A much needed boost but...
August 20th 2007 10:20
A weekend to digest the Feds discount rate move and following last week positive leads from the US markets, sharemarkets of the Asia-Pacific Region rallied to one of the highest one day gain in nine years.
The surge is a respite from the gloom over the past few weeks, and restored some confidence to investors. But the positive performance is too early to tell that the mess is over. In fact, does it warrant for one?
Analysts and investors however remain on guard for more negative news that could be expected. Dr. Enzio von Pfeil of Enzio's Clock is one of the major skeptics to the move by the Feds on Friday that it could uplift the market.
His reasons:
'So why are we skeptical? As The Economist expressed so clearly in its 18th August 2007 issue, p. 9, "Surviving the markets" (I have italicized and put the bullet points in for greater clarity):
Because this crisis taps so deeply into the newly devised structures of finance, anyone who says the worst is definitely over is either a fool or someone with a position to protect. As risk has become bewilderingly dispersed, so too has information.
• Nobody yet knows who will bear what losses from mortgages - because nobody can be sure what those loans are really worth.
• Nobody knows if tighter lending standards will oblige borrowers to raise more capital, triggering more sales in stock markets and more pain.
• Nobody knows how messy the inevitable bankruptcies will turn out to be.
What markets need now is time to piece that information back together. Time before the next wave strikes.
Crucially, the next wave will be even tighter credit markets. As one bright trader put it: the transmission mechanism has broken down. Banks may have ample funds - but they are suspicious of each other. Nobody is lending, and that is going to pervade the economy.
Thus, even if the Fed has lowered the rates that it charges when lending to banks so that they can replenish their required reserves at the Fed - that is really not the issue. The issue is that banks don't want to lend. Period. Have you ever counted the number of petunias in a desert? The number is low: there is no water!
So forget bargain hunting in Asia. While The Economic Time™ is generally excellent outside of Japan, don't risk your money. "De-coupling" is a fairy tale of fools - until the market has moved out of denial. shall we say at this early stage, perhaps in November?'
The surge is a respite from the gloom over the past few weeks, and restored some confidence to investors. But the positive performance is too early to tell that the mess is over. In fact, does it warrant for one?
Analysts and investors however remain on guard for more negative news that could be expected. Dr. Enzio von Pfeil of Enzio's Clock is one of the major skeptics to the move by the Feds on Friday that it could uplift the market.
His reasons:
'So why are we skeptical? As The Economist expressed so clearly in its 18th August 2007 issue, p. 9, "Surviving the markets" (I have italicized and put the bullet points in for greater clarity):
Because this crisis taps so deeply into the newly devised structures of finance, anyone who says the worst is definitely over is either a fool or someone with a position to protect. As risk has become bewilderingly dispersed, so too has information.
• Nobody yet knows who will bear what losses from mortgages - because nobody can be sure what those loans are really worth.
• Nobody knows if tighter lending standards will oblige borrowers to raise more capital, triggering more sales in stock markets and more pain.
• Nobody knows how messy the inevitable bankruptcies will turn out to be.
What markets need now is time to piece that information back together. Time before the next wave strikes.
Crucially, the next wave will be even tighter credit markets. As one bright trader put it: the transmission mechanism has broken down. Banks may have ample funds - but they are suspicious of each other. Nobody is lending, and that is going to pervade the economy.
Thus, even if the Fed has lowered the rates that it charges when lending to banks so that they can replenish their required reserves at the Fed - that is really not the issue. The issue is that banks don't want to lend. Period. Have you ever counted the number of petunias in a desert? The number is low: there is no water!
So forget bargain hunting in Asia. While The Economic Time™ is generally excellent outside of Japan, don't risk your money. "De-coupling" is a fairy tale of fools - until the market has moved out of denial. shall we say at this early stage, perhaps in November?'
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