Wednesday, 9 December 2009

Big Brother meets Ben Bernanke

[We interrupt our regular schedule of abstract pontification to bring you this quick note on price action]

All summer long, asset markets boomed while the US economy (in my opinion) more or less stunk. Why? Because of central bank policy.

Then on Friday we had a strong payrolls number (just 11k jobs lost, much better than expected).

I think this makes the Fed on the margin more likely to hike interest rates.

Sure enough, asset markets have been going down since the number came out.

It's almost Orwellian: war is peace, good news is bad news, strong numbers are weak numbers.

But that's what happens when you let asset prices be determined (supported) by central banks instead of by economic fundamentals.

Anyway, I'll go out on a limb and say that last week was the high for 2009 and we'll sell off into 2010.

This move will be reinforced by year-end risk reduction. Also, for what it’s worth, most technical indicators look really exhausted.

I have sold [EM] stocks aggressively over the last 3 days and now have plenty of [dollar] cash. Let’s see how things play out.

[Clarifications in square brackets added on 17 Dec; also, note that I currently own no US stocks.]

No comments:

Post a Comment