Spring Of Surpises Up Ahead
It’s has been tough go over the last few weeks. It’s been all about Greece, the stability of the Euro and the entire notion of European unity and solidarity. The interesting, and most obvious point that we have been telling our clients is that, despite what mood was on Wall St. Greece has NOT officially defaulted! Of course the world’s business media would have you think otherwise, but no, last time we checked Greece had not defaulted, that isn’t to say the situation is grave, it is – but this situation is being addressed by the EU and we believe a solution will certainly be crafted for Greece, it is in the best interest of the Euro Zone to make sure Greece is saved.
Amongst the chatter of Greek tragedy, traders and the market also began to fret about other heavily indebted EU states, Portugal, Spain and Italy. Gasp, it suddenly seemed that the Euro Zone was in deep trouble and the fear spread fast, so did the selling across global equity markets. The Euro has certainly taken it on the chin, selling off against the U.S. dollar to it’s lowest level in 9 months, which really doesn’t make much sense given that the U.S. deficit is much larger then the combined deficits of the EU member states mentioned.
We have always told our clients that there are two distinct corrections in the market – corrections based on fundamentals and those based on emotions. This first true correction since the 2009 March lows was based on the latter. The emotion of fear running rampant. Why? The unknown. Which banks might have exposure to the sovereign debt of these EU member states? What “if” they defaulted? Of course China’s policy tightening added fuel to the fire over the last few weeks as investors wondered, Will growth slow? This correction period from mid January to February proved that the market is still rattled by the simplest, yet obviously answered questions, but instead of rationale thinking, irrational fear still rules the trading day.
The truth for all investors that is common knowledge is 2010 will be a challenging year in terms of matching 2009 returns in global equities.The latest GDP data out Germany showed stagflation for Q4 in 2009, and overall Euro Zone growth was anemic in Q4. China continues to defy the global economy and fiscal prudence should be met with cheer not gloom – the Chinese can always reserve bank tighten if needed, but growth will remain robust even with additional policy measures to cool lending and the ever dire consequences of a brusting credit and property bubble.
In the U.S., the reading of March ISM data is positive, slightly. The ISM is still above 50, but it is now telling a story of more moderate growth ahead in the manufacturing sector. We are also closely watching developments U.S. financial and heath care policy and how these could affect U.S. corporate earnings in the latter half of 2010 and beyond. For now, it’s full steam ahead Asia and with Greece passing it’s austerity measures earlier this week things are looking somewhat more stable for global equity markets in the near term. It promises to be a spring of surprises. Stay tuned.
