Monday 10 October 2011
Maximum Pessimism has been passed for 2011?
It is fair to ask because calling the bottom is so utterly hard. However, we have some historical guidance to help us. First up is that the Markets tend to rally into Xmas as the Fund Managers need to hit their performance targets.
Secondly, September and October are the most volatile moths, especially in recent years the middle few weeks. Why? Well no one can be sure, but it may have something to do with the re-positioning for the point made above.
Thirdly, it is so hard to pick the bottom that things always seem to get worse.
When it comes to Shareprices though there have been a few key developments in the last 6 weeks:
1 - Libyan War has more or less ended, this was a big macro catalyst on the oil price and helped start the sell-off in March of this year.
2 - Oil Price Falls - below $100 a barrel, a key figure which has been a major contributor to holding back growth and pushing up inflation in the West (and is terrible for global imbalances as it piles up money in the Oil Rich Sheikdoms who then don't use it or use it to do vanity projects like Manchester City).
3 - Quantitative Easing - OK, now this is absurd in many ways, but in terms of investment returns, this will have an impact on raising the market - even if only temporarily
4 - MerKozy conferences - though these are slow and have no concrete output, it does seem as if the Euro area is at last serious about sorting out the problems - they are of course somewhat intractable, but acknowledging hte problem is always the first step.
5 - Public Sector cuts - These are ahead of schedule, much to the dismay of Lefty institute's today - but again this is a good sign as overall employment is barely up - so great news all round.
6 - M&A is coming back, last week Premier Oil bought Encore Oil in the North Sea, the sector is the poster child of share collapses this year. With Corporates looking at it this suggests a bottom in the prices and real value to be found.
So there we go, much better than my mood of last Monday! There are also of course a few downsides, explored everywhere else at length, but is the Big Mo' with up or down for the rest of the year? (Predicting beyond this quarter is not currently possible given market volatility).