Has the All Clear Been Sounded?

Bloomberg reports that the “All Clear Has Been Sounded:”

“Global markets are signaling that sustained economic growth will more than make up for Japan’s worst disaster since World War II, rising commodity prices and uprisings throughout the Middle East and North Africa.

Interest-rate derivatives, bond sales by the riskiest borrowers and rebounding benchmark stock indexes all show increasing confidence in the economy. New York-based JPMorgan Chase & Co. is putting up $20 billion of its own money in a short-term loan to finance AT&T Inc.’s $39 billion bid for Deutsche Telecom AG’s T-Mobile business.”

I am less than certain of that.

Contagious unrest and multiple regime change In the Mid-East, a spike in Oil prices, a devastating triple whammy in Japan of earthquake/tsunami/nuclear accident, and now military action in Libya, have all been shrugged off.

So much for the “black swans.”

Indeed, the snapback rally of the past few days reminds me of a very junior version of the deep selloff and bounce following the 9/11 attacks. After the selloff, markets became deeply oversold, fear and sentiment became so negative, it created a bounce that erased nearly all of the rally prior to rolling over again.

The key difference was that 9/11 occurred within an overall down trend that had begun with the top in March 2000; the present turmoil comes within an uptrend that began in March 2009. Hence, the environment is not quite parallel.

We had the early signs prior to this action of the formation of a top. I expected that process would take several months to develop. This latest drop/pop obscures that somewhat.

We do know one thing: Big historical events have a tendency to make the markets wobble somewhat before they resume their prior trend. Gary Smith did an excellent overview of this at TheStreet.com back on September 15 2001.

It remains to be seen whether this is just a bounce or the beginning of a more lasting move.


All Clear Sounded as Markets Shrug Off Multiple Black Swans
John Detrixhe
Bloomberg, March 22 2011

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