Desperate complacency over global stock markets
Posted on 19 April 2010 with 2 comments from readers
An absurd complacency has settled over global stock markets just as the edge of the cliff looms with no less than three major stock reversal events.
First, we have the SEC suing Goldman for wrong selling subprime loans. How many more such cases are to come? The European Commission is already uttering loudly about Greece.
Political statement
Moreover, this is clearly a political move to take Goldman down a peg. The comments from many quarters that the US is really run by Goldman Sachs do not please democratic politicians or their agents. This smacks of Standard Oil and John D. Rockerfeller 100 years ago.
Secondly, there is the volcanic dust that has downed planes over Europe for several days. It might last months apparently. Also apart from the airlines there is the knock on impact on many other trades, like perishable foods and then insurance. At the very least this merits a stock market correction.
Thirdly, the UK General Election threatens to leave the world’s sixth or seventh largest economy in turmoil without a coherent government. Polls at the weekend put the third party in front for the first time in 104 years. Given London’s importance to global finance this is very significant.
Besides is not the rally from March 2009 long overdue a correction? It has not fallen more than 10 per cent in all those months. The problem is that the longer a rally continues the more shorts are squeezed out and naysayers made to look foolish. But that does not mean that gravity will take its course.
Timely action
Indeed, the attack on Goldman Sachs is no accident. It is surely timed to take the wind out of this stock market bubble and return share valuations to something more consistent with the outlook.
If anybody is in any doubt what the outlook might be then refer to the book ‘This Time is Different’ as reviewed recently on this website. For after financial crises there is never a quick recovery. It is always a long process.
The pattern for stocks is therefore a big fall followed by a big rally and then a see-saw of market volatility. We should therefore not be surprised if it proves to be no different this time.
2 Comments posted by readers:
I don’t agree with the assessment that the timing on GS is to take the wind out of the markets sails.
Anyone who is in tune with the general sentiment of the US population will know that it is seething with rage at the financial community for its monstrously unethical manipulation of markets and products.
Furthermore there is no longer any trust in government as a recent Pew survey showed that only 22% of the population trust the Federal Govt. 43% mentioned that Government had a negative impact on their lives.
The Democrats had to do something because the mid-term elections for Congress will happen in November of this year, and thus far the Obama administration has done nothing to change the financial regulatory apparatus that has been systematically dismantled over the past 30 years (since Ronald Reagan).
We all know how no regulation played out. If Obama and the Dems don’t want a blood-bath in November they have to look like they are doing something. Maybe they will take advantage of this opportunity and do something significant instead of just window dressing. We sure could use a cleaned up financial system in the US.
If they don’t come through with anything meaningful, this voter (and I suspect many others) will be voting all incumbent politicians out of office in November.
In the USA, we are all Independents now. The Dems & Repubs have failed us miserably.
If the Almighty has a sense of humour then the balance of power, after the UK general election, will be held by George Galloway and the Respect party.