The Summer of Market Discontent Rages

This article was last updated on May 20, 2022

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The 2010 summer of market discontent rages. It is due not to shock delivering renewed recession. It is likely due to stripping away of perceptions of seamless transition back into pre-2007 conditions that is incomplete. We maintain our stance of earnings recovery at a pace slower than bottom up and many observers appeared anticipating, with equity recovery beyond 2010 highs likely to be in the mid 2011 timeframe. Currently, capital markets are sensitized to change from authorities and the economy at large but the commonality of purpose generated by credit crisis appears dissipating. Despair at incumbents appears in numerous elections to Australia in August with Swedish elections upcoming in September and U.S. mid terms in November. Pressures exist to force political response from deficit reduction/higher regulation in advanced economies to pushback by the poor over inflation in emerging Asia.

The August 26, 2010 onwards Jackson Hole Federal Reserve conclave for central bankers globally, promises to be animated due to the lack of clarity on quantitative ease despite massive central bank balance sheets in advanced countries and forward looking stress tests in emerging economies like China to contain excess. Quality of delivery has still not dominated the fore of market considerations, current volatility notwithstanding. Much like the run-up to Lehman collapse in September 2008, momentum appeared again uppermost in market perceptions during the week of August 16, 2010 in equity markets pulling back but not to levels actually incorporating recession while fixed income equally in concert has some sovereign deb t down to record yield lows with twelve month yield lows in junk that would be hard hit by actual double dip recession. More volatility is likely still in store. We would be focused on franchise value over momentum across the capital markets.

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