I can’t believe I’m saying this, but I think US equities are significantly undervalued right now, recessive realities notwithstanding.
I wonder if the market is paying too much heed to the yen-dollar relationship (now at its lowest in years, at 106.82), which has traditionally acted as the canary in the coal mine as far as major moves are concerned. I have heard anecdotally that China has been buying huge amounts of yen recently, to allow the yuan to appreciate against global currencies without letting Japanese exports become too competitive relative to Chinese exports.
And the market barometer of implied volatility, the VIX, only went up by .44 today (about 3 percent) while the market had an awful day. When implied volatility goes up, that can technically mean that stocks could soar, but when the market climate is as negative as it is these days, a spike in volatility has very negative implications for equities.
Anyway, it’s very odd that the VIX barely tiptoed upwards while the markets dropped so much. The inverse relationship is usually way more pronounced. Somebody big blew up, or somebody else is paying too much attention to the formerly predictive, but currently not predictive yen-dollar relationship.
Fidelity did re-open its Magellan fund to new capital/ new investors yesterday, and judging by their tech- and China-heavy portfolio holdings as of October, their “75th percentile” performance has gone down in flames in the last three months. A $2bn Fidelity CDO was also put on the chopping block by Moody’s. Maybe they were forced to puke, somehow.
Anyway, I think equities are in for a major rally tomorrow.