The market's one eye overseas
One can debate reasons for the equity market's two month run. Here there's a vote for regulatory changes made in early March. Another vote here as well for the fact that the market was just so radically oversold that trying out a rally, and seeing if it fit, was inevitable. Some think that the whole "stress test" business was important, from planning the discipline of the review to publishing the relatively reassuring results, but from this perspective that was mostly irrelevant as long as they didn't conclude that wholesale nationalization was required. There are many that point to the slowing pace of negative news, as an example 500,000 or so job losses in a month versus 600,000 plus the month before or the beginnings of life in parts of the residential housing market. Maybe, but job losses are still huge and foreclosures represent half, that's half, of all sold houses in the last reported month.
So we can debate all of this within the U.S. market, but bigger and more powerful events are taking place beyond our borders. The market is surely watching and reacting.
On the positive side China is, so far, managing its way through this downturn better than anyone. They have the reserves to do it and they are using stimulative spending to build, build, build more needed infrastructure, from roads to new and cleaner power plants to water treatment facilities. They don't have our Congress. The stability of China in this challenged environment benefits all of southeast Asia. While political problems had been feared by some as job losses from marginal exporters have been meaningful, that's not been an issue to date. Brazil is another bright spot, a huge emerging market country that has been functioning relatively well due to its significant indigenous consumer products infrastructure and its commodity exports. Both countries are bellweathers for the global economy and both are holding up reasonably well, and have strangely, a few would suggest, been a component of the market's willingness to revive. If either falter, it would be trouble.
On the current negative side, it's obviously Pakistan that's the issue. This is serious. There is a decidedly mixed record of corrupt, unpopular and inefficient governments standing up to insurgencies, no matter how big and powerful the government appears to be. It is an astounding fact, if it is a fact, that this valley that they are fighting over was held by 4000 Taliban fighters, and the government gave in to them. 4000! There was obviously no resistance at all by police or the government, just appeasement and don't miss dinner. Now there is evidence apparently that Al Qaeda as a network is focusing all efforts on Pakistan and its spoiled rich leaders guarded by an army that only is trained to fight India, and only wants to fight India. The odds of near term Taliban success may be minimal as the world will not stand by while these 12th century zealots get control of a nuclear arsenal. That said, Pakistan as the world's sixth most populous country is no Iraq and chaos there would present myriad problems, and that would spill over into the financial markets.
We will watch our markets in New York, London, Euroland, and Tokyo and debate the monetary and economic policies needed with great seriousness. Other areas have the potential to overwhelm this civil discussion.
So we can debate all of this within the U.S. market, but bigger and more powerful events are taking place beyond our borders. The market is surely watching and reacting.
On the positive side China is, so far, managing its way through this downturn better than anyone. They have the reserves to do it and they are using stimulative spending to build, build, build more needed infrastructure, from roads to new and cleaner power plants to water treatment facilities. They don't have our Congress. The stability of China in this challenged environment benefits all of southeast Asia. While political problems had been feared by some as job losses from marginal exporters have been meaningful, that's not been an issue to date. Brazil is another bright spot, a huge emerging market country that has been functioning relatively well due to its significant indigenous consumer products infrastructure and its commodity exports. Both countries are bellweathers for the global economy and both are holding up reasonably well, and have strangely, a few would suggest, been a component of the market's willingness to revive. If either falter, it would be trouble.
On the current negative side, it's obviously Pakistan that's the issue. This is serious. There is a decidedly mixed record of corrupt, unpopular and inefficient governments standing up to insurgencies, no matter how big and powerful the government appears to be. It is an astounding fact, if it is a fact, that this valley that they are fighting over was held by 4000 Taliban fighters, and the government gave in to them. 4000! There was obviously no resistance at all by police or the government, just appeasement and don't miss dinner. Now there is evidence apparently that Al Qaeda as a network is focusing all efforts on Pakistan and its spoiled rich leaders guarded by an army that only is trained to fight India, and only wants to fight India. The odds of near term Taliban success may be minimal as the world will not stand by while these 12th century zealots get control of a nuclear arsenal. That said, Pakistan as the world's sixth most populous country is no Iraq and chaos there would present myriad problems, and that would spill over into the financial markets.
We will watch our markets in New York, London, Euroland, and Tokyo and debate the monetary and economic policies needed with great seriousness. Other areas have the potential to overwhelm this civil discussion.
posted by John Borden at 12:37 PM
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