News Brief from AXA Equitable: Highlights from recent notable market news reports
Sept. 9, 2011
The world – nations, companies, financial institutions and individuals – is scrambling to reduce its dependence on debt, but the process – especially in Europe – has barely begun and “will hold back economic growth for a long time,” wrote David Wessel, The Wall Street Journal’s economics columnist (“Monitoring the Great Deleveraging,” by David Wessel, Sept. 7, 2011, The Wall Street Journal).
“U.S. bank deleveraging [reducing debt] is in the fourth quarter,” Wessel wrote, “but European banks are in the first. Overall U.S. consumer deleveraging is at halftime with housing still in the first quarter. Government deleveraging has barely begun.”
Skepticism about economic growth can weigh on stocks, and adding to the downward pressure are hedge funds betting against the market (“Bearish Hedge Fund Bets May Send U.S. Stocks Lower, Bartels Says,” by Nikolaj Gammeltoft and Betty Liu, Sept. 7, 2011, Bloomberg).
Bank of America Corp.’s Mary Ann Bartels told Bloomberg, “We still believe that hedge funds have the ability to significantly short the market. … It’s a bearish signal, absolutely.” In a short sale, an investor sells borrowed stock hoping to buy it back cheaper to make a profit on the decline.
“What we’re most concerned about is the banking system in Europe,” Bartels said.
A Wall Street Journal article noted after the latest stock downdraft, “Investors, increasingly discouraged by a toxic blend of political gridlock, austerity efforts and vulnerable banks, appear to be in no mood to take chances” (“Investors Run from Stocks,” by Jonathan Cheng, Sept. 6, 2011 The Wall Street Journal).
“Investors realize that policy makers in Europe and the U.S. don’t fully comprehend the whole situation,” Matthew Lloyd at Advisors Asset Management told the Journal. “A prime example is the U.S. jobs picture, which should have become a top priority two years ago, and now it may be too late to do anything.”
“From an investor’s standpoint, do you want to be exposed to a modest upside with a very significant downside?” Dan Greenhaus, chief global strategist at BTIG, told the Journal. “You can see why investors would want to move to riskless assets in response to what could be another 20% fall.”
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