Pinchas Landau blog photo.
(photo credit: Courtesy)
Three weeks ago, this column’s headline was “Nowhere to go but down.” It
highlighted the consensus among independent technical analysts (i.e., those not
in the employ of big banks or brokers) that the equity markets were heading for
major falls. It cited David Rosenberg, who is now perhaps THE leading
independent fundamental analyst, and his list of cogent and compelling reasons
why there was indeed nowhere for share prices to go but down. It noted that even
Jim O’Neill of Goldman Sachs was reluctantly forced to concede the validity of
most of these reasons.
Since then, the flow of economic data, in
particular that relating to the US and China, has been overwhelmingly
To make matters worse, a growing number of governments have
been forced to swing in the direction of fiscal austerity, and the
meeting illustrated that there is very little political will to
additional stimulus programs.
That means that as the massive government
programs applied in the US, China, Japan and elsewhere in late 2008 and
2009 wind down and their impact fades, and as it becomes ever more
the private sector is neither willing nor able to take on the role of
economic expansion, there is indeed nowhere to go but down.
So it can be
no surprise to anyone but the most determined ostrich that the markets
begun to slide rapidly downhill, the second quarter ended with a sharp
downward and July seems to shaping up in the same vein – if not worse.
grounds for surprise, because the bond market showed the way well in
the equity market, as the spread between yields on corporate bonds and
government bonds (or, at least, of those governments still considered
widened sharply, in a manner and to a degree eerily reminiscent of 2007
But one of the features of a severe bear market is that even if it
is well-advertised in advance, its sheer violence and intensity still
power to shock. People think that they can get out of its way by taking
protective measures, but most of these prove to be useless.
corporate bonds are certainly not the answer, as noted – and that’s even
disasters of the scale of BP, which can gut a major multinational and
entire sector that the company is part of.
It is also painfully clear
that commodities are not the answer.
This lesson should have been
absorbed in 2008, but the myth quickly reemerged that strong demand from
and other rapidly growing economies would ensure that commodities,
industrial commodities, would maintain their value – but they have
China is now a source of weakness: Its stock markets have led the
way lower since late last year and most recently over the past few days.
Chinese economy inevitably slows, the speculative buying that has driven
prices of copper, etc., fades and eventually disappears, leaving
too, with nowhere to go but down.
It now seems that the last bastion of
the bulls, precious metals, is also crumbling. The price of gold had
move higher, but it was certainly not fulfilling the predictions and
expectations of its numerous believers by making a massive upward leap.
Yesterday, it would seem, the trend turned decisively lower as gold and
At the end of the day, the only financial asset that keeps
its value in a deflationary depression, which is what the world is
is cash and near-cash assets such as short-term Treasury bills and
from governments judged capable of remaining solvent. That’s why the
90-day US Treasury bills is down to a mere 0.16 percent per annum, while
longer-dated obligations such as two-year Treasury notes saw their
to a new all-time low this week, of less than 0.6% per annum.
more people are being forced to the realization that the only thing that
anymore is safety and the return OF their money, leading them to give up
effort – futile in current circumstances – to achieve a “decent” return