by R SIVANITHY (22 Sept)
They say that markets are always trying to tell you something. Not necessarily the truth, but something. So what does recent behaviour tell us?
Probably the most important message to be gleaned from the plunges on Wall Street and the rest of the world during the week is that the big money (whatever there is left of it) is much more inclined to 'buy in anticipation and sell on news' than place any lasting faith in rallies.
Another way of looking at it is that 'selling into strength' is the preferred strategy and clearly, any signs of strength only serve to offer mutual funds, already facing massive redemptions, the chance to bail out at slightly better prices.
Speaking of bailing out, the 'buy in anticipation..' play should have been obvious during the week from the way prices shot up before the US Senate vote on Treasury Secretary's Henry Paulson's bailout plan or Bank Asset Rescue Fund (BARF), only to plunge later on Thursday just seconds after the positive vote, and again on Friday before and after the full Congressional approval.
This in turn suggests a loss of confidence in US officialdom, at least for now, to be able to deliver anything substantial in the way of economic or financial improvements in the coming months - even with BARF in place.
Legendary investor Warren Buffet probably summed it right when he was quoted by Bloomberg on Friday saying 'it would have been a total disaster had it not been passed', the corollary of course being that as of now, it is only a partial disaster.
How much of a partial disaster it will be remains to be seen, though suggestions from some quarters that US$700b is only a drop in the bucket containing several trillion dollars worth of worthless credit instruments probably won't do much to encourage confidence.
Neither will the latest US jobs figures, which combined with recent economic data and a still-plunging housing market portray an economy toppling over the recessionary precipice without much of a safety net below.
In a report a week ago, BCA Research looked at the latest US manufacturing figures and said 'the US manufacturing ISM survey plunged today, signalling that the feedback loop from the financial system to the economy is now biting'.
'The crunch in the banking system has been steadily working its way into the economy this year. However, the floor gave way in September, according to the ISM manufacturing survey (other global purchasing managers' surveys showed a similar sharp drop, underscoring that a global slump is underway)'.
And, in its Friday Insights, BCA said of the latest jobs data 'more layoffs loom as financial sector woes have now shut off the credit taps to the broader corporate sector, ie the employment downturn is no longer contained to housing and financial areas. Consumer sentiment is depressed: the Conference Board survey confirmed that job security has been shattered'.
'The cutbacks in hiring plans will not be quickly reversed even if government passes the bailout package later (Friday). At best, it will prevent the US from sliding into a full-blown debt deflation, but it is too late to avoid at least a significant recession'.
As for the local market, the dreaded 'R' word has now also begun making its rounds, so the outlook isn't great. The Straits Times Index's 2,300 level had twice proven resilient over the past fortnight but its cracking on Friday opens the door for further downside - DMG & Partners' chart view is around 2,100 while Citi Investment Research also picked that region for a possible bottom.
Much of course, will depend on daily movements in the Hang Seng Index, which are sometimes - not always - influenced by shifts in the US futures market. Europe's opening in the late afternoon also plays a role. However, as always, expectations of how Wall St might move later in each day will dictate the STI's direction.
As of now though, the advice given here for the past umpteen weeks remains the same - take every opportunity to sell into strength, because clearly, that's what the big money is doing.
-Editorial Report by R SIVANITHY (22 Sept)
They say that markets are always trying to tell you something. Not necessarily the truth, but something. So what does recent behaviour tell us?
Probably the most important message to be gleaned from the plunges on Wall Street and the rest of the world during the week is that the big money (whatever there is left of it) is much more inclined to 'buy in anticipation and sell on news' than place any lasting faith in rallies.
Another way of looking at it is that 'selling into strength' is the preferred strategy and clearly, any signs of strength only serve to offer mutual funds, already facing massive redemptions, the chance to bail out at slightly better prices.
Speaking of bailing out, the 'buy in anticipation..' play should have been obvious during the week from the way prices shot up before the US Senate vote on Treasury Secretary's Henry Paulson's bailout plan or Bank Asset Rescue Fund (BARF), only to plunge later on Thursday just seconds after the positive vote, and again on Friday before and after the full Congressional approval.
This in turn suggests a loss of confidence in US officialdom, at least for now, to be able to deliver anything substantial in the way of economic or financial improvements in the coming months - even with BARF in place.
Legendary investor Warren Buffet probably summed it right when he was quoted by Bloomberg on Friday saying 'it would have been a total disaster had it not been passed', the corollary of course being that as of now, it is only a partial disaster.
How much of a partial disaster it will be remains to be seen, though suggestions from some quarters that US$700b is only a drop in the bucket containing several trillion dollars worth of worthless credit instruments probably won't do much to encourage confidence.
Neither will the latest US jobs figures, which combined with recent economic data and a still-plunging housing market portray an economy toppling over the recessionary precipice without much of a safety net below.
In a report a week ago, BCA Research looked at the latest US manufacturing figures and said 'the US manufacturing ISM survey plunged today, signalling that the feedback loop from the financial system to the economy is now biting'.
'The crunch in the banking system has been steadily working its way into the economy this year. However, the floor gave way in September, according to the ISM manufacturing survey (other global purchasing managers' surveys showed a similar sharp drop, underscoring that a global slump is underway)'.
And, in its Friday Insights, BCA said of the latest jobs data 'more layoffs loom as financial sector woes have now shut off the credit taps to the broader corporate sector, ie the employment downturn is no longer contained to housing and financial areas. Consumer sentiment is depressed: the Conference Board survey confirmed that job security has been shattered'.
'The cutbacks in hiring plans will not be quickly reversed even if government passes the bailout package later (Friday). At best, it will prevent the US from sliding into a full-blown debt deflation, but it is too late to avoid at least a significant recession'.
As for the local market, the dreaded 'R' word has now also begun making its rounds, so the outlook isn't great. The Straits Times Index's 2,300 level had twice proven resilient over the past fortnight but its cracking on Friday opens the door for further downside - DMG & Partners' chart view is around 2,100 while Citi Investment Research also picked that region for a possible bottom.
Much of course, will depend on daily movements in the Hang Seng Index, which are sometimes - not always - influenced by shifts in the US futures market. Europe's opening in the late afternoon also plays a role. However, as always, expectations of how Wall St might move later in each day will dictate the STI's direction.
As of now though, the advice given here for the past umpteen weeks remains the same - take every opportunity to sell into strength, because clearly, that's what the big money is doing.
-Editorial Report by R SIVANITHY (22 Sept)
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