Stock Preacher

A key factor is preventing huge panic selling of shares and augurs for an equities rebound is the piecemeal nature of government attempts to rescue banks and the economy, according to analyst , Sitaraman Shankar. “We need to see an index falling 7 or 8 percent intraday in high volumes and then ending up nearly flat on the day as the buyers come back in,” said Philippe Gijsels, strategist at Fortis in Brussels. “What we’re getting instead is Chinese water torture, and no massive cleanout. Governments and central banks are tending to watch stock markets and giving investors small glimmers of hope, not enough to take markets higher, but enough to prevent a sell-off.” So for capitulation to happen, markets will have to be hit by a big, negative news event, and for the rebound to be sustainable, the overall environment would have to improve. “We need to see an event that would shock everybody, a big US bank failure, or a country in Europe going broke,” said Mark Bon, fund manager at Canada Life. Bon said positive factors that would need to be in place for any strong rebound included an improvement in consumer or business confidence indicators, some merger and acquisition activity, successful rights issues and a belief among investors that company profits had bottomed out. “We would have a sharp sell-off triggered by an event, and then a turnaround as people reversed their short positions and bought into a rally,” he said. The MSCI world index .MIWD00000PUS hit its lowest point since April 2003 last week. The index fell more than 43% last year, punctured by a credit market crisis with its origins in collapsed subprime U.S. mortgages, and is already down 16%this year. Between November 2008 and January 2009, there was a 27% rally driven by investor relief that governments were acting firmly to deal with the crisis. Since January 2009 global equities have slipped steadily as it became clear that the government moves were not enough to stave off a sharp recession in top economies. NO CAPITULATION = SMALLER FALLS, WEAKER RALLIES

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A US House of Representatives panel got a pledge late last Thursday night from the Robert Hertz, Chairman of the independent Financial Accounting Standards Board to issue guidelines within three weeks that will ease the Mark to Market (MTM) rules that force US banks to value assets at current prices. The head of the US House panel, Rep. Paul Kanjorski (D-Pa.), held out the threat of legislation to pressure the standard setting board and the Securities and Exchange Commission to take steps that would give relief to battered US banks and US insurance companies. The current MTM rule has forced US banks to take steep write-downs on some financial assets, especially securities linked to mortgages, even as they have suffered from the housing slump. As the financial crisis grinds on and world banks large and small founder and fail, the banking industry has pushed for the accounting relief.

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