It is difficult to think straight just at the moment as markets continue to tumble across the globe. The continued destruction of wealth on such a grand scale seems to be feeding on itself and investors are desperately looking for silver linings in an increasingly black storm.
As feared in yesterday’s early morning comment the continued desperate news flow hit an already demoralised market and we finally fell below the low prints in the FTSE recorded in last October’s dramatic events. It may come as some surprise to readers (listening to the ever more strident financial news) that Equity prices were actually down here just five months ago (albeit very briefly). The bounce, back then, took us almost a thousand points higher all the way up to 4635. Unfortunately no such saviour is expected just now, Our Gordon is unlikely to say that he has saved the economy/world/universe this time around. At the moment our lords and masters seem more intent with pillorying one person than trying to find a way out of the mess that we find ourselves in.
AIG has managed to report a $61.7 bln loss for the last quarter (as one journalist helpfully pointed out, $670m a day!) making RBS look positively pedestrian with its miserly £24 bln sea of red. One company in the US has now taken up $180 bln of the Federal aid package and this is in real money not just loan guarantees. If some of the big financial institutions follow with similar numbers President Obama’s one trillion infection might be swallowed without a blink. At some point all of this money will have to be borrowed in the open markets and just at the moment it is difficult to see who has the spare cash available to buy. With Oil at around 40 bucks and exports from Japan, Thailand and China in freefall the various sovereign wealth funds, normally relied on to buy huge chunks of western debt, may have enough problems of their own on the domestic front to worry about diverting money into Gilts, Bunds and US Treasuries. But that is a problem for another day.
This morning sees a minor bounce in the markets from the late night lows in the indices yesterday as a very rare piece of good news hit the wires with JP Morgan reporting a 5 billion profit for 2008. As competitors fall by the wayside and investors begin to understand that the bank has (to a large extent) avoided the disasters of its peers more and more business is gravitating to their books. A flight to quality is being seen with counterparties looking to avoid Citi, BOA and the old investment banks.
The FTSE is called up about 15 points at 3640 having traded as low as 3580 in last nights after hours activity. Clients continue (as mentioned yesterday) to try to pick a bottom and have been almost incessant buyers for most of the fall over the last week. Words of caution seem to fall on deaf ears. The belief of “it must bounce sometime” has almost become a mantra, unfortunately the rather more accurate saying of “the market will move in the direction which causes the greatest amount of pain to the greatest number of people” has proved its worth once again.
The FTSE is now at its lowest point since 2003 when our company opened its doors for business and while I am also of the opinion that the market must bounce sometime I am not willing to commit more than a very small sum to that belief. Bear markets generally end with a huge blow out move as the last bull is finally slaughtered and then the entire index runs out of sellers. Are we there yet? Probably not. But you never know!
Sterling ran into another selling frenzy yesterday taking the Cable cross below 1.40 for the first time since January. Once again there does seem to be some interest below 1.4150 from the markets but this time it was not enough to hold us up and this morning’s action taking us up to 1.4145 before slumping quickly back down to 1.4070 shows that what was support has now turned into resistance. Short term traders will now be watching the level for signs of further resistance (to sell into) or evidence of a break through (to buy into).
The dollar seems to be having a pause for breath versus the Yen having moved from 87.00 (mid Jan) to over 98.50 in February but is still looking solid at 97.65-97.67 this morning. There is probably some covert BOJ selling of Yen going on as valuations below 100 are pretty ruinous for their exporting base.
As feared in yesterday’s comment Gold could not retain its attraction even though the indices were in freefall. The belief that Gold will rally as other assets fall has been its prop for quite some time BUT if this argument begins to fade then there is a long, long way to the down side. Bulls really, really need a swift and successful attempt at the $1000 level otherwise the weight of longs in the market may drive us down (as happened with Oil).
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