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.

Comments

Post a Comment

Popular posts from this blog

Ok so I lied...a little (revised)

When we began looking at farming in 2013/14 as something we both wanted to do as a "second career" we invested time and money to understand what sector of farming was profitable.  A few things emerged, First, high-quality, source-proven, organic farm products consistently have much higher profit margins.  Secondly, transformation accounted for nearly 80% of total profits, and production and distribution accounted for 20% of profits: Farmers and retailers have low profit margins and the middle bits make all the money. A profitable farm operation needs to be involved in the transformation of its produce.  The low-hanging fruits: cheese and butter.  Milk, generates a profit margin of 5% to 8%, depending on milk quality.  Transformed into cheese and butter, and the profit margin rises to 40% (Taking into account all costs).  Second:  20% of a steer carcass is ground beef quality.  The price is low, because (a) a high percentage of the carcass, and (b)...
Post a Comment
Read more

Spray painting Taylor Swift G650 aircraft (updated)

 First, a bit of paint will not harm anyone.  These climate activities are going to learn two things in the next few days:  (1) Trespassing at an airport is a felony almost anywhere in the world.  That means criminal prosecution.   (2) removing paint from an aircraft is expensive.   So these climate activists are about to find out the reach of the British criminal system and it will not be pleasant, the UK has very strict laws about that, I would be surprised if cleaning the aircraft of all the paint will cost less than $100,000.     I am sure that when they planned (premeditation) this little show they had a very valid logic to doing this.  Tonight, they are probably realizing the depth of their troubles.   I understand that in the UK it's a minimum one-year jail sentence.    Also, good luck travelling with a criminal trespass charge against you.  I am relatively certain that the airline industry will ...
Post a Comment
Read more

Janet Yellen from China supporter to Hawk...

There is rarely serious news in the world these days, it seems that most newspapers are filled with headlines and little else, and then Ms Yellen went to China.  Secretary Yellen has long been known in the Biden administration as the voice of moderation when dealing with China, yet as her trip which concluded yesterday a hawk was born:  She warned the Chinese against dumping goods in the United States.    fighting words! The American administration is very concerned about the lack of Chinese domestic consumption.   Even before the COVID-19 epidemic, there were already the beginning signs of a slowdown, automobile sales were off.   China is facing domestic deflation (a clear sign of collapsing demand) China imports few consumer goods, they import raw materials and intermediary goods.   It seems that the American administration is concerned that the Chinese administration will dump consumer goods abroad to keep its manufacturing machinery ...
Post a Comment
Read more