It seems the fear started with comments from the Fed, firstly via Bernanke and then from the Fed minutes suggesting that it may be time to start planning to scale back the $85bn a month in bond purchases currently being undertaken. Not end the purchases, but scale back. It would appear many market participants had assumed this was never going to happen. How could they be so stupid? It has to happen at some point, and when it does it is a GOOD sign, as it means the Fed finally judges that the US economy is able to stand on its own feet without the need for constant support. I think however, that the markets reactions over the past 10 days or so show that we are nowhere near that point. The Fed will not want to come out and comment or act on the current gyrations if it can avoid it, and will presumably hope to simply let the current wobble in sentiment fade away, but if necessary they will either talk or act to calm markets and restore order. They need a significant drop in unemployment before there is any move to end QE, and that doesn't look likely to happen in a hurry.
The spillover into other markets looks even stranger. The US is the only economy with enough internal demand and trade to stand alone and stop QE. The UK can't without recovery in Europe, and the Europe haven't even started true QE yet, let alone be close to stopping it.
And for anyone who thinks China and Asia are going to lead a recovery, here is a photo from this morning of the ships in the holding pattern off Singapore's East Coast (not sure how well a panorama photo will work on a blog - hopefully you can click it to see more detail). Lots of ships is a bad sign. These are ships that have unloaded a cargo but have not taken anything new on and are simply waiting for a job. Many of these ships have been here for weeks waiting for somewhere to go. Trade is stagnant.
Rates are going nowhere for a long time. Stay long. If you can, get longer.
No comments:
Post a Comment