Don’t be too unhappy, because although January was the worst stock market since the January of 1990, the S&P was down by 6.1% and the MSCI world index said goodbye to 7.7% of its value, markets in India and China are down (at one stage India actually had to suspend trading on their market), despite all of these things the good news is that bad times don’t last forever.
Market commentators sometimes remind me of psycho ex-girlfriends who just can’t let go, (if you want to see one of the old Internet comic phenomenons type ‘psycho ex-girlfriend into your search engine) they are the type where by the time they realise whats happened its like the whole world is falling and its never going to get any better, they’ll NEVER love anybody again! Keep the faith.
Around the world the reaction was indeed just that, a reaction, it was reactive to results and not pro-active. The fed held an emergency meeting and slashed 75 basis points off rates and then at a regular meeting they cut another 50 basis points. That was the biggest rate cut since 1990, a lot of the things that are happening are all pointing back towards 1990, performance and rates are just some of them (mortgage rates are not).
The GDP figures for January are (in the USA) 0.6%. This could be the sign of a stall in the economy, this is one of the dangers of ‘Stagflation’ which is where you have a stagnant or reducing GDP and at the same time you have inflation. The mortgage lenders and the sub-prime market may have helped to kick things off but a recession may now be the phoenix to rise from the flames of the mortgage mess, a fairly unwelcome burning bird by any measure.
Borrowers are still going to face ARM’s coming on stream, ARM means an ‘adjustable rate mortgage’ which is basically what we would call variable rates over here. In the USA the mortgage market works differently and all these people have yet to come off good value fixed rates onto the higher variables or ARM rates. This is part of what caused the mortgage melt-down to begin with. Even banks here are feeling the pinch PTsb have said that they had exposure to the American mortgage market issues as have Ulster Banks parent company RBS who lost in the hundreds of millions.
We could be about to witness the first negative GDP figure, and this means that we have entered a recession. I did a post at the start of the month called ‘one prediction you won’t want to hear for 2008’ and in it I said that I felt we were on the cusp of a recession and that we wouldn’t realise it until the end of quarter one, that is because monetary performance only comes out in hindsight, that was stated at the time, we are now getting close to telling whether I am a blithering idiot (which may be true irrespective of what the economy does) or a genius (a long shot even if I’m right).
Either way, non-farm payrolls came out at negative seventeen thousand, that hasn’t happened in over four years, granted those are figures from America but I adhere to the belief that the USA sneezes and Europe catches a cold.
The main thing is that I made a call and my actions reflected my belief, I went into cash for the first time in my adult life, no stocks. I hope that perhaps some of you readers followed this advice. If you didn’t and you lost the shirt off your back… well, just remember, you can make it back someday (maybe). I don’t necessarily know how, check out the Derren Brown system or something?
The average recession doesn’t even last a year, the average boom lasts five years, if you got stung just sit it out for a while and get planning for the five year good times, and soon may they arrive!