Time for another volatile lurch in global financial markets?
Posted on 15 November 2011 with 3 comments from readers
Unless you have been living on another planet for the past few months any investor will have noted the increased volatility in financial markets. It’s been dramatic and has caught out some old hands as well as the young traders in the pit. Nerves are frayed and fortunes diminished.
Yet there is a pattern to this with the major markets trading up in double figures and then heading down by the same amount and then vice versa. If we are to expect more of the same then far from a Santa Claus rally this year we should see another sell-off.
More trouble
Stocks have recovered from their September rout and are looking vulnerable to another downswing. The eurozone crisis that fails to get fixed is the immediate cause.
Yields on Spanish and Italian debt shot up again yesterday. This crisis is in such slow motion that the market struggles to understand what is going on and constantly misjudges it, hence becoming volatile when its judgement is wrong yet again.
At the end of last week a few bolder pundits reckoned Europe was getting its act together by removing two prime ministers. If only it was that simple.
Back to reality this week and markets note that there is no effective back-stop to the eurozone debt crisis. The stability fund is too small and already finding it tough to borrow in the markets. In effect bond traders are just treating its paper as almost as toxic as those of the countries that support it.
Debt trap
And without any recourse to real eurobonds that is the correct judgement. So the remorseless upward shift in the cost of debt in Europe will continue, snuffing out the GDP growth required to service this debt. Combine that with austerity measures and the downward pressure on GDP is severe and market bets on armageddon become self-fulfilling.
So we get another volatile downswing in financial markets. The risk each time this happens is that the downtrend turns into a crash. That will happen when the eurozone countries finally fail to come up with a large enough sticking plaster to stem the flow of blood.
And the really worrying thing is that nobody seems even close to coming up with a major operation to close this wound. It is just going to carry on getting bigger and bigger until it becomes life threatening.
3 Comments posted by readers:
It seems to me that the stock market dealers are living on another planet!
Why don’t pension and insurance fund managers pass at least some of their wealth into gold and push the price up very high? Instead, the pension fund managers give less and less to the ordinary pensioners, and the insurance fund managers charge us more and more for insurance.
And all the while, they stay where the crash will occur, risking everything!
On another planet!
Some German big wig just just said that the ECB should act as the lender of last resort. ALL open stock markets instantly reversed their downward slide as soon as they heard the news that Germany had started to crack. Inflationary money printing is on the way. The only question is when. No way the billionaires who control all Western governments are going to sit around and watch the revolution start after the economic system disintegrates. Losing a fraction of their vast wealth from inflation beats that outcome, any day.
I was looking at all the little graphs on the MarketWatch site. Check out how every index in Europe turned at the same time as the news came over the wires.
The Ed’s operative sentence:
“And the really worrying thing is that nobody seems even close to coming up with a major operation to close this wound.”
I heard a good one today about the big 26,000 MT cargo ship that suddenly sank in a severe storm over the US Great Lakes back in 1975; they said that ship would never sink.
Link: http://cimss.ssec.wisc.edu/wxwise/fitz.html
The analogy here is that maybe, just maybe, we’ll all wake up one day in the near future, only to find that Europe is totally broken, European banks have closed, and have declared bankruptcy, and nobody in Europe knows what to do . . .
So yes, in Euroland, major surgery is required, but who is going to perform the surgery, when the unelected officials at the ECB/EU/IMF troika & the “elected” Euro leaders are clueless?