Well globally stock markets are on a tear. Ftse up 2,4%, the Dow opened 1.2% up. Far East is closed now but up too. And Gold is falling vertically on Wall Street’s opening down 1.1%. Why?
The only significant news I can see out in public is that China has told it sovereign wealth fund to divest itself of any shares it had in domestic chinese banks. So what I hear you yawn.
If the Chinese government is considering stripping the $300 billion Chinese Sovereign Wealth fund of its holdings of Chinese domestic bank holdings, this would do two things. It would mean the US would no longer consider the fund a bank holding company which would allow the fund to buy more kinds of assets in the US – Including financials. And would have more cash free to do so.
The thinking or hoping, in the West, I suggest, is that by moving away from domestic bank holdings the fund will have lots and lots of cash and want to spend it in the West. Further I suspect this is being interpreted by some in the market, as China saying it will contain its own bank situation inside China, and simultaneously go on a spending/investment spree for what might be seen as bargain-priced Western assets.
This is just my guess. I have zero inside information.
But I don’t see any other reason to trigger this snap back in the stock markets and the decline in gold. Selling Gold on its own I would have said could be investors thinkking Gold is now over-priced and looking to go to cash. But the surge in stocks requires some other trigger. As for those who are trying to say this is based on stocks being cheap in relation to earning – all I can suggest is that they ask their doctor to ease off on the dosage of happy pills.
I can’t see a single fundamental reason to believe earnings and consumption are headed anywhere but down over the next few months. Today the Baltic Dry Index, which for those who don’t know, is the index of trade carried on large ships (to places like China!), down by another 4% overnight. The index has seen nothing but losses on profits and volume for months. So, I think the ‘China is going to save us’ idea is mostly a convenient rumour to get people to buy so that other people can sell into the rally. If they succeed then the shorts will have to cover their positions which will squeeze prices up some more. But, I still think this is volatility trading not value. Get on the fast, right side of it and take lots of monety off those not so nimble, who end up on the wrong, the slow side of it.
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UPDATE – Well it didn’t even last the day! Triple digit up and then hallf and hour before the close its running a loss or at zero gain on the day. What do you bet I was correct about the BIG fast traders (HFT) having made a bundle today by luring people in and then letting them buy as the floor drops away under them. Hype and dump on the desperate suckers. Look at the Tesla IPO. Greatest thing since sliced bread. Then falls like a stone. AND then – in the last half hour before the bell straight back up 50 points in trade that happnes so fast it can only be HFT. Nice day. Hype, dump and make handsome profit. Then ramp so the headline writers can say – ‘The market beats its losing streak’ – enabling you to find a few more suckers tomorrow.
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As for the China news itself I read it a bit differently. I think if China does clear domestic bank holdings out of its fund, and I think it will do, it is about segragating the fund from a looming domestic bank-debt bust. But I do not think such a property/bank bust is going to be so easily contained. I think the government wants to get the bank holdings in the places where they can be scooped up more easily. But I think the cost of another domestic bank bail out is not going to be insignificant.
I think the Chinese want to get the ABC IPO put of the way and get that foregin investment in, before investors start to be more realistic about the size and seriousness of the slowdown/burst of China’s property and bank bubble.
hi Golem
Some guy in the office just said the following.
"How is it that M&S post increased sales, and then their share price drops"
What are your thoughts please mate
I'm not familiart iwth the details of M&S but I would guess the following.
First, profits tell you how it did in the past, not necessarily how it will do in the future. Particularly if the future conditions are going to be very different from those of the recent past.
And with the very large cuts in spending that are coming the future is going to be very different. The cuts are going to mean hige job losses and therefore huge cut backs on retail spening. Almost no retailers are going to do well. Only a few who manageto postion themselves to capture those who move from more expensive to less expensive retailers, will really do well.
For M&S to have done really well their sales increases would have to be seen to be in capturing a greater proportion of lower income buyers. Investors would want to know not that M&S did well in the brief rally of the last quarter, but are positioned for growth as cuts and spending get squeezed.
If the market looked at the results and said 1) this is good but not as good as we had hoped then they will sell, and 2) if they think the M&S starategy was good in the rally but will fail in the dip then they will sell.
I may be talking rubbish but It's all I can say without looking more closely.