A Bourse Diary

Thoughts on stocks, speculation and ... life

Monday, January 23, 2006

Consolidation at the stock exchanges? - opinions, tendencies

The sharp corrections on the international stock exchanges in the last week were and are topic of many comments and financial columns. The German as well as foreign stock exchange observers show themselves so far confident or describe the situation at least with a "calm" rationality.

My impression is, that the facts alleged responsible for the weak performance are:

On the one hand, the company reports from the USA are partially disappointing and all in all seem to confirm the fear, the profit and economic development loses clearly dynamics.

On the other hand, in particular the oil price has risen again (particularly by the political tension around Iran) and is a further source of the uncertainty.

Naturally the interest rates policy offers some open questions and also a set of "open" interpretation possibilities as well. From the ECB (European Central Bank) there were some disconcerting voices in this week to increase rates because the economy gains pace (which is now not indicated fully by any analysis).
On the part of the Fed the problem is rather long-known: will the Fed possibly stall the US economic situation by further interest rates steps? The positive outlook of the beige Book did not provide many help at that point: a robust economic development could let the Fed go on with the rate hike to a level which would be too high in the case of economic cool off later on.

Thus - all in all - the usual crowd... The sharp drop of the stocks in Japan appears rather just as impulse for the whole consolidation wave (and in this manner it signals somewhat excessive speculation and gains that mounted over the last months).

The media comments are really ambiguous. I could note for me that both nervousness and the optimism rather stay in balance. The big rally in the large indexes had to stop logically at some point in time and this was also expected. When the correction sets now in, it cannot really surprise. Still it concerns more or less "shrinking (paper) profits" and not real (and many more painful) losses.

I guess, the investors will take some more profits, so that in the next time we'll rather see lower prices. On the part of commercial news I would be surprised, if we got greatly support - simply robust economic data do not have the potential to give clear impulses. The situation at the interest front will remain probably the same in the coming weeks. The political developments will possibly not disappear that suddenly. From a fundamental point of view, the markets appear to be not overvalued, and although speculation and profits accumulated over the last weeks and months, I can not see excessive allocation of capital into the stock markets (above all in the USA and Europe). Therefore in the case of an unfavorable development the losses might be limited. Rationally the market is a Hold. In the case of the Emerging Markets, the development was much too steep and the emotions probably much too euphoric. I already stated my reserved opinion in relation to exotic stock exchanges. The losses here threaten to be greater, if we have troubles.


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Disclaimer: All ideas, opinions, and/or forecasts, expressed or implied herein, are for informational purposes only and are in no way intended to serve as personal investing advice and should not be construed as a recommendation to invest, trade, and/or speculate in the markets. Readers should not make any investment decision without first conducting their own thorough due diligence. Any investments, trades, and/or speculations made in light of the ideas, opinions, and/or forecasts, expressed or implied herein, are committed at your own risk, financial or otherwise. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed.