Spread Bettors Have Quietish End to Rough Month

 |  Includes: DIA, QQQ, SPY
by: The Mole

So month-end rebalancing which saw heavy selling of bonds benefited equities Friday and held sway over more dismal economic news. Funds have been overweight safe haven government bonds and underweight stocks for some time and they sought to reverse that to bring themselves back into line with their benchmarks. JPMorgan (NYSE:JPM) led the way while GM was the main drag.

So has the worm turned? Alas, despite the 11% rise in US equities last week and the fact that the equity markets are famed for being forward looking, I fear not. The consensus now is that we are heading for the worst recession since World War II. While Reuters reported that 56% of respondents expected a relief rally on a clear Obama win, I feel that the focus could shift decisively from our daily diet of bailouts and IMF loans to the real meat & two veg of company earnings and economic data. If so, then equities will struggle.

Today’s Market Moving Stories

And I missed this Friday. But it shows the number of mortgages in US states that are underwater, i.e. the value of house is less than the value of the mortgage loan.

Table showing US home loans under water

REQUIEM For The Free Market
We live in extraordinary times and it's important sometimes to take a small step back & realize how far we have journeyed. In October we crossed over the Rubicon. The post big bang world has been turned on its head. Authorities and policymakers around the globe switched from talk of moral hazard & laissez faire oversight to direct state intervention & regulatory reform. Banks (those still left standing) will have to radically rethink their core business models to survive. The world’s central bankers have changed focus from inflation fighting to worrying about the vista of deflation and sluggish economic growth. As Richard Nixon once observed, “we are all Keynesians now” (again). Milton Friedman, Hayek & Schumpeter would be appalled!

Data This Week
Just a U.S. election tomorrow, rate cut meetings (it’s merely a question of size) from the ECB & BoE (NYSE:MPC) Thursday & Amercian Non Farm Payrolls to negotiate Friday.

And Finally
Paddypowertrader spread bet cartoon