The G7 meeting triggering a rally?
Ordinarily one would expect that, when the G7 come together to discuss solutions to the world economic crisis, this should be good for a rally, possibly a significant one. I think that this G7 meeting will disappoint the market: apart from Brazil no concrete actions, just a lot of encouraging words and a lot of wishful thinking. The reason why there will be no concrete actions becomes clear when one reads between the lines: there is apparently a lot of disagreement among the G7 on how to deal with this global crisis. In particular, Tietmeyer, head of the Bundesbank, and Greenspan, the two most powerful bankers in the world, seem to be at odds on interest-rate policy and the role of the IMF in dealing with economic trouble spots.
I am also amazed how, when the rest of the world is correcting/crashing (Germany now down more than 35 %), stock markets are coming down to more reasonable levels, sometimes even offering bargains now in blue chips, the most overvalued market of all, the U.S., is still flirting with Dow 8000, several thousand points above reasonable valuation. It seems that the new paradigm is still very much alive in the U.S., while the rest of the world has already abandoned this form of self-delusion.
I don't see how this global divergence of markets can resolve itself except in the form of a crash. The Plonk/Stern scenario looks very probable to me, not necessarily in its details or the exact timing, but the magnitude of the downturn. With the rest of the world, developed as well as developing markets, in rapid decline, even Greenspan with all his finesse won't be able to stop it.
Good trading to all,
Phil
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