Dear rss free blog,
From
Moscow, Eric Kraus writes on last week’s stock market reversal. He
says of the earlier rise: “priced
in was a classical V-shaped US economic recovery – given the
fundamentals, about as likely as snow in August. In this latter case,
a series of disappointments can be expected, with considerable havoc
still to come.”
But
explaining the reversal last week, he postulates that “markets may
have begun to price in the imminent end to fiscal/monetary stimulus”.
While
we had repeatedly warned that this was a danger sometime in the
nebulous future, with Australia and Norway having already hiked
rates, and noises about a wind-down in Quantitative Easing in
numerous jurisdictions, perhaps the market is beginning to discount
the ultimate unwind rather sooner than we expected…in any event, we
remain strictly in the ‘deflationist’ camp, and see no
risk whatsoever of any medium-term rise in US or Euro rates.
More
fundamentally, there is always some doubt regarding the correlation
between the underlying economic reality and financial market
performance – these will occasionally deviate rather substantially,
before suddenly re-correlating in one of those catastrophic events
which briefly render our lives so very interesting. The point we
would stress here is simply that market participants can remain
focused on yesterday’s indicators long
after they have lost any
relevance; in the 1990s, every EMD trader kept a weather eye on
NASDAQ – thus, for several years, US technology was taken as the
best leading indicator for Argentine solvency! This continued in the
early part of the current decade when – damn the logic – the
Russian Trading System traded in lock-step with NASDAQ while
Chinese industrial production is probably of far greater relevance to
the Russian economic outlook.
Volatility
does not always arise where it logically should. Traders may not have
cottoned on to this shift. Eric edits research@TruthandBeauty.ru
Iceland
has lifted exchange controls. Icelanders now can buy foreign currency
if they register to do so. That means they can buy euros to pay back their mortgages or invest in US T-bills. But there aren’t enough Icelanders to reverse the drop last week. Nor is there much from the analysts and indexers to promise higher stock prices.
More
for paid subscribers follows:
*The
Dow Jones Sustainability Index, which lists companies up front about
their carbon footprints, (and is the source for an ETF listed on
Nasdaq) has added X Y and Z and dropped A. For these large-caps the
impact will be modest.
*
*Israel’s
Delek Group, whose ADR exists but barely is traded, is tackling the
country’s queer oil market. It will import oil products from Lukoil
sub Litasco (with which it sells gasoline in its European service
station chain) to undercut the distortions in Israeli oil refining
imposed by Israel Corp. which operates the largest refinery in the
country, in Haifa. Delek, DLKGF.PK for now, is a conglomerate
financed by an insurance co., a sort of Kosher Berkshire Hathaway.
Like Warren Buffett, its dominant owner, Yitzchak (Isaac) Tshuva, is
a gadfly to the establishment.
