Today’s Market Decline
Today’s decline in market values, and particularly in the financial sector, has to reflect more than new employment data. I’m thinking that market participants are coming to see that the risk of at least one sovereign debt default is higher than previously thought. A realistic assessment of the risks and potential impacts on the Euro, world economic activity, and the financial sector is sobering.
I believe the probability of at least one sovereign default is disturbingly high, and the financial sector will be hard hit if one or more sovereign defaults materialize. Bailouts will only postpone the day of reckoning, and a delayed reckoning will be more difficult.
We’ll be lucky if that is all we see. Multiple defaults are not out of the question, and the riots in Greece show how difficult it is to cut government spending. Any social disturbances will only increase the economic pain and delay the ultimate recovery. Multiple defaults too will exacerbate the economic problems.
I think the market decline explanation doesn’t have much to do with Greece or the employment data. It’s just the financial bill as it has taken final shape and become clearer it will pass. Since institutions will have to deleverage and make less profits the market is reflecting that reality. People are trying to blame it on the various news of the day but the market movers have large positions that they get into and unwind over periods of time. From what little I know of the markets the volume changed to one of accumulation to distributive (big players selling but small players still buying) a couple of weeks ago and now it appears to be everyone selling (small players have joined in).
I think everything make sense when viewed in the timeline of the financial regulation bill details becoming clearer as to what passes and what doesnt and how that affects the financial sector in particular.
Personally, I like the market going down, lets me buy good companies even cheaper. I only want the market to go up when I retire.
Hard to believe the bill is that bad.