Pain Trade Continues

Wow, what a rally yesterday. What brought it about? Well the Housing numbers certainly helped, as did the talk that when AIG report results on Thursday, they will not, repeat will not, need any more government money. $182.5bn is enough. This is coming from 3 people familiar with the situation…so it must be true. Nevertheless, the Pain Trade continues as we grind higher and the question “surely this market can’t go any higher, can it?” weighs heavily on the Bears’ minds, and even more so on their PnL.

There’s been quite a bit of chat recently about how Asia is going to lead us out of this crisis, and the Chinese data last week was encouraging and to be fair has been better over the last couple of months. I’m pretty upbeat on the whole BRICS idea in general, in as much as while things are slowing, they’re still growing and these emerging economies aren’t going away. I struggle to see how the East can lead the West out however. It all seems a little incongruous to me. Asian economies are heavily export led. Exports make up c40% of Chinese GDP. Surely the countries which buy those exports (largely USA) have to recover first in order for Asian economies to follow suit. Also, it is not uncommon to question the veracity of official Chinese data, and given the stimulus packages etc, it is certainly helpful/convenient to see the subsequent bamboo shoots of recovery.

I’ve been sceptical in the past about exercises such as the Stress Tests, where clearly they aren’t realistic assessments of the state of play. It’s embarrassing and insulting to have the powers that be present this methodology and data and expect people to take it at face value. I also think Obama acts like a headmaster and addresses and chastises his nation like they are little schoolchildren…which given most aren’t, is incredibly patronising. Especially since most of what Obama actually says, while wrapped up in Cicero like, silver tongued eloquence, is actually very light on substance. Anyway, I thought these were valid points. It turns out I’m wrong and that people in fact, want to pretend this isn’t happening, and look to their President and other officials to propagate the myth