Investors appear to have missed the absurd logic behind the view that once credit starts to flow again all will be well
By R SIVANITHY 4 April 2009
As bear rallies go, this one certainly has been impressive - for the week, the Straits Times Index (STI) gained 75 points or 4.3 per cent at 1,820.87 while the overall rise since the year low of 1,456 on March 9 has been 364 points or exactly 25 per cent.
Pushing more buyers into the market is a belief that thanks to the trillions being pumped into the system by various governments (led by the US, where the printing presses at the Federal Reserve have been running at full throttle for more than a year now), the wheels of credit must surely become lubricated sooner or later, thus enabling economies to rebound.
Helping fuel this belief are comments from US officialdom that its efforts in cleaning up the mess it helped create in the first place are starting to show positive results, though sceptics could quite rightly ask whether these parties could reasonably be expected to say otherwise.
In their hurry to buy, investors appear to have also missed the absurd logic behind the view that once credit starts to flow again all will be well, which is essentially that people will soon be able to borrow themselves out of debt.
No matter though, when fear of being left out replaces fear of loss, the resultant rally can be a sight to behold, and this is what we are currently witnessing.
Probably the best summary of present conditions was provided by fund manager Marc Faber in an April 1 Market Comment when he said the economic numbers are still awful but oversold markets are due for a rally.
Another way of looking at it is that traders have had to deal with bad news and gloom for so long that even the smallest shred of hope - flimsy though it may be - can be expected to be pounced on with much gusto.
This pouncing - aided by a stampede of believers who feared being left out - manifested itself during the week in terms of heightened turnover, which crossed the magical $1 billion mark three times out of five.
One of those two odd days out was Monday, when stocks around the world dived after news that the US government will in all likelihood allow its carmakers to fail, a bit of bad news that has since been forgotten - for now.
Also forgotten are the latest world trade numbers - Deutsche Bank, in a March 27 report that looked at key global economic themes, said ‘in the current environment, trade is down 32 per cent in six months . . . unfortunately, there has been little evidence suggesting the tide is turning as export and industrial production numbers remain in steep decline’.
Among the reports of interest during the week were DBS-Vickers’ (DBSV) Small/Mid Cap Strategy released on Monday and Citi Investment Research’s Industry Focus on the local banks issued on Tuesday.
DBSV’s report was titled Checkmate for Bears? and said an inflexion point for equities was around the corner because it believes the worst GDP contraction quarter will be Q1 2009 (-7.8 per cent year- on-year) and typically, stocks tend to bottom when the economy is at its weakest. DBSV therefore concluded that a bottom had arrived and called a ‘buy’ on a few small- to-mid caps.
Citi in the meantime, also picked the first quarter as being the time of maximum GDP contraction and said that in the past, this was a critical marker for the end of bear markets. However, it called a ‘sell’ on the banks because of its bearish view on the local economy and the possibility of the STI dropping to 1,500.
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Fear of being left out replaces fear of loss
Investors appear to have missed the absurd logic behind the view that once credit starts to flow again all will be well
By R SIVANITHY
4 April 2009
As bear rallies go, this one certainly has been impressive - for the week, the Straits Times Index (STI) gained 75 points or 4.3 per cent at 1,820.87 while the overall rise since the year low of 1,456 on March 9 has been 364 points or exactly 25 per cent.
Pushing more buyers into the market is a belief that thanks to the trillions being pumped into the system by various governments (led by the US, where the printing presses at the Federal Reserve have been running at full throttle for more than a year now), the wheels of credit must surely become lubricated sooner or later, thus enabling economies to rebound.
Helping fuel this belief are comments from US officialdom that its efforts in cleaning up the mess it helped create in the first place are starting to show positive results, though sceptics could quite rightly ask whether these parties could reasonably be expected to say otherwise.
In their hurry to buy, investors appear to have also missed the absurd logic behind the view that once credit starts to flow again all will be well, which is essentially that people will soon be able to borrow themselves out of debt.
No matter though, when fear of being left out replaces fear of loss, the resultant rally can be a sight to behold, and this is what we are currently witnessing.
Probably the best summary of present conditions was provided by fund manager Marc Faber in an April 1 Market Comment when he said the economic numbers are still awful but oversold markets are due for a rally.
Another way of looking at it is that traders have had to deal with bad news and gloom for so long that even the smallest shred of hope - flimsy though it may be - can be expected to be pounced on with much gusto.
This pouncing - aided by a stampede of believers who feared being left out - manifested itself during the week in terms of heightened turnover, which crossed the magical $1 billion mark three times out of five.
One of those two odd days out was Monday, when stocks around the world dived after news that the US government will in all likelihood allow its carmakers to fail, a bit of bad news that has since been forgotten - for now.
Also forgotten are the latest world trade numbers - Deutsche Bank, in a March 27 report that looked at key global economic themes, said ‘in the current environment, trade is down 32 per cent in six months . . . unfortunately, there has been little evidence suggesting the tide is turning as export and industrial production numbers remain in steep decline’.
Among the reports of interest during the week were DBS-Vickers’ (DBSV) Small/Mid Cap Strategy released on Monday and Citi Investment Research’s Industry Focus on the local banks issued on Tuesday.
DBSV’s report was titled Checkmate for Bears? and said an inflexion point for equities was around the corner because it believes the worst GDP contraction quarter will be Q1 2009 (-7.8 per cent year- on-year) and typically, stocks tend to bottom when the economy is at its weakest. DBSV therefore concluded that a bottom had arrived and called a ‘buy’ on a few small- to-mid caps.
Citi in the meantime, also picked the first quarter as being the time of maximum GDP contraction and said that in the past, this was a critical marker for the end of bear markets. However, it called a ‘sell’ on the banks because of its bearish view on the local economy and the possibility of the STI dropping to 1,500.
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