Phew....Is the worst behind us??

This was the thought that came to my mind as i got home from work on October 30th, a day when ticks on the Reuters screen were blue, what a welcome change it was from the red ticks we analysts have become used to seeing with such unfailing regularity over the past few weeks.

On deeper thought, i clearly believe this is a relief rally in a bear market. There is no way fundamentals can change overnight. The reaction of financial markets to the interest rate cut from the Fed is reminiscent of a person seeing a mirage in a desert. That’s not an unfair comparison at all; given the fact global markets seem to expect a recovery in economic growth. On the contrary, I am worried such euphoria might create the launchpad for the next round of pain; I pray this scenario doesn’t materialize. Though reading the latest forecasts from economists at UBS Investment Bank and Deutsche Bank i gather, things are likely to be even worse than most people expect.

The present crisis has now engulfed the global economy, and threatens to snowball into something which most of us wont experience in our lifetimes, well atleast i hope so!! After the US it was the Emerging markets which bore the brunt, now the focus shifts to..... Europe. It was surprising to see the markets ignoring the flow of negative economic data from the EU for as long as they did. The moment realization dawned upon the markets of where the EU was actually headed, there was carnage. And it still continues, apparently things dont like changing anytime soon. The European Union faces a recession for the first time since the introduction of the common currency..the Euro.

In my view, that’s where the next problem area lays...Europe and the UK. The scope for aggressive monetary policies in terms of lowering interest rates, at this point in time are the highest in the UK followed by the EU. Expectations of lower interest rates can also explain the sharp falls in the Euro and the British Pound.

Banks in Western Europe have now came under the scanner, wouldn’t be a surprise should the ECB announce some kind of a relief package for other regional banks. The worst for the US financials could be over, though it’s just a bit too early to be breathing easy as other regions witness problems.

So what am i doing presently? Amidst the routine flow of work, i wait and watch market developments with a great deal of interest. I wish the problems we are in presently would vanish, though this is merely a hope...until the next wave of bad news hits the markets.