THE global financial markets have been in chaos since the end of September. There is no other accurate way to describe it.
Money has been flowing in and out of asset class and countries at a pace that we have not seen for a long time. Sentiment has been up and down like the mood swings of a crazy person. The New York Stock Exchange Greed and Fear index has been swinging between the two extremes practically on a daily basis. Trading volumes on that exchange have also been going up and down, reaching 2014 highs and lows within the same week. In the last weeks 3-percent to 4-percent daily swings between high and low have happened several times.
Crude oil prices have been down 20 percent since June. There has been a massive move into the United States dollar. The Japanese yen is down 5 percent against the dollar. The euro is off 6 percent and the Australian dollar has fallen 8 percent.
The markets have been running around like headless chickens that don’t really have a clue on which
direction they want to go. There is a reason for that: The markets do not have a clue on which direction they want to go.
That may seem an illogical and silly statement, but sometimes that is what markets do. There is no direction, because there is none.
Look at the background to the financial and asset markets. The Middle East is in turmoil again and without a direction. The Islamic State (IS) is at war with the Syrian government. The US is supposedly fighting back against the IS, but, at the same time, it has been encouraging the overthrow of the Syrian government for more than a year.
The European Union and the US have imposed somewhat severe economic sanctions on Russia for its role in the crisis in Ukraine. But one of the biggest losers, so far, appears to be Germany, which has been reporting terrible economic data. Other European economies, such as those of France and Greece, are getting worse, not better. The US economy is supposedly getting better, but fewer Americans are working, and the wealth and wages of the ordinary person there continue to deteriorate.
And the world must now deal with the Ebola-virus epidemic that has escaped Africa and reached both Europe and the US, and no one knows what might happen next. Confidence in the US government’s ability to cope with this problem is falling with each new government announcement. It will only take a few more cases in Europe and the US before we see the beginnings of an economic fallout. Already, 50 percent of Americans say they will not travel overseas because of Ebola. Airline stocks have been in freefall in the last few days.
While Asia has not reported any confirmed Ebola case, it only takes a few cases to potentially send Asian markets reeling.
Here in the Philippines, confidence in the political system and the ability of the government to handle normal problems, like those related to disaster preparedness and transportation, let alone Ebola, are not strong. Here also, foreign money is flowing in and out, not unlike in the rest of the world. Filipinos are being very cautious in moving some peso assets to dollars. As we enter the holiday spending season, some retailers are also being cautious, worrying, at least a little, about Christmas sales.
The local stock market is down about 4 percent from its recent peak and, here also, trading volumes have been up and down.
In times of confusion and uncertainty, the worst possible course of action is to behave like a headless chicken.
Moving in and out of the peso to dollars does not make sense, unless you are purchasing things in dollars. The buy/sell spread is high and will overcome any significant gain in peso depreciation. Further, you are now paying so much less for gasoline to more than compensate for going into dollars, unless we are talking about very large amounts of money.
Relax. The local stock market is not going to zero. Watch the supports and buy when we bottom out, which could have been yesterday or might happen in a month.
The Philippines is still the best place I can think of to store wealth, regardless of whether we are talking about stock-market, government and corporate debt, or investing in a business. If you have a better idea, please let me know.
****
E-mail me at mangun@gmail.com. Visit my website at www.mangunonmarkets.com. Follow me on Twitter at @mangunonmarkets. PSE stock-market information and technical analysis tools provided by the COL Financial Group Inc.