Wednesday, 16 March 2011


Just two very simple points to make;

1) Before there is a bear market, generally, there have been positive fundamentals in place, ie. good corporate earnings that have been reflected in rising stock prices. Appealing to positive fundamentals is akin to pointing to the rear view mirror and exclaiming that there's straight road behind you, irrelevant if you're driving off the edge of a cliff.

2) Soros is right, the market and economy are reflexive. A fall in stock prices and a rise in credit spreads, will generally be followed by contraction in the economy for three reasons;
  • prices are a good forecast of future results.
  • prices reflect current sentiment, which in turn reflects future marginal economic activity.
  • prices effect the cost of capital which in turn effects spending decisions in the future.

Violent prices moves are only really "irrelevant" if they are corrected quickly.


  1. Is it a bull? Is it a bear? Nope it's just the sound of a million expectations dashed.

    Don't worry, the great and the good have a solutions to everything. They are going to print money. Why didn't we think of that before huh?

    Noticed the BofJ has now authorised itself to buy REITS.

  2. BoJ decision to 'print money' seems like a good idea to me, they are facing a massive shock. Keeping the JPY down to a sensible level given the repatriation flows will be essential for a recovery.

    REIT buying? did see that they'd been knocked something like 30% a few days ago, which does seem quite extreme to me, not that is the central bank's job to relatively price assets.