An interesting thesis from a someone who is Finnish and posts articles on the TSC website.
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Tero Kuittinen
Test
5/09/02 10:27 AM ET
It’s a pretty important juncture [talking about yesterdays' rally], because this is a test of whether there has been a fundamental change in the market as far as foreign investor interest is concerned. In the past, a short-covering spike on Wall Street has sucked in a lot of fund investors and triggered a rally that extends past the squeeze phase. But in the recent months it looks like the foreign inflows to America have slowed down dramatically -– some say there were actually net withdrawals in late April if you combine the US equity and bond markets.
At the same time, Japan, Russia, some Eastern European markets, Korea, Germany and England have started outperforming the US markets. Plus we’ve had the weakening dollar. This has happened before for short periods of time -- but this spring is the longest stretch we’ve had so far. If the cumulative effect of disappointments concerning dotcoms, corporate accounting, equity research, energy shenanigans, etc. has finally reached a tipping point, something pretty unsettling is going to happen this summer. Few of us have lived through a period where there hasn’t been a massive inflow of funds into America, so it’s anyone’s guess how unsettling the situation will be globally. Both euro and yen are relatively close to levels where break-throughs would be extremely unsettling (92 cents and 125 yen). The money flow issue is one of those issues that got too boring to discuss, because nothing happened after so many possible triggers. However -- the cumulative effect is going to be tested this summer. What makes the situation interesting is that this is one of those topics that most US macroeconomists can't predict freely for professional reasons. There is no country where it pays to predict that other markets will outperform -- if you're employed by a domestic investment bank, that's a seppuku call. It's the sort of moral hazard situation that distorts the consensus calls on some issues -- which makes the whole issue compelling if you think that the market "blind spots" are the the most interesting part of the whole equity game.
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