Erosion of Optimism

Instead of asking what is pushing markets lower, for a change let’s search for what might give them reason to rise?

Governments and markets HAVE to find reasons or they are lost. So far the downward market moves have been just the erosion of optimism. Actual pessimism has not yet gathered its own momentum. But when it does, and short selling re-gains the upper hand, then we will see real downward moves and not these dainty baby-steps.

But I for one have a hard time finding reasons for growth and optimism.

In the US it won’t be Consumer Confidence. That took a revised lurch down today and caused the Dow to plumet 240 points, 2.4% right out of the gate. By 2pm East Coast time it is down 2.7%. That puts the Dow firmly under 10K again. The Nasdaq is down over 3%. These drops helped to pull the ftse down yet further, to close 2.75% down which is back under 5000 again. The French market is worse down 3.74% and Frankfurt down 3.14%

US Real Estate has already reported all its figures and they were ALL down. Some of them down a lot. House prices are stagnating or falling. Foreclosures are finally happening and there are another 5 million US home owners who are currently two months delinquent on their mortgage. Add those to the 8 month supply of already foreclosed, unsold and bank owned properties waiting to be sold, and I can’t see any reason there for huge optimism.

Unemployment is stuck at around 17% in the US. The end of the census will dump a few hundred thousand more back into the unemployment line. And there has been no extension of benefits so 4 million Americans could be without benefits in a month or so, unless something is done. So I really can’t see the US consumer doing much heroic consuming.

Exports are not going to save the day. There is no one to export to. And anyone who does want to buy something more than an i-phone might buy German anyway. I’m being snide there – sorry. But really the US isn’t going to export its way to prosperity any time soon.

Things are no better in Europe. All we have going for us is Austerity. Mind you that is selling quite well at the moment. Though I personally expect a flood of returns when they find out how badly it works. Already the Greeks are ignoring the law and going on ‘illegal’ strikes against austerity measures. A bomb went off and killed an aid to a politican today. So this is serious, not decorative unrest.

Europe’s banks are not going to save Europe, no matter what sort of euro-piffle they publish as the results of their Stress-tests. No one believes you boys! The ECB is withdrawing one bank support measure only to have to introduce another in its place, to avoid a complete melt down. So much for banks recovering. All that’s recovered in banking is their arrogance and their bonuses.

China is not going to rescue us. Their growth has stalled and their banks are bloated with their own debts. Their property market is glistening with sweat like unstable dynamite.

Seriously what good news can there be?

Except of course that it now does not look as if, even the enfeebled and pathetic excuse for a financial regualtory law that the Bank lobby known as Congress managed to concoct, is going to actually pass into law. Not that it would make any real difference to the Banks if it did. The law is so stuffed with excuses, and glacially slow time-tables for compliance that it amounts to nothing anyway. But even the token effort doesn’t look like it will become law. Which, if you are a banker, could be good news. But enough to rally the market? I don’t think so.

Once we’re out of optimism and good things to point towards, what is there standing in the way of a steady flow of bad news? And let’s face it there isn’t a shortage of that. Time soon for the short sellers to lick their wounds and take to the field again.

Today all the bank share prices have dropped by between 3 to 6 percent. Citi is trading at under $4. Think that might have something to do with Citi CEO, Mr Buiter’s insistance that Europe MUST bail out the banks again with, in his opinion, a TWO trillion euro debt-suicide effort?

And just to re-enforce the fact that we ARE only a few inches from the edge the IMF is today saying it is setting up a ‘precautionary credit line’, as it last did just before the April 750 Billion Euro bail-out. Once the IMF arrives to help, God help you because no one else will.