Five-month high for US stocks a market top?
Posted on 11 January 2012 with no comments from readers
US stocks hit a five-month high yesterday but without great euphoria among investors, despite a poor result from Alcoa, the first major to report. In China a shrinking of imports and exports was read as good news for another bailout. Stocks saw that as positive for speculation and went up.
At the same time came a string of profit warnings from Europe. And investment banks are saying they may freeze salaries this year. None of this looks particularly bullish.
No QE3?
For the US the reverse of the China stimulus argument applies: if the economy is progressing with unemployment falling and consumers spending then QE3 is not required. No monetary stimulus is bad news for a stock market that has it priced in.
However, the real reason for the optimism on Wall Street is the absence of fresh bad news from the eurozone crisis. Perilously high yields on Italian and Spanish bonds are being treated as though that might be the end of the story.
That looks a rather foolish basis for investment in today’s market. For the past two years the eurozone sovereign debt crisis has only ever gone quiet for shortish periods and then always returned with a vengeance.
There is nothing on the table to suggest that has changed. Rating agency Fitch used weasel words in saying yesterday that France would keep its triple-A rating unless something major happened. Spot the get out clause!
Refinancing of bonds due in 2012 is so large that the figures run to the trillions of dollars and become somewhat meaningless. It is very easy to grasp the price of a MacDonalds hamburger, not to conceptualized a sum of money equivalent to the annual GDP of the UK.
Bored to death
For the moment the markets are focused on hamburgers and not the rather boring and seemingly endless eurozone sovereign debt crisis. Once attention again turns to the only real show in town then we will see another plunge down.
How long will that take? Well the experience of the past two years is that these things are usually about to happen just as you speak of the possibility.
Those guys waiting in the trading pit and staring at the screens will not have long to wait. Only then will we see QE3.
