We are into the 3rd day of the market correction. Nerves are starting to fray. Some friends and people began to call me for my views. Experts are divided into 2 camps. The bear camp is getting bigger.
View from the Bears:
1. Austerity measures by the EU countries mean the tepid recovery may lose its steam.
2. PIIGS are likely to default on one of the bonds. THe ECB and IMF will delay on their rescue plans. European banks will collapse, causing Financial Crisis Part II.
3. Technical analysts say that the Dow Jones Industrial Index has fallen below the 200 day moving averages yet again.
4. Economic data from the US lately has not been good. Housing starts tumbled. Retail sales down. Corporate earnings weaker than expected.
5. LIBOR - OIS spreads are still very high and stubbornly refuse to fall.
Some sell-side analysts are recommending a "SELL ON STRENGTH" screaming on the front page of their reports.
View from the Bulls:
1. Yield curve is still very steep. But we have to watch carefully the 10yr spot rate because it is falling to a new low of 3.13%, less than the 4% average. Short term rates are "not natural".
2. Valuations are about 1 standard deviation below the 10 year mean for emerging markets. This is a strong point.
3. There are signs of fund flows back to Asia. I noticed property counters like Keppel Corp shooting past 3.95 today. Small cap stocks like Goodpack are rising again. Tech stocks like Sunningdale and Armstrong are holding strong, with high volume on positive days.
4. Strong economic growth in Emerging Asia.
5. Non investment grade credit spread is still on a downward momentum.
6. Vix is still below 30.
I belong to the bullish camp. Usually, when the consensus is bearish, it is easier to surprise on the upside. Vice versa, when the consensus is bullish, it is easier to disappoint on the downside. We shall see.
No comments:
Post a Comment