Skip to main content

Why are markets so depressed?

The truth is that earnings have been very good (both in the US and in Canada), sales in the 3rd quarter (reported) have been softer than their profits (which exceeded expectation -- they always do) but the real kicker has been guidance -- where North American companies look at the future and don't see anything good. On the retail front one has to wonder, with Black Friday sales already in full swing --- a few days earlier than usual.  What is strange is that for America at least, the consumer has been pulling the economy, with savings falling to fund consumption.  But there is a bad feeling in the air!

The gloom is based on a perception maybe that there are some big events out there -- but on the North American front there is nothing really threatening until after the election (Nov 2012) in fact any automatic budget cuts in the US federal budget will not take place before 2013 -- almost two years from now.  Europe has only limited impact on North America -- since few of our good go there anyway (Europe is a big, closed economy -- as for as North America is concerned). Still unease rules!

Now don't get me wrong I am not personally bullish on stocks, I've actually been out of the market for several weeks now. As a Canadian things are looking good, oil prices are around the $93-97/bbl range, although zinc and copper prices are off their high, they are still in a "good place" for Canada's exporters.  Gold prices are not moving much, but its still around $1,700/oz -- hardly a depressed level.

What is threatening is a "end of empire" feel to the the global economy.  A few weeks ago a graph (here) showed the level of OECD countries overall debt burden, Canada was the lowest but hardly a star performer.  Kyle Bass was on British TV last week, explaining that the reality that is Europe is unsustainable. In the past the outcome as ALWAYS been the same -- sovereign default, why would this time be different?  Maybe that's the problem; everyone who is informed knows that this problem has only one outcome -- default, and the worry now is that with the excessive bank leverage the risk of contagion across the globe is massive.

I've said it before, when one banks has $5 trillion of derivative gross exposure, it doesn't take much, in a crisis situation, to cause terminal damage!  A few weeks ago MF Global went bust, where now $1.2 billion in client segregated cash has disappeared without a trace!  Rumors are that the EU authorities are working with Switzerland to force repatriate Eur 60 billion in cash that Greeks have "stashed away".  Safe harbors are difficult to find in these situations.  As one commentator mentioned earlier this week:  The sale of mattresses is bound to rise as a way of storing cash!
After a 1.7% correction yesterday in North America (around 4% in Europe) one would expect a pull back! Not really, markets are flat this morning.


Popular posts from this blog

Trucker shortage? No a plan to allow driverless rigs

There are still articles on how America is running out of truckers -- and that its a huge problem, except its not a problem, if it was a problem salaries would rise to so that demand would clear. Trucking is one of those industry where the vast majority of participants are owner/operators and therefore free agents.

Salaries and cost are extremely well know, "industry" complains that there are not enough truckers, yet wages continue to fall... Therefore there are still too many truckers around, for if there was a shortage of supply prices would rise, and they don't.

What there is though is something different; there is a push to allow automatic rigs to "operate across the US", so to encourage the various authorities to allow self driving rigs you talk shortage and hope that politicians decided that "Well if people don't want to work, lets get robots to do the work" or words to that effect.

This has nothing to do with shortage of drivers, but every…

Every punter says oil prices are on the rise: Oil hits $48/bbl -- lowest since September 2016

What the hell?

How could this be, punters, advisors, investment bankers all agreed commodity prices  in general and oil prices in particular are on the rise...its a brave new era for producers and exporters -- finally the world is back and demand is going through the roof, except not so much!

What happened?  Well energy is complicated, the world operates in a balance -- 30 days of physical reserves is about all we've got (seriously) this is a just in time business.  So the long term trend always gets hit by short term variations.

Global production over the past 12 months has risen by somewhat less than 1.5% per annum.  As the world market changes production becomes less energy intensive (maybe), but the reality is that the world is growing more slowly -- America Q4 GDP growth was around 1.9% (annualized) Europe is going nowhere fast (the GDP growth in Germany is overshadowed by the lack of growth in France, Italy, Spain (lets say 27 Euro members generated a total GDP growth of 1.2…

Paying for research

This morning I was reading that CLSA -- since 2013 proudly owned by CITIC -- was shutting down its American equity research department -- 90 people will be affected!

Now the value of a lot of research is limited, that is not to say that all research is bad. In fact, I remember that GS's Asia Aerospace research was considered the bible for the sector.  Granted, there was little you could do with the research since the "buy" was for Chinese airlines...that were state owned.  Still it was a vey valuable tool in understanding the local dynamics.  It seems that the US has introduced new legislation that forces brokers to "sell" their research services!  Figures of $10,000 an hour have been mentioned...

Now, research can be sold many times; if GS has 5000/6000 clients they may sell the same research 300x or 400x (I exaggerate) but this is the key -- Those who buy the research are, I presume, prohibited from giving it away or selling it, at the same time the same rese…