Thursday, September 02, 2010
Labour day is unofficially the end of the summer in the US financial markets, so, although the UK and Europe are returning to work (the rest of the world never stops working we know), in this vacuous state of current market theme it may be a case of "No, you go first.. No please .. After you". Because it certainly feels as though no one REALLY wants to do anything and true commitment to trades is very light and can be swung on a dime. The problem is that fund managers are paid to make money, not to do nothing. Unless of course nothing involves riding a profitable trend (see treasuries). The end of the year is now visible and after such a shoddy return, the levels of desperation to perform are going to be rising and we would suspect that any developing minor trend will be pounced on, piled into and finally, later, be puked out of. A rally in something will occur, not so much through greed, but because of a fund manager's more terrifying fear that he has underperformed his peer group and must not miss out.
With current opinion of the world only certain of the uncertainty, it is easier to follow the shoal than be the lone anchovy soon to be shark food. When it comes to end of year arse covering, it's easier to explain away your underperformance if you were in good company, than as a stand out maverick. For one thing, if everyone made no money then who are they going to hire to replace you? If you are the stand out worst performer then the answer is "anyone". It's similar to the asymmetry in response to the financial crisis. The imprudent majority protected at the cost of the prudent minority. And that taught us all something - go with the majority, however stupid, as the majority ends up carrying the vote (and pitchforks).
So that is why, with real money managers returning in an environment already discounting doom, they are probably going to look around and place their roulette chips on equities. And when they do and the markets start moving, there will be a "follow the leader" response, however stupid the move may look. Like usual the market will find some good reason of post justification.
We remember the old army saying "don’t fire until you see the whites of their eyes", designed to conserve ammo and make sure every shot is a kill. We also remember in the late 80s early 90s, the fashion for spivvy London boys (and hence many in the London markets) to wear white socks. So we will sit here like Lieutenant Bromhead at Rorkes Drift, in the face of what may be a Zulu dawn of traders buying equities and shout -
Don’t Sell 'til you see the whites of their socks!