Some had been predicting a market downturn this January, before maintaining a high note to the end of the year.
News of heavy floodings in South America didn't help, nor the devastation left behind in Texas by the tornadoes and twisters; the el Nino winds wafting across and causing torrential rain in Ireland and northern England have left misery for the uninsured as well as huge bills to pay out by the insurance companies. That may have set the tone for the downturn when people returned to the markets after New Year.
As if that was not enough, the impact of the Yuan devaluation in China probably got them the opposite effect; instead of added confidence and availability to borrow at cheaper rates, the speculators and investors must have become confused at this play so early by the government, so soon after the market had plunged hardly six months ago and was now regaining ground. There is vast amount of capital in China that finds its way to investments overseas, such as in the U.S. and Portugal; but when China mirrors U.S. quantitative easing policies, is there capital overseas that will invest in Chinese stocks?
That market downturn, fully 7 percent before the Shanghai and other bourses closed for the day early, to restrict further selling and to sort out the huge volumes; that theme caught on in Europe, and thereafter in the U.S.
The former Dallas Federal Reserve President Richard Fisher, speaking on TV to a worldwide audience, summed up something that I believe is essential not so. He said that the market had been supported by the QE1, QE2 and QE3, that was true. He also said the Fed had run out of ammunition; surely, that cannot be true.....it still continues to maintain some constant issuance and pumping of the greenbacks (be they the printed variety or electronic, digital accounting and disbursements), at least I understand there is an agreement in place taking that situation to March 2016, which will thereafter see the extension of the Debt Ceiling, perhaps to November 2016, perhaps to January 2017, when the new President (whoever that is) will formally be in the White House. Mr Fisher's hurried remarks sound sensational, but nevertheless they have impacted the markets, dampening them quite a bit, even substantially. I believe a statement from Dr Yellen and or the Treasury Secretary may restore calm.
The good news may be that the same voices who were predicting the downturn which has taken place were predicting calm waters and a resumption of the bull trend somewhere in April. I can infer that the Debt Ceiling will be nicely fixed, and fresh money will continue to be pumped into the U.S. economy under the accommodative policies. Perhaps the U.S. raised the benchmark rate too early, perhaps they should have waited until after fixing the Debt Ceiling in March?
There is likely to be periods of volatility and quiet periods of thin volumes until such time. If the arrangements can herald another year at least of stability and growth in the U.S., coincidentally the Republicans too will have a clear nominee...... and the American people a clearer idea who should be at the helm.
Durudarshan H. Dadlani
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