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At the Other Side of Rediscovered Optimism (revisited)

Sun, Sep 16 2007, 11:16 GMT
by Mihai Nichisoiu

Mihai Nichisoiu

I wrote once, deconstructing notable market conjunctures and their more or less obvious triggers will always appeal to me far more than the latest ebook on how accurately a stochastic indicator predicts the twists and turns of a rangebound market on a 1-minute chart.
These days, it just couldn't have been different.

The following media headlines - which had me focused as of very late - I consider key toward what I could call the 'dark side of the moon' relative to the current global context:

'Why Libor Defies Gravity'

'BOE's King Refuses to Relax Money Lending Standards'

'Three-Month Pound Libor Rate Stays at Nine-Year High'

'Bank of England Relaxes Deposit Rules to Spur Lending'

'Northern Rock Gets Emergency Bank of England Funding'

'Liquidity Support Facility for Northern Rock plc'

'In the first significant borrowing from the Fed since it lowered the discount rate last month, U.S. banks borrowed $7.2 billion from the Federal Reserve as of Wednesday, the most since just after the attacks of Sept. 11, 2001, the Fed said Thursday'

In an article titled 'Is FX Volatility Dead?', dated November 29th, 2006, and published on the European Central Bank's website - Monica Fan, Global Head of FX Strategy for RBC Capital Markets was concluding in a way that now sounds very interesting relative to the current context of most global markets, as well as ahead of the approaching Federal Reserve's monetary policy decision:

'Increases in volatility are only likely to be sustained if there is a loss of credibility in central bank policy, i.e., central banks appear to be behind the curve.'

In spite of liquidity worth almost half a trillion US Dollars injected over the past weeks, and even though the Federal Reserve finally has a few fundamental pretexts at hand in order to cut the key interest rate - central banks across the board still feel the pressure of being between quite a rock and quite a hard place.

However, during a global crisis and manifest of generalized panic, the ties between fundamental logic and economic calculations - on the one hand - and the market mechanics - on the other hand - more often than not are being compromised. If global markets transacting trillions of dollars every day have already taken on a life of their own counter to the multi-annual trends displayed until very recently, I think the fundamental pretexts justifying the new reality won't be too difficult to be found.

Published on  Sun, Sep 16 2007, 11:47 GMT