That’s what JP Morgan used to say to the elevator boy when asked “what will the market do today Sir?”
It would be a suitable answer now.
The stock market is fluctuating without a lot of trending going on.
Behaviour is largely based on ‘hope and hold’ – don’t get shaken out unless you’re desperate for funds, but don’t go in with hob-nailed boots either.
The ‘hope’ is that the Fed won’t raise its interest rate <thus strengthening the dollar> for a good while yet, having been widely expected to raise it last month, and that the China slowdown isn’t as bad as some dopamine short traders think.
The chance that these hopes may not be forlorn after all lay behind the shares of stricken miner/commodity trader Glencore, nakedly exposed to a strong dollar and a stalled China, rebounding over 80% in a matter of eight trading sessions .
But for the average investor it’s almost a case of a licked finger in the wind.
And puts one in mind of the recently departed Yogi Berra’s advice – ‘when you get to a fork in the road, take it.’
The Fed is in a rope-a-dope posture as conflicted data comes streaming in from left and right, high and low.
The US may strong enough to withstand a small rise but the global economy doesn’t.
If the Fed raises the rate an already too strong dollar will go up so it’d have to drop it again and/or swamp the economy in unneeded liquidity – QE4. The Fed is trapped.
The politically powerful US-based multinationals are suffering all kinds of currency conversion losses due to the strong dollar as are commodity producers, while emerging market economies, which took out in aggregate trillions in cheap US dollar loans post-Lehman, look at Brazil and Turkey, could face life threatening financial problems.
So the balance of probabilities, as the global economy slows, is that the Fed won’t do anything until well into next year, if then.
The dollar’s strength is not based on robust absolute fundamentals, but because it’s the least ugly in the FX ‘uglies parade’, not least because US markets are perceived to be ‘safe havens’ and are the most liquid in the world—in short, you can dive in and out.
As for China: the authorities have lowered interest rates five times of late and the banks’ reserve ratio requirement three times signalling a definite slowdown.
But it should be noted that China’s service economy isn’t measured in its always questionable, what premier Li Keqiang has called often ‘aspirational’ GDP growth figures. Our sources suggest the service sector is doing OK and is now bigger than the industrial sector.
Meanwhile, the IMF’s Christine Lagarde, who is supposed to be one of the global economy’s chief cheerleaders, keeps on stressing that’s she’s downgrading her forecast for global economic growth: seems almost like a monthly exercise.
After all, the US economy is growing sub-par, Japan’s has fallen out of bed, the Eurozone economy has pernicious anaemia and China looks like it may be growing at more like4%- 5% than 7%.
So beat a hasty retreat from stocks or at least reduce exposure unless you have the intestinal fortitude to play the contrarian, Glencore style, game?
Where does this all leave us?
Where we’ve been since 2008, even as the so called global economic recovery runs out of gas.
But here’s the scoop: Central bank zero rate policies trump everything, and so stocks may even grind higher, albeit without an conviction,and against the backcloth of growth and profit constraining ‘currency’ wars and ‘beggar-thy-neighbour’ trade policies, geopolitical red lines being crossed and widespread social unrest.
Does it all look solid and built on strong foundations to you?
As a bond trader said to me recently: ‘just make sure you dance near the door.’
And there still many good bets that can be placed.