Market Commentary for the week of November 7, 2011

Crushing.
A violent shakeout in global equity bourses is reverberating to U.S. shores, and exacerbating the fear that a second global credit/equity crisis is likely.  In response, the domestic equity markets (U.S.) shook significantly last week, despite intraday bargain-hunting and attempts to forget altogether an unresponsive fundamental framework.

In hindsight, my call towards a more conservative asset allocation model this past summer was fortuitous.  The financial markets don’t trust the underlying fundamental statistics, and the public doesn’t trust the financial markets.  All told, we are reeling from two primary evaluations:  (1) the data is unbelievable, if not remarkably poor; (2) the public perceives an inequity in the way wealth is earned.

Social unrest is nothing new.  Dangerous and divisive periods have always been a part of social discourse.  The unfortunate reality, though, is that rebellion and upheaval today is perceived to be caused by economic “unfairness” and the belief that pain and opportunity are not allocated evenly amongst the populace.  The market’s, and society’s, mood will continue to darken as the economy tailspins into a “have versus have-not” paradigm.

Previous economic and social crises have shown to have a timeline.  There is no historical, or quantifiable, evaluation which can be used as a template for all uniformly.  The goal is to avoid psychological default before economic default.  As long as the crisis is being addressed, there is hope to avoid manic deterioration.

Whether that means fiscal or monetary, public or private, national or global solutions is unclear.  We do know that in the internet age, information is not safe-harbored only in one geography.  The Arab Spring is the most cogent example, and most recent, of how quickly the timeline can progress.  By all accountable measures, our leaders are trying to assuage the rage, but the solutions cannot fully be found in money, alone. 

Opportunity.

Massive stock rallies are not entirely built upon cash.  They are built, too, upon optimism and common goals.  Until or unless a credible, common-sense package of ideas is presented, we should hardly expect money to be allocated to risk.

The world has had a difficult catharsis in the last year.  But the seeds of the bear were planted by our own behavior for decades prior.  The entire globe spent and leveraged a market boom that seemed unstoppable, “different this time,” as our dot.com brethren called it.  But nothing is ever really different.  Such is the antecedent of quantitative market studies.  Everything is measurable.  The last bull was no more quantitatively different than those bull markets which preceded it.

The cumulative effect of our currency/monetary policies is to eviscerate our coping policies, our options, for dealing with the consequences of our actions.  Once painted into a corner, we became trapped, taking a lot of innocent people out with the tide.

Even though we might try mightily, the current rhythm of market stochastics is negative.  For the next few years our “bullish” efforts will be spent simply trying to reverse the current downtrend’s magnitude and velocity.  Of that I am certain.