Endspiel: Fidelity Says "It Is Clear Now That The Fed Cannot Bail Equity Markets Out Any More"

Tyler Durden's picture

Uh... did a member of the status quo just tell the truth? Cue panic?

From Dominic Rossi, Global CIO, Equities, Fidelity Worldwide Investment via The Telegraph

At times like these, it can be difficult for investors to know what to do.

We should expect news over the next few weeks to deteriorate further. As we go into the earnings season shortly, there will be more missed forecasts and guidance from companies will be uncertain and gloomy. For investors, valuations will come in to play at some stage. Yields will be well covered because balance sheets are strong.

It is clear now that the Fed cannot bail equity markets out any more and any interest rate cuts by the ECB may not have much of an impact on markets. The solution on the fiscal front will be either Greek default or Germany accepting that it has to fund debt restructuring and so reduce the quantity of debt in Greece. This will be a prototype for other European countries.

At times like these, investors should remember the strong get stronger. We will see M&A pick up in Europe. There is little capital around and so the threat for companies from new competition is disappearing.

Markets will have to consolidate so that oligopolies or duopolies are created and the remaining companies have strong cash flow and don’t have to rely on the debt markets. This is a carbon copy of what happened in emerging markets 15 years ago. Equity will shrink as well-financed companies grow by acquiring others and buy back their own equity. In time, this will stabilise equities.