Many good points in the below discussion…refreshingly frank comments from Mr. Ingram. BNN will have to stop having him on, their financial sponsors won’t like the message.
Michael Ingram, Market Strategist at BGC Partners joins BNN’s The Street for a look at what’s driving the market rout and why running face first into the downturn with a ‘buy on the dip’ mentality could leave you high and dry. Here is a direct video link.
“The fact that people are talking about ‘decoupling’ in the last few days, developed versus emerging [markets], that’s a sign of desperation, we’ve been here before, last time we saw that was 2007-2008, come one, we’ve been here before.”
Keep in mind that most fund cos and asset managers (like the other guest on set in this clip) are mandated by their constating documents to keep fully allocating to equities and carry minimal cash balances no matter how overvalued and dangerous markets may be. Hence they all expound similar marketing drivel about there being diversity benefit in holding different companies and ‘decoupled’ markets. But that doesn’t make their theories true or helpful for capital protection in bear markets. Recall that if most managers lose the same or less as the S&P 500 or TSX in a downturn, they cite that as evidence of being skilled money managers. Few clients who lose money will agree.
With the media hyperbolizing the recent market “bloodbath”, it’s good to have a sense of humor and a sense of history.
This morning the usual ‘long-always’ financial types–who never, ever talk about investors taking advantage of selling opportunities when prices are high–are all peddling their usual snake oil about “buying opportunities” as knives fall. People who care about protecting capital need to maintain sober thinking.
As charted below, the drops in commodities and North American government bond yields have been screaming about plunging global growth and over-optimistic stock and high yield debt markets for well over 2 years, as policy leaders and HFT traders have worked to lure savings into harm’s way with confidence pumps and trickery.
In the process, the global economy and its risk markets are more indebted, precariously over-valued and vulnerable to capital losses today, than at the now infamous tops of 2007 or 1929. Oil and other commodity markets already ‘read the memo’ and over the past year, gave up all pretense of global recovery. With oil (WTIC in olive below) today at its 2009 recession low and copper (brown below) round tripping, the ‘carnage’ in stock markets like the S&P 500 (see in red below) has been relatively laughable to date.
Even after dramatic drops this past week, the S&P 500 has some 38% to fall just to give back the QE3-overshoot that began in October 2011. And that could be perhaps half way down to its bouncing place this cycle (marked with blue circle far right above). One can imagine the expletives and pessimism that will be emanating from present bulls then.
With the resource sector having already given up the QE dream, the Canadian TSX (in black below) has accomplished more downside work than the S&P 500 to date, but still levitates on deluded valuations in the Canadian real estate and finance sector (in red below). Canadian financials also have about 35% to drop to round trip their irrational QE3 launch. And that too may be but a mid-way point in capitulation this cycle.
As permabulls aggressively buy dips with the lowest cash levels in history (see here), practical people should keep in mind no free credit lasts forever, and central bankers have always expected a relapse for asset prices after the initial ‘impact phase’ of Quantitative Easing had passed. This graphic from the Bank of England offers a reminder.
Apart from some more of the usual nonsense in this discussion about ‘certainty’, the historical context on Japan (who was the last, late, great export leader of the 1980′s consumption boom, similar to what China was in the most recent cycle), is relevant. Only this time, far more than in any other cycle, global monetary policy tanks have already been emptied trying to pause the necessary asset deflation that began in the 2008 contraction. That pause now ended, deflation is back with a vengeance…The “free lunch” of incessant interference to goose capital markets, is over and the bill now due is bigger than ever.
Peter Fisher, BlackRock Investment Institute, weighs in on China’s currency devaluation, and the Fed’s interest rate policy. Here is a direct video link.
The weakest Chinese manufacturing data since the global financial crisis accelerated a selloff in riskier assets, sending emerging-market stocks to the worst week in two years. Investors sought safety in the yen. Here is a direct video link.
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