Fear and greed two sides of the same coin

The bears rode into town again on Thursday. I blame the Federal Reserve; actually, I don’t, but everyone else in the financial press seemed to. If I blame anyone, it’s Mr Burry, as he continues his quest to prove the tech bubble is about to burst. Who knows? He may well be right, whilst remembering that shorting good profitable companies is always a tricky business, no matter how expensive they are.

 Traders apparently latched onto comments from several Federal Reserve members urging caution when it comes to the markets’ pricing in a December rate cut. Currently, the markets are split 50/50 on a cut, down from odds on before the Fed meeting. Is this a case of under-promise and over-deliver, maybe? It may well be, or are they just hedging their bets, while the backlog of economic data that they have been starved of during the shutdown will slowly be released, now that the Government is again open for business. Tech stocks retook the brunt of the selloff, as we continue to see a rotation from growth to value.

The Daily Mail quickly jumped onto the bandwagon, highlighting the jump in the Vix or “fear” index as the paper reminded us of its theoretical synonym. The article came with pictures of traders with their heads in their hands, as if the world had just caved in. Let me tell you, it is possible that markets could correct further, but having lived through some pretty dark times in the stock market history, today does not compare. I do hate newspapers trying to make a crisis out of a drama. It has the potential to panic people into rash decisions. The Vix closed at its long-term average to bring some perspective.

I rarely write about Bitcoin, as I never find much to say, but if it does appear to have one use, it’s as a barometer of risk sentiment, now trading back below $100,000. Down 20 per cent or more from recent highs.

Let’s look at other barometers of current risk appetite after today, and was there a flight to safe-haven assets? Treasury yields hardly moved; perhaps yields increased by a point or two, but nothing significant. If anything, I would have expected some flattening of the curve. The dollar actually fell against its basket of currencies, another surprising move considering the apparent reason for the downward move in the stock market was a reduction in the expectation for a cut in US interest rates. Higher rates should support the dollar. Gold is still consolidating just above $4000, not much of a bounce there. The MOVE index, the bond equivalent of the Vix, actually fell.

For completeness, we should comment on the latest GDP numbers from the UK, which were not what Ms Reeves was probably hoping for but come as no real surprise to anyone in business. If one had to give her a small piece of advice, it would be to rip up last year’s budget, scrap the NI increase, put 2p on income tax, cut benefit spending, cut stamp duty, and that would encourage the Bank of England to cut rates again. If the economy started to recover, everyone would forgive her in time. However, not sure if this lady is for turning. Anyway, what do I know?