Senior Correspondent
Bookmark & Share
WALL Street seems to be experiencing a period of uncertainty. Investors suddenly appear uncertain as to whether the recovery is real, despite assurances from the federal government and central bank. Or, if they are sure of the recovery, they're not sure of how much upside can be left in stocks. This much is obvious from the US market's recent, unconvincing performances, despite supposedly encouraging economic numbers being released.
The importance of Wall Street in influencing prices here should not be underestimated. Although violent movements in the bubble-like China stock market can exert a profound effect on this part of the world - largely via the Hong Kong market - it would be a mistake to think that Wall Street no longer plays a major role.
Time and again in the past, commentators have tried to peddle the line that Asian markets have decoupled from the West, and each time, they have been proven wrong. This time is no different - if Wall Street has entered a trading range and is showing uncertainty, you can bet on this spilling over to the rest of the world.
As such, we can do no better than repeat the advice given in last Monday's column, which was - look to buy the dips and sell into strength at every opportunity. This is because notwithstanding the supposedly bullish signals from Wall Street and China at the time, it would be prudent for players to cast a sceptical eye on the market, because prices were beginning to look stretched, especially given that the anaemic recoveries in both those markets are almost wholly dependent on government support.
Moreover, as far as the US is concerned, the 'less bad is good' mantra was beginning to look a bit long in the tooth, having made its rounds for about five months now.
Interestingly enough, the sharp falls in stocks of a fortnight ago were mainly because of fears that government support would be withdrawn, suggesting that the market knows just how tenuous - and dare we say it, illusory - the 'recovery' is in both the US and China. You'd have to wonder - how durable can upside be if it's built largely on government guarantees?
Still, the main saving grace for both markets is high liquidity, and this has played a key role in ensuring that prices are kept afloat during selloffs. So as long as there's loose money slushing around in the system, buying the dips and selling into strength is probably the clever thing to do.
However, in the case of the US at least, if the government's spending fails to yank the economy up, you'd have to wonder what other measures the Obama adminstration might be able to resort to, if any. There are many observers who have warned that Congress will not approve the printing of more money because of the absence of substantive results and in this connection, it's interesting to read comments by Atlanta Fed chief Dennis Lockhart that the real jobless rate in the US is not 9.4 per cent as advertised, but instead an alarming 16 per cent.
This is because the 9.4 per cent fails to capture the number of people who would like to work, but have stopped looking, the so-called discouraged or disillusioned workers who should be accounted for, but are not.
Also interesting are Mr Lockhart's comments on the need for more stimulus: 'Further fiscal stimulus has been mentioned, but the full effects of the first stimulus package are not yet clear and the concern over adding to the federal deficit and the resulting national debt is warranted.' (At last, a central banker who speaks the truth; will wonders never cease?)
In other words, you can try and spend or tax cut your way out of trouble, but success is by no means assured, and so far, all the pump-priming has acomplished is to produce 'less bad' numbers. Investors (or traders, if you prefer) should be cognisant of this and take proclamations that the worst is over with a bucket of salt. In our view, all the Fed and US Treasury have accomplished is create a 'bailout bubble' to replace the housing and sub-prime bubbles.
The conclusion therefore has to be that since Wall Street will continue to call the shots - or more accurately, expectations of how Wall Street might perform later each day will call the shots - and since the US market appears unsure of what to do next, it's probably best to approach the market with a trading frame of mind. Liquidity will provide support, so the dips can be bought - for now.
Search Property News
