Still looking for rock bottom in markets

Hong Kong container traffic slumped 28 per cent in January, car sales across Europe fell by 27 per cent, these are critical trade depression indicators. Equity markets have weakened but not retested the lows of late last year, while gold is on the way up yet not above $1,000 an ounce.

Oil prices touched the low 30s last week. Talk of US house prices bottoming out by the end of the year excited some comment. But really the problem is that we can not see light at the end of this tunnel.

That is what you might expect to see, or not to see, at the moment of maximum pessimism – the proverbial dark before the dawn. And yet the spark of optimism about the future is still missing.

Obamanomics

The Obama administration failed to convince markets that its stimulus plan was going to be effective last week. The new president seems more interested in flying in his ’spiffy’ new aircraft – a rather larger one than Citibank has just sent back – and playing basketball.

If nothing else there is a sense that time is being lost, and the new team is a group of outsiders whose competence is open to question, not that the previous incumbents fared much better.

There is also a more fatalist school. For them the seeds of destruction were sown ages ago and this is the harvest. It is indeed hard to imagine any measures that could offer an instant reversal of the economic crisis at this stage. It is going to have to be worked through.

How long will that take? Pimco reckons there will be a second round of the financial crisis because US house prices are still falling, and that will keep the pressure on bank balance sheets.

Stock pressure

Is the market already discounting this? It does not seem so. Analysts’ profit forecasts still look too optimistic in a year that will surely mean big losses for most major companies, and thus stocks should fall further.

Oil could well hit its long term average price of $24 a barrel before rebounding, and the fate of the US dollar is linked to the crisis in euroland which makes the dollar a safe haven.

Only gold and silver seem to have a bright future as the flight to safe havens will continue, and as soon as the bond market comes under pressure the drift into precious metals will become a flood. Perhaps we should wait for a spike in gold and silver prices to mark the bottom.
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