Feeding the fear
Monday, 10 May 2010 9:35am
Feeding the fear. Times like these, it's not so difficult to do.
Just replace the word "Greece" with "global" in Greece sovereign crisis and what do you have? You have Global Sovereign Crisis and the attendant panic and volatility in the financial markets that we are currently witnessing.
Extrapolate this further and voila, the global economy is now about to collapse … again.
It didn't help that while many are feeding each other's fears, a fat finger, or a computer glitch or a typo -- call it what you will -- caused mayhem on Wall Street's pricing last week. It didn't help that the UK elections resulted in a hung parliament. It didn't help that China again raised its reserve requirement.
Sure, this bad state of affairs could easily turn ugly -- if it hasn't already -- if left to its own devices. We can all extrapolate all the way down to the bowels of hell. But no! Something is being done.
As I write this piece, the European Union is reportedly scrambling to hammer out a coordinated plan -- costing €560 billion -- to prevent the Greek crisis from spreading and at the same time defend the euro against speculators. The EU will announce its plans before Asian markets open today.
We could speculate all we want on whether or not this will be enough to push back the tide of negative sentiment. But one thing is clear -- there'll be more forthcoming measures if this proves insufficient.
While the problems in Europe seem to be multiplying by the day, investors may be ignoring the US at their own risk. America's economy is slowly coming back on track. The Institute of Supply Management's (ISM) manufacturing and services survey, housing, productivity and personal consumption -- released last week -- painted a picture consistent with increasing momentum in business activity.
And remember the US labour market -- that scourge of the Federal Reserve and the Obama administration? There was good news there over the weekend.
US non-farm payrolls increased by 290,000 in April -- much, much more than the expected gain of 190,000. This marked the fourth consecutive rise in employment and the fifth in the past six months. Employment gains were recorded across all industries. And even better, revisions to February and March figures added another 121,000 to Americans with jobs.
Once the make or break in trading sentiment, Wall Street ignored this last week. And I repeat, at its own risk. Surely this is not a time to be selling. Not when indications that the biggest economy in the world is moving on towards a more sustainable recovery.
Make no mistake -- this is a positive report … even if you account for the increase in the jobless rate to 9.9 per cent in April from 9.7 per cent in the previous month. Now I'm pushing it, you say.
Not really. Because if you look deeper, the rise in the unemployment rate was due to the increase in the number of Americans looking for jobs, i.e., discouraged job seekers are now returning to the labour market.
But with the US labour market in repair, wouldn't the Fed be thinking of raising interest rates sooner? Perhaps. But this would be a signal that the US economic and financial systems are returning to normalcy. What's wrong with that?
This manner of thinking highlights that there'll be no shortage of things to feed the fear once markets decide to scare themselves.
Benjamin Ong
