction (only 100 dollar later, but what’s a ton between friends) has been rather laggardly and we can only hope that the analysts did not manage to persuade his own prop desks that long was the way to go. Now that they have thrown in the towel we might speculate on the law of sod coming to the black stuff’s rescue and a nice rally ensue just to rub salt in the wounds. Readers of this column will be well aware that we were very suspicious of the move over 100 bucks but I am equally nervous about speculation of a fall to the 30 dollar range. The oil producers are about to meet in sunny Cairo and just for once they may actually agree to AND implement a reduction in flow. It is believed that many nations had built 80 dollars a barrel into their spending plans and whilst the short lived move to 147 would have given them a nice little glut of cash there is nothing on earth like a government for immediately spending any surplus funds (except my wife of course) and generally on something that requires continuous expenditure as well. Brent at 49 buck a barrel will be leaving some very large holes in revenue numbers across the globe.
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