Courtesy of Goldman.
The market got better than expected income, spending, ISM data today but that wasn’t good enough to beat back the pressure in equities to scratch out new lows. We close today with Equities off 4.6% - DJIA below 6800 (forget about 10K caps start worrying about 5K?); SPX broke 700 interday and we close with the broader Russell 2000 at off 5.5%. The simple way of understanding today – after Citibank and AIG many see the limits to government solutions. The AIG $61.7 bn loss gets headlines as the worst performance yet for a corporation in a quarter. Some will tell you today’s lack of confidence rests on inaction but the evidence is to the contrary. There is the smell of risk reduction rather than logic in the air. Consider the rush to gold which unwound again today closing at the key 925 support even as the future inflation outlooks remain high (witness the 5Y 5Y inflation rate). Yet bonds rally – with the 5Y gaining the most. Yield there drops 15 bps to 1.843%; 10Y off 14 bps to 2.88%. Spreads to credit remain at the wides – fear of the economy now finds more citation that due to bad risk management. The correlations are continuing to break down in all sorts of markets – so JPY did nothing today even as equities melted. So Oil fell 10% even as NOK outperforms the SEK or CAD beats out the AUD. Relative value trading has been smashed as volatility in tired ranges runs rampant over rational investors. The biggest concern remains in Emerging Markets. We started the day with the weekend results of the EU non-blanket approach to Eastern Europe and we close today with LATAM suffering – BRL off 2% and MXN off 1.8% - both reflect a rush to the USD. Safe-havens are hard to find in a world concerned about deflation even in a week full of central bank decisions. Expect the RBA and BOC rate cuts to be the focus next with the BOE and ECB following later ahead of the US jobs report on Friday. How markets react to new lows matter. The lack of panic, the smell of resignation, the crush of apathy – all points to a market ready to trade even lower as good news and bold actions carry less weight than the stale positions of hope and last year’s thinking drive the tape. All this leads many to look up the difference between a recession and a depression. The good news is depression is undefined we’ll just know it when we get there. Does the MSCI world stock index dropping 14 of the last 15 days suggest we are there? Probably not yet as we need to have higher unemployment, lower prices and another period of absolute capitulation before anyone would admit to the end.