Came down with fever in the middle of last week and am on a course of anti-biotics – fortunately its not the H1N1 flu. I received so many sms’ and telephone calls today, that I felt had to write something on my Blog.
Over the last week, I have noticed stock markets globally exhibiting a very strong and firm undertone as they have discounted much of the bad news released in recent weeks which included:
a) global stock markets have ignored the H1N1 flu altogether even as the number of cases continue to rise.
b) Markets took in their stride the delay in US bank stress tests results by two days as banks dispute the findings. The latter probably means the some if not many of the 17 banks need additional capital
c) Chrysler files for bankruptcy
d) GM is about to file for bankruptcy
Think the bounce from the March 9, 2009 low was expected…..it was just that the magnitude of the rebound where opinions varied. This bounce however now doesn’t seem to want to correct leading many to believe that the worst is over and markets won’t test the March 9, 2009 lows again, ie they have bottomed.
Interestingly this feel good feeling is flowing from the stock market into the real economy with the firming of asset prices for property and golf club memberships. Does this signal a change, ie that investors who were sidelined start to believe that the worse is over and put their surplus capital back into stock markets ???
I have been asking mutual fund, hedge fund and even brokers on what is happening in the market and whether there has been a change to become more bullish.
The main comment is that everyone is surprised by the strength of the rally – so don’t feel so bad if you took profit early and tried to short the market – you are probably not alone. The second comment explaining the rally was that interest rates were low which has prompted money into high yielding assets such as equities. The third comment which to me is the most important is that the rally was triggered by a recovery in economic data for March and April which seemed to signal that the economies had bottomed and that the worse.
This is where the fund managers and myself are still not sure, ie is the recovery in March and April real or just a small bounce off a very terrible December 2008 and January 2009. There is a recovery but is this from a real increase in demand or from a restocking of inventory. Too early to tell and even if there is a recovery, its likely to be modest once inventories have been rebuilt because Global demand is still weak and unemployment is still rising. Read more…