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Strike!

Did you need any more evidence of a tough few months ahead for equities? How about these lines, from Citi:

Buyers lacking - Little support from traditional institutional investors, hedge funds or private equity. Short-termism prevails.

Traditional Investors Selling - Outflows from European retail funds €100bn annualised make 2008 the worst for 10 years. Life and Pension funds also selling.

Hedge Funds Not Buying - Hedge funds have found it challenging to raise capital. Short covering could provide support to the equity market.

There’s a buyers strike on. The shift from equity to bonds is continuing “unabated” notes Citi’s European equity strategy team - with institutional and retail investors pulling out at an alarming rate. Take, for example, the sucking vacuum at the mutual funds left by fleeing consumers:

Retail investors began selling down holdings of equities almost as soon as fears over sub-prime mortgages took hold in early 2007. They have been sellers of equities for 15 consecutive months.

Mutual fund outflows

Coupled with trends away from de-equitisation, we’re looking at oversupply and lack of demand. Confidence will be needed to avert “short-termism” plaguing the market.

Second quarter earnings, notes Citi, will be crucial: not only will they likely stateside mark a fourth successive quarter of falling earnings on the S&P 500, but they’ll also give some indication of how far the contagion has spread. Hitherto we’ve seen financials under the cosh. Q2 will give the clearest indication of how rapidly the rot is setting in - and exactly how painful a putative recession will likely be.

This entry was posted by Sam Jones on Friday, July 4th, 2008 at 10:18 and is filed under Capital markets, Hedge funds, People. You can follow any responses to this entry through the RSS 2.0 feed. Responses are currently closed, but you can trackback from your own site.

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Comments

  1. Jul 04   13:59 Posted by Paul Murphy [report]

    “Trickle-up economics.” Very good. Might re=purpose that Rohr.

    Murphy/Alphaville

  2. Jul 04   13:45 Posted by Rohr [report]

    Apologies for the modest critique, but Q2 data is a bit of a backward looking irrelevance under the circumstances. Enlightened self-interest means buyers won’t be back until they sense the system is past the crisis implied by continued credit erosion. Handing banks cash to buffer mounting writeoffs won’t do it; the US Housing bailout is the only reasonable (if morally suspect) answer. Even as a dyed-in-the-wool capitalist, I can see that the mistakes of the Masters of the Universe at the top now require some ‘trickle-up’ economics ‘balm’ for an inflamed system before the burns spread any further.

    It’s well past time for everyone to stop focusing on the economic data consequences and apply a ‘fix’ to the cause of the interbank illiquidity and general consternation. The confidence that Sam duly cites is needed will not develop until someone steps in to stop the rot in US housing; with positive effect back up an entire chain of local, regional, national and global, personal, fiscal and financial services implications. The stark choice is down to either a vicious (as at present) or virtuous circle. Anyone seeking more specifics on this should check out David Hale’s excellent FT Comment from back on June 16; he ties in the US dollar implications as well.

  3. Jul 04   11:22 Posted by taxloss [report]

    I’m trying Monkey, but they don’t make it easy.

  4. Jul 04   10:53 Posted by Monkey [report]

    Leverage loans is where it’s at … buy leverage loans - they are cheap cheap cheap, and the senior stuff even has first lien over assets …c’mon pleeeeease!!

  5. Jul 04   10:48 Posted by Sam Jones [report]

    Limey - quite right. What I meant was “trends away from de-equitisation” rather than “towards”. Corrected.

  6. Jul 04   10:35 Posted by Limey [report]

    I think you mean de-leverage, not de-equitisation.

This post is closed to further comments.