Some Perspective on the Roiling Markets and an Allusion to Great Literature
Toto pulled the curtain to reveal the Wizard of Oz and he ballooned back to Kansas – sometimes exogenous events set off the inevitable change in circumstances that are otherwise unsustainable.
The liquidity balloon puffed up the Nikkei along with everything else easily tradable. The exogenous impact of the Mid-east political crises and the Great Tohoku Earthquake, have had dramatic impacts on world markets. But it is important to acknowledge that world markets have been floated upwards on a cushion of liquid cash – not commensurate with the fundamental global prospects of their components in the absence of that cushion.
So whether to buy on the mid-east/far-east circumstantial decline should depend not on relative value, but by a relative conviction about the extent to which liquidity has another round of momentum left in it before the end if QE2 reveals all of this to be about as stable as the tectonic plates under Japan. Current U.S. monetary policy may yield one more cash-fueled rally and still provide savvy punters with time to exit (or – for that matter – hang in there if the Wizard of Fed begins to urge us, once again, to “ignore the man behind the curtain,” as he launches QE3).
On a more important note, our hearts go out to our friends and colleagues in Japan and to the Japanese people…”Ganbatte kudasai.” It is important to recognize that, while Japan is an aging country overall, the average age of the population in the small coastal towns of northeastern Honshu is even higher than that of the general population – and the elderly were the ones least likely to escape in time. The parents and grandparents of many in Japan have been swept away – together with many others – in this horrifying tsunami.
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