Alas, the fight is not over yet! Throughout 2009, the markets went on a torrid pace, recovering 50% or more from the March 2009 lows. The greedy smiled and claimed victory as economic data began to improve, or rather, deteriorate less. But this last week showed that Fear is still alive and kicking!! With Bernanke’s second term in doubt and China pressing ever so lightly on the brakes of economic growth, investors reacted as they would while driving in a light drizzle….cautious and at a much slower speed.
What happened? Well, fear is driven by risk and risk is driven by uncertainty. The Republican victory in Massachusetts was a surprise to many and the passing of the Healthcare bill is now a major challenge for the Obama Administration. It’s not like they had a clear path to success in the first place but now, the task looks daunting.
As for China, if they slow down from their 10%+ growth and they are the main driver of global demand at the moment, what will be the impact on other economies and their equity and fixed income markets?
Your guess is as good as mine! Hence the uncertainty that increases risk, generates fear, and causes investors to flock to safety. We were due for a pullback! Now what?
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