After an extended period of not writing a word, I thought today might be a good day to review some of the recent happenings in equity markets.

Those of us who looked forward to a new year of positive news have quickly realised that not a great deal has changed. Major global economies are still in trouble and getting worse, Government bailouts for “insolvent” Financial companies continue and unemployment is rising every week. The confidence in equities is still shattered, mainly because the leaders of the free world won’t hold anyone accountable for the mess we find ourselves in. There are calls for transparency and a return of trust, but how can that happen when the very same people who brought the Western finance system to its knees are still in charge and making important decisions? That is not a rhetorical question by the way; I would welcome emails from people who want to defend the FED chief and Wall Street executives, or anyone else for that matter!

In the first four weeks of trading, most major indices are still trading a little lower. I said six weeks ago that we have started to see a relative bottom. What I didn’t expect was that the bottom would just continue basically as a flat line, although recently that flat line is starting to slope downwards… The volatility in the market remains, which is why for every rally we get a dip. For every piece of good news, we are side-swiped by half a dozen items of bad news. Sooner or later, this must end. Private capital is out there and is waiting for a return to the good old days when everyone believed what was shown on corporate balance sheets was in fact, factual! I guess the phrase fool me once needs to be modified to include “never again”…

Even with all the bad news, innovation and strong business ideas continue to thrive. Take a look at the following link for example. http://www.techcrunch.com/2009/01/21/oneseason-raises-35-million-for-its-sports-stock-market/.
OneSeason is a sports stock market where people trade stocks valuing how much each of the sports stars (athletes) is worth on the open market. It just shows you, people are still willing to invest some of their money in a market that is transparent even with the aim of just realising capital gains! (I don’t believe you can get dividends on Lebron James) Investors are able to tell how their “investment” is going just by turning on a cable sports news channel! I wish the people at OneSeason all the best, hopefully they can help share some ideas with us when we finally role out the gTrade platform for live trading. Stay tuned in the next couple of months for more announcements on that…

Anyway, before I rabble on too much, here is my summary of the current state of major global equity indexes. I thought I would include the Index levels before the Christmas holidays, and then maybe someone can tell me why none have changed on the upside for the past six weeks!!

Index	11th December 08	22nd January 09	Change
Dow Jones	8809	8122	-8%
S&P 500	898	827	-8%
DAX	4791	4219	-12%
FTSE 100	4367	4052	-7%
Hang Seng	15533	12657	-19%
Nikkei	8642	8051	-7%
ASX 200	3660	3484	-5%

As you can see, there is not a winner among them. The support for the current bottoms is giving way and until we start defaulting the bad debt, which means removing the insolvent companies from the system, whether they are Banks, Autos or Miners, we will not see any extended rally or a return to growth. If anything, since the reporting season has only started, we are guaranteed to test some new lows in the short term. Hopefully the new administration in the US will take a long term view of the situation and ACT in the short term. The sooner we start seeing fraudsters and cheats being prosecuted as they should be, never mind it being white collar crimes, the sooner the investors will return their capital to the markets.

As a final point, I will replicate Mr. Karl Denninger’s recent words on the Market Ticker, because as always, he strikes the core of the argument.

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For confidence to return, market participants must know the following things:

• What the rules of the game are - whether short selling will be allowed, if there is or is not an uptick rule, whether naked shorting will be prosecuted (as it should be) consistently, prosecuted when someone wants to score a political point, somewhat ignored or treated as if it wasn’t happening, as just one example.  This includes a formal, published plan to “cram down” systematically important institutions along with identifying who they are - so that investors know whether it is safe (or not!) to buy specific classes of investment.  Fannie and Freddie’s pseudo-nationalization rewrote the rules for preferred stock, for example, but in subsequent failures this same model was not followed, leaving market participants unable to determine what the risks are of investing in various classes of security.

• That every balance sheet and financial statement on Wall Street shows the true financial condition of the firm in question, and when it is found not to, that everyone involved will go directly to jail.  This means no more off-balance sheet games, no more “mark to fantasy”, no OTC derivatives written with zero margin supervision or capital and no more pretending to have capital that doesn’t exist.  In short, no more ENRON-style accounting and no more zombie companies that exist ONLY on the hope of a government rescue.

• That fraud will be actively prosecuted no matter who commits it.  The little guy who cheated in the tech years should certainly be prosecuted, but so must be the CEO who claims on CNBC to have a “strong capital position” three days before his company detonates, leaving behind a 100 billion dollar smoking hole on Wall Street.  The former has been indicted, the latter has not.  There can be no confidence so long as cheating goes unpunished.

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If we continue to demand action maybe we will start to see some positives soon.

Regards,

Tony Fle-Danijelovich
Co-Founder
gTrade

This entry was posted on Saturday, January 24th, 2009 at 12:28 pm and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.