October's End: Reversal Patterns Are Global

(Click chart to enlarge.)

In a recent post, I noted that the most beaten-up stock market sectors were rallying the most at the end of October. We also have seen a recent reversal of downtrends in several asset classes. Above, we can see similar reversal patterns among global equity ETFs. The S&P 500 Index (SPY) declined the least during the market drop from September through October 27th (blue bars) and now has rebounded the least (red bars). We had a greater decline among stocks from Europe, Australasia, and the Far East (EFA), and now also a greater rebound. By far the largest market drop was recorded among the emerging markets (EEM), and now they have doubled the rebound of the U.S. stocks.

These days, it seems as though there are only two trades: You are either long risk assets (long stocks, long commodities, long euro) or you are selling them (long U.S. dollar, long yen, long Treasuries). Meanwhile, relief is slow in coming to the high yield corporate market, where yields backed up on Friday to near 20%. Impressive rallies notwithstanding, there appears to be a limit to investors' risk appetites.

Comments

[bricki:]

Junk bonds are a ridiculous investment idea when top quality equities are available at 40% off.

2008 Nov 01 12:42 PM

[peterthepai...:]

40% off a credit binge driven peak!...we are in a long term bear market and only if you are very nimble or a day trader you can make money...sell into strength...listen to mish

2008 Nov 01 01:21 PM

[Prudent Man...:]

Where is the "Hedge" in "Hedge Funds".

Phone Money Managers overloading their clients with debt and worthless derivatives and taking outlandish fees. It will be interesting to see how many of these criminals lifted legs on spreads in order to book profits and deferring losses to infinity. That's the old scam that Tyson used to give Hillary a $100k in commodities.

By hiring all those Harvard B-School idiots at the SEC and CFTC the defrauders are guaranteed to get away with ripping off the public.

2008 Nov 01 04:31 PM

[FWallace:]

SEC..... this organization is nothing but criminal, it's sad, very sad!

2008 Nov 01 06:06 PM

[OctoberFaith:]

sec started the accounting process how is it "nothing but criminal" ?

2008 Nov 01 06:15 PM

[investor88:]

Brett's article seems to stoke bullish sentiment by taking note of the recent worldwide rally. However it seems Brett has his feet on the ground when he says "impressive rallies notwithstanding, there appears to a limit to investors' risk appetities".

This weekend one more US bank has failed, I read of more retrenchments. This is an unlikely economic backdrop for a new bull.

2008 Nov 02 02:18 AM

[OctoberFaith:]

yeah, apparently, SEC horrible corporation.
be greedy when others are fearful I say.

2008 Nov 02 04:19 AM

[OctoberFaith:]

I gotta go with bricki still

2008 Nov 02 04:26 AM

[OctoberFaith:]

Conceptually the arguement still isn't correct. Though I think that was a cute trick. But honestly I guess that's still correct outlook.
...
Is that what you see in me?
...
huh. I hope you got your trust back. I got my faith back.

2008 Nov 02 07:07 AM

[OctoberFaith:]

so a diamond buys trust huh?

2008 Nov 02 07:10 AM

[ZgartZ:]

Stock Market Salad with Window Dressing and Refunding Treats

Here it is the end of October and time to dress up the mutual fund values. Coincidentally short term interest rates have to be boosted too so that the foreign investors will buy their share of US treasury paper.

So ZgartZ likens it to a salad mixture of NYSE, AMEX, NASDQ, and some foreign sprouts all mixed together on CNBC so that they can be maneuvered higher for the month- end window dressing. This makes individuals’ statements more palatable even if they are only getting half a serving.

Of course we have two master chefs at work, namely Paulson and Bernanke and they will be pushing this menu next week. This will allow foreign sovereign funds and banks to taste elevated interest rates, all the while that the master chefs are getting ready to change the menu. However treats will be served just as they are in Las Vegas casinos and good sales are expected.

After November 4 Paulson will be on the disabled list and a new person will be hired to cook the books (oops I mean write a new recipe). The new fare will likely be burnt investment portfolios with higher inflation rates. The deflation menu is not popular with Washington elite and consequently they will demand a chef with inflationary skills. Bernanke has the recipes but he needs a fiscal sous chef to serve up the meal. There are lots of both Republican and Democratic qualified chefs with inflationary skills, several of whom graduated from The Barney Frank Institute of Monetary Cooking.

The one thing that could cause a problem in Washington and thus make the new cooks fail is an upcoming change of taste by foreigners around the world. Cooking the books could get a lot more difficult as the introduction of IFRS and ISA are introduced. What are these? They are new procedures for accounting and auditing that will make the cooking of books much more difficult. It’s sort of like changing from a barbeque to a convection oven. Things just won’t taste the same to the Wall Street and Washington crooks.

IFRS is the acronym for international reporting standards and ISA is for international standards on auditing. Most free market countries have agreed to conform to these new standards as the basis for accounting and auditing for publicly accountable enterprises in 2011. But wait – the USA chooses not to use these recipes. They haven’t held enough bureaucratic committee meetings and wasted enough money studying the effects. Oh well, when they have to buy oil with Euros or gold I guess they will either use the new recipes or go hungry. Let’s face it in the new one world economy the countries with the least debt and most gold will not only choose the recipes, they will tell others when and what they can eat!

At least that’s how ZgartZ sees it.

2008 Nov 02 02:30 PM