Which came first - the loss of upward momentum, or a feeling that stock markets have probably outrun their fundamentals?
Or is the current standstill due to the hike in US Federal Reserve’s discount rate, which analysts have taken as a timely reminder that if interest rates have been at zero for years, the next move will quite logically have to be up?
These questions might, of course, be simply of academic interest, but it’s our suspicion that the answer to the first question is that the smart money, having seen stocks double from their lows in 2009, has decided to pull the plug for the time being. This in turn has led to a slowing of the momentum and a reassessment by the rest of the herd of what the real outlook might be.
In the US, this means having to take a sobering look at the state of the economy, which despite all the positive posturing by officialdom, yields a less than rosy outlook.
Last week, the Commerce Department reported that new home sales plunged 11 per cent in January to a record-low annual selling rate of 309,000. That came as a bit of a shock to the consensus of economists surveyed by Bloomberg, who bravely forecast a 3.5 per cent uptick for the month.
The new-home sales report also showed the median price dropped in January to US$203,500, the lowest since December 2003, from US$208,600 a year earlier. And inventories equalled 9.1 months’ worth of sales, the highest since last May.
Housing, the sector directly responsible for the downturn, is not recovering. Worse, consumer spending and confidence in an economy driven by its consumers is slipping.
As for the discount rate hike, Federal Reserve chief Ben Bernanke took great pains last week to reassure markets that rates will stay depressed for some time yet, something which, when you think about it, should have been obvious not just because of his track record of bending over backwards to keep Wall Street happy, but also from the sorry state of the economy.
John Williams, proprietor of Shadow Government Statistics, a US service that seeks to peer behind official numbers and report a more accurate picture, said in US magazine Barron’s Feb 22 online issue: ‘The Fed has virtually no room to tighten credit in a system where the real (inflation-adjusted) broad money supply is in severe contraction, and where general bank lending into the flow of commerce is not adequate to maintain economic growth.’
In an earlier report (‘Snow job in Washington?’ Barron’s online Feb 9), the same service pointed out that M1 and M3 money supply in the US is contracting, with the latter’s real (inflation-adjusted) rate being 5.2 per cent year-on-year. The relevance of this is that every time there is a year-on-year liquidity contraction, the economy has taken a dive. Alternatively, if it is already in recession, then the downturn intensified.
‘A signal for the intensification of economic contraction was generated in November and December, and the signal got significantly stronger in December,’ Mr. Williams was quoted as saying.
Of course, whether the US suffers a double-dip or not has little relevance if you believe that economies and markets in this part of the world are decoupled from the West.
Economists and analysts have taken great pains in the past weeks to distance Asia from European sovereign debt problems, just as they did last year when discussing a US slowdown, arguing that China would take over as the engine of global growth.
There are signs that such a decoupling may be occurring, at least as far as markets are concerned - last week, Wall Street’s rises and falls failed to have much impact in this part of the world.
As for the Straits Times Index’s late bounce on Friday, this was more likely due to month-end window-dressing than any sudden improvement in the economic or earnings outlook - and today should see the index readjust itself.
1 comment:
A decoupling from Wall Street?
By R SIVANITHY
01 March 2010
Which came first - the loss of upward momentum, or a feeling that stock markets have probably outrun their fundamentals?
Or is the current standstill due to the hike in US Federal Reserve’s discount rate, which analysts have taken as a timely reminder that if interest rates have been at zero for years, the next move will quite logically have to be up?
These questions might, of course, be simply of academic interest, but it’s our suspicion that the answer to the first question is that the smart money, having seen stocks double from their lows in 2009, has decided to pull the plug for the time being. This in turn has led to a slowing of the momentum and a reassessment by the rest of the herd of what the real outlook might be.
In the US, this means having to take a sobering look at the state of the economy, which despite all the positive posturing by officialdom, yields a less than rosy outlook.
Last week, the Commerce Department reported that new home sales plunged 11 per cent in January to a record-low annual selling rate of 309,000. That came as a bit of a shock to the consensus of economists surveyed by Bloomberg, who bravely forecast a 3.5 per cent uptick for the month.
The new-home sales report also showed the median price dropped in January to US$203,500, the lowest since December 2003, from US$208,600 a year earlier. And inventories equalled 9.1 months’ worth of sales, the highest since last May.
Housing, the sector directly responsible for the downturn, is not recovering. Worse, consumer spending and confidence in an economy driven by its consumers is slipping.
As for the discount rate hike, Federal Reserve chief Ben Bernanke took great pains last week to reassure markets that rates will stay depressed for some time yet, something which, when you think about it, should have been obvious not just because of his track record of bending over backwards to keep Wall Street happy, but also from the sorry state of the economy.
John Williams, proprietor of Shadow Government Statistics, a US service that seeks to peer behind official numbers and report a more accurate picture, said in US magazine Barron’s Feb 22 online issue: ‘The Fed has virtually no room to tighten credit in a system where the real (inflation-adjusted) broad money supply is in severe contraction, and where general bank lending into the flow of commerce is not adequate to maintain economic growth.’
In an earlier report (‘Snow job in Washington?’ Barron’s online Feb 9), the same service pointed out that M1 and M3 money supply in the US is contracting, with the latter’s real (inflation-adjusted) rate being 5.2 per cent year-on-year. The relevance of this is that every time there is a year-on-year liquidity contraction, the economy has taken a dive. Alternatively, if it is already in recession, then the downturn intensified.
‘A signal for the intensification of economic contraction was generated in November and December, and the signal got significantly stronger in December,’ Mr. Williams was quoted as saying.
Of course, whether the US suffers a double-dip or not has little relevance if you believe that economies and markets in this part of the world are decoupled from the West.
Economists and analysts have taken great pains in the past weeks to distance Asia from European sovereign debt problems, just as they did last year when discussing a US slowdown, arguing that China would take over as the engine of global growth.
There are signs that such a decoupling may be occurring, at least as far as markets are concerned - last week, Wall Street’s rises and falls failed to have much impact in this part of the world.
As for the Straits Times Index’s late bounce on Friday, this was more likely due to month-end window-dressing than any sudden improvement in the economic or earnings outlook - and today should see the index readjust itself.
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