Monday 26 January 2009
‘As goes January, so goes the rest of the year?’
Investors might also note the latest calculations by New York University professor Nouriel Roubini, who correctly predicted the present crisis more than a year ago. In his latest RGE Monitor blog, Prof Roubini states that the banking losses from the US sub-prime crisis can hit US$1.6 trillion, of which the US financial system’s share is US$1.1 trillion, far exceeding current estimates. As a result, he concludes that US banks are ‘borderline insolvent’.
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‘As goes January, so goes the rest of the year?’
By R SIVANITHY
26 January 2009
Three weeks ago, investors were reminded - not in this column, we hasten to add - of the old market adage that ‘as goes January, so goes the rest of the year’.
That was when the major indices were on an upswing, thus giving encouragement to some observers that stocks would recover this year, or at least end higher.
Certainly, January’s performance did accurately predict the market’s rise and fall in 2007 and 2008 respectively (and a sufficient number of years in the past for the adage to become part of market folklore) so it probably shouldn’t come as a surprise that there were hopes of a third consecutive year in which January’s movement proved a successful barometer of annual returns.
However, it should be readily appreciated that market adages of this sort which are not founded on any fundamental reasons but instead on superstition (similar to the irrational belief in year-end or Chinese New Year or election rallies) only spring to prominence when prices are rising and not when they are falling.
Now that the major indices have gone into sharp reversal, January’s predictive value has slipped quietly into the background and as it stands now for the local market, there are only two trading days left in the month for stocks to recover if the ‘January effect’ is to manifest itself again.
On this count, the Singapore market might well count itself lucky that there is no trading today and tomorrow because of Chinese New Year. On Monday, Wall Street will have to digest December’s existing home sales (November’s figure was an 8.6 per cent decline).
In looking ahead to the report, research house IDEAglobal said over the weekend that the large number of homes already on the market and the number that will appear via foreclosures over the next several months only add to the diminished prospects for existing home sales. In short, the US property market is in bad and worsening shape.
On the same day, the US Conference Board will release its leading economic indicators, including Q4 GDP growth, or to be more accurate, GDP contraction. Needless to say, the number is not expected to be good.
Is there any good news to look forward to, anything that might contribute to a last-ditch, positive January? Wall Street continues to be artificially supported by hopes that the Obama administration can engineer an economic turnaround with an US$800 billion package that it plans to have ready for Congressional debate by mid-February.
Investors might also note the latest calculations by New York University professor Nouriel Roubini, who correctly predicted the present crisis more than a year ago. In his latest RGE Monitor blog, Prof Roubini states that the banking losses from the US sub-prime crisis can hit US$1.6 trillion, of which the US financial system’s share is US$1.1 trillion, far exceeding current estimates. As a result, he concludes that US banks are ‘borderline insolvent’.
On China’s latest estimate of 6.8 per cent y-o-y Q4 growth, Prof Roubini said, ‘if one were to convert the 6.8 per cent y-o-y figure in the more standard quarter-over-quarter annualised figure, Chinese growth in Q4 would be close to zero if not negative’.
‘Other data confirm that China was in a borderline recession in Q4 and that it may be in an outright recession in Q1: production of electricity plunged 7.9 per cent in y-o-y basis; the Chinese PMI has been below 50 and close to 40 for five months now. . . So the 6.8 per cent growth was actually a zero per cent growth - or possibly negative growth - in Q4; and the Q1 figures look even worse. So China is in a recession regardless of what the highly massaged official numbers claim.’
You’d have to wonder how there can be a January rally with such a bleak economic backdrop?
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