In a pickle now?
So today was another weak, or dreadful, day in global equities. It was a selling begets more selling type of day, an extraordinarily volatile day. When does the poisonous mentality stop? That as always is hard to predict. A few days is enough one could reasonably think.
What we do know is that most governments do not have much ammunition to use against this. In the U.S., the Fed never had the guts to nudge interest rates even a slight bit higher, so the Fed's ability to use rates as a tool does not exist. The Fed's weirdly named "quantitative easing" program has been ended, weirdly named because it means buying financial assets to raise prices, so restarting it would simply imply panic. The Chinese government on Friday invested $17 billion across 14 major banks to give them more power to manage the market, and one can see where that got them on the first day after it was announced. On a percent basis today the Chinese equity markets were down even more than the U.S. and European markets.
As mentioned in a weekend post here, major U.S. banks and financial institutions were neutered in their market making capability by the Dodd Frank bill so they now are much more limited in ways that they can staunch the decline on behalf of their clients than they were in the past. Even keeled market strategists point out that the U.S. economy is performing well and that there have been no exogenous events to suddenly trigger this collapse of only the last few market days. That's mostly true, oil markets ignored, but what they fail to say is that a rapid and large securities market decline has the potential to be a self prophesying event on its own. Simply, money lost in the stock market cannot pay for vacations, new cars, eating out, or anything else.
The wall of worry is definitely building. One should hope that it doesn't get too high and some opportunities show up as things settle down. In the meantime, it's time for a nice dinner that can provide some needed gratification.
What we do know is that most governments do not have much ammunition to use against this. In the U.S., the Fed never had the guts to nudge interest rates even a slight bit higher, so the Fed's ability to use rates as a tool does not exist. The Fed's weirdly named "quantitative easing" program has been ended, weirdly named because it means buying financial assets to raise prices, so restarting it would simply imply panic. The Chinese government on Friday invested $17 billion across 14 major banks to give them more power to manage the market, and one can see where that got them on the first day after it was announced. On a percent basis today the Chinese equity markets were down even more than the U.S. and European markets.
As mentioned in a weekend post here, major U.S. banks and financial institutions were neutered in their market making capability by the Dodd Frank bill so they now are much more limited in ways that they can staunch the decline on behalf of their clients than they were in the past. Even keeled market strategists point out that the U.S. economy is performing well and that there have been no exogenous events to suddenly trigger this collapse of only the last few market days. That's mostly true, oil markets ignored, but what they fail to say is that a rapid and large securities market decline has the potential to be a self prophesying event on its own. Simply, money lost in the stock market cannot pay for vacations, new cars, eating out, or anything else.
The wall of worry is definitely building. One should hope that it doesn't get too high and some opportunities show up as things settle down. In the meantime, it's time for a nice dinner that can provide some needed gratification.
posted by John Borden at 5:20 PM
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