It was inevitable that the very strong relief rally the markets enjoyed yesterday was unsustainable. Has there ever been a time in recent trading history were merely the mention of possible solutions by European policy makers can lead to such wild swings of sentiment? We’re still some distance away from implementation of the various mechanisms to firstly avoid a Greek default and secondly contagion of the sovereign debt crises and yet the markets’ collective desire for solutions appears insatiable. This surely indicates that we have reached a crucial tipping point, an equilibrium from which the main stock markets could either rally to the year highs experienced in Jan 2011 or potentially crash to 2008 levels.
He acquired the nickname Doctor Doom during the 2008-2009 crash, I always felt that was a bit unfair on Nouriel Roubini, he was doom laden alright, but the X-Men reference didn’t work for me. He had a touch of the night about him, I visualised him more as The Count from Sesame Street, carefully and with a perfect Transylvanian accent, explaining how the numbers ‘worked’, and doing the ‘face palm’ when we didn’t get it. It became an increasingly cheap shot to label Nouriel as batty in 2008-2009, and the mainstream media did a cracking hatchet job on him, describing his Manhattan apartment as a lair, listing his female ‘conquests’, following him to bars and night clubs. Perhaps he wasn’t enjoying his notorious reputation, simply drowning his and our sorrows in anticipation of the events about to unfold.
The ‘stopped clock is right twice a day” analogy is often hurled in Mr. Roubini’s direction, well hey, guess what? He was right in 2008 and he’s right now. His prediction then; that ‘saving the system’ in 2008 by using one dimensional QE tactics, zirp and bailouts, would cause sovereign debt crises within a couple of years has been proven spot on. Arguably the first renowned economist to put forward the words “avoiding this recession will create a depression” was only bettered by his summation that “main street needed rescuing before Wall St”. The inference being that no discipline would be attached to the major players, the masters of the universe, if ‘they’ got away with it once they’d simply do it again and again. His reference to main street was also apt, the belief being that if you re-primed average Joe, and allowed him to write off or re-set his debt, his life, his optimism, then the economy would recover and flourish far more quickly.
Roubini is now, once again, being quoted in the mainstream media and is being treated with respect. However, this may change and follow the pattern witnessed in 2008-2009. His own website is subscription only for his major clients, which is a shame, in my humble opinion he could and should create a ‘lite’ version for public consumption. So for now we have to contend with quotes and soundbites from the usual suspects. In the Telegraph recently he’s suggested that the USA and UK are already back in recession, further he appears to suggest elsewhere that technically recession was exited but fundamentally both the UK and USA never escaped recession. He also has interesting views on inflation versus deflation, believing that inflation will soon be the last problem that central banks will fear.
“While monetary policy has limited impact when the problems are excessive debt and insolvency rather than illiquidity, credit easing, rather than just quantitative easing, can be helpful. The European Central Bank should reverse its mistaken decision to hike interest rates. More monetary and credit easing is also required for the US Federal Reserve, the Bank of Japan, the Bank of England, and the Swiss National Bank. Inflation will soon be the last problem that central banks will fear, as renewed slack in goods, labor, real estate, and commodity markets feeds disinflationary pressures.”
The European Union faces the biggest challenge in its short history, as the crisis of confidence compounds economic and social problems, the European Commission President Jose Manuel Barroso has stated in his annual State of the Union address during a session of the European Parliament in the French city of Strasbourg.
“It’s a crisis of confidence that has not happened for decades”. Barroso also re-affirmed that Greece would remain a member of the euro single currency area and that if there had to be deeper economic integration among European Union member states, if not the 27-member bloc faced break up.
Tuesday’s relief rally did not overlap to Asian markets as overnight and early morning the main indices faded. The Nikkei ended flat, the CSI closed down 1.03%, the Hang Seng closed down 0.66%. The ASX closed up 0.87%. In European markets morning trade has been subdued, the FTSE is currently flat, the STOXX is down 1.05%, the CAC is down 0.98%, the DAX is currently down 0.88%. The SPX daily equity future is currently up marginally at 0.3%. Brent crude is down $65 a barrel, gold is flat.
Data publications for the New York session to be aware of include;
12:00 US – MBA Mortgage Applications Sept
13:30 US – Durable Goods Orders Aug
The durable goods orders could affect sentiment as focus shifts back to the USA’s domestic travails. It’s a government index that measures the quantity of new orders placed with US manufacturers for delivery of durable factory goods, such as machinery, vehicles and electrical appliances. Durable goods are defined as items that have a normal life expectancy of three years or more. Analysts surveyed by Bloomberg gave a median forecast of -0.2%, compared with the last release which was 4.00%. Excluding transportation, the expectation is -0.20% (previous =0.7%).