BY JOHN WARD
It’s hard to see anything more than more of the same
The great thing about Sundays once the kids quit the nest is that it can revert to being a time for cool reflection. I include this next chart not to be a wiseass (I am that man, after all, who hung onto bear notes for a year too long) but to act as an antidote to the denialist bollocks we’ve been getting from the 3% for the last three weeks. It looks at what has happened to the FTSE index since its peak in early May 2015:
The drop between then and now is from 7080 to 5400 – a plunge of nearly 24%, or just over a quarter. Many commentators haven’t noticed, but that’s actually a sharper fall than the Shanghai composite has suffered.
I removed my SIPP pension from market exposure last March; add to that a bit of pension trust bank account interest, and I’m 25% better off in terms of drawdown income than I was a year ago.
Thinking of the above as a seismograph, the correction to bear market (blamed on China) began last August; this year so far – just six weeks in – we’ve had three further corrections (blamed first on China, then on an oil glut, then on stupidity) which almost exactly doubled the correction. But even before August (with no China data on the radar) the trend was downwards.
The one-liner here is small drops, medium rallies, huge shock, medium rally, medium shocks, medium rallies.
Following Yellen’s Fed evidence – and with some good tech and blue-chip results – Friday began another rally. I think my interpretation fits the facts better than the Davos Dancers, in that
- The oil glut story is only a half-truth; as I showed 11 days ago, there is bigtime storage going on both pre and post refinement. Demand for oil has been falling since mid December. World trade has been off for nearly a year.
- Bank stocks are dragging the indices further down. After 2008, the markets no longer fall for the banker balm about solidity and capitalisation. I don’t call this stupidity, I call it wising up.
- It’s now obvious to traders and analysts that the Central Banks, having run out of ideas, are into ‘one more heave’ mode in the shape of negative interest rates. Markets are nervous because monetarist tricks haven’t worked, and there are no further tricks up the conjuror’s sleeve. Nirp, they feel, is a mad idea….and probably unconstitutional in the US.
So, what would one expect to happen next? My gut-feel common sense says that, with no more intervention and nerve-stroking due now until March 10th – and no credible good news on the horizon – nerves based on profound doubt will continue. My sense is that what they doubt is the fitness for purpose of monetarism…but I could be wrong: at the minute, the doubt is being – openly at last – expressed as “seems like the Fed has run out of ammo”.
OK, now let’s assess what the bad news might be.
First stop, ClubMed. There are bond spikes popping through the terrain again – most noticeably in Portugal, but also in Greece and Italy. Predictably, this is being blamed on valotivvedee again, but there’s more to it than that. As I’ve been wittering on about for 18 months or more, when the Italian Fibbing and Banking scandal breaks properly, all Hell will break loose….and austerity – another dimension of BB and Berlin monetarism – has left Greece a shamefully overtaxed disaster area.
Portugal is small but more interesting. Investors were shaken by the Novo Banco bail-in – and wary of the Government’s inability to sell it. Its ties to Brazil are another concern; and the controversial 2016 budget – submitted over three months late to the EC – reversed public wage cuts implemented by its Troika-poked predecessors. The word in Brussels is that the budget only just squeaked through….and Dijesselbloem is already saying it “needs to be tightened”. Jeroan does not, however, seem to have grasped that his policies halved th expected growth in Portugal last year. But such is only to be expected, as the man looks and sounds like a sociopathic version of Mr Bean.
Next, the Shanghai reopens later tonight. After the gungeefachoi break, will the traders – back at their desks after ten days – do what the West did after its New Year…that is, suffer eyes minus scales syndrome? Well, off-piste the Shangheisters are buying every ounce of gold they can lay their severely burned fingers on. This does not suggest a surge in confidence about equities.
Oddly enough, both the US and Canada are closed tomorrow…so if China starts to panic, things could get interesting on Tuesday in New York.
I leave you to your Sunday lunches with two final (and to me, significant) signs of real market sentiment.
First, Gold is looking bullish again, and this time the optimism looks more settled than at any time since 2013. This is the latest 30-day chart:
As for the real thing, there seems little doubt among the US, UK and Asian retailers that the stuff is flying off the shelves. So one big fundamental seems to be returning…with potentially disastrous results for stock markets if a real gold-rush starts.
And finally, you may have noticed the banker excuses being dusted off and readied last week: regulation has starved us of capital, Zirp is killing us, but fear ye not because we have complied, lowered our leverage ratios and as for complex derivatives, haha, what complex derivatives?
If ever there was a clincher about things being mammories skywards, that one is it.