CURRENT state of equity markets is taking me back to a song from my youth: “dreamer, you’re nothing but a dreamer. Well can you put your hands in your head? Oh no.” Apologies to Supertramp, but there have been times recently when these markets, and the desperation to put on the blinkers and ignore the facts, have reached dreamlike proportions.
Whether it’s the roulette wheel of US data-watching, or the refusal to admit that Greece is an economic basket case of epic proportions, the net result is the same: at worst, equities have been wobbling here and there – only to continue the rally to record levels, in the case of US markets, and not far off in terms of other indices.
One example I came across last week was when I was doing a short piece for our US affiliate MSNBC. The anchor stateside threw me the line: “markets rallying to records levels on the back of the great jobless data”. For a moment, I thought about replying: “are you joking? The market would have come down on those numbers, had it not been for the atrocious PPI numbers on Thursday. Don’t you get it? We only rally on rubbish numbers these days”. But of course, I just said “yeah, great news,” and carried on.
The MSNBC audience are not financial junkies, but they do live in a world bereft of the same kind of cynicism we exhibit on both Wall Street and in the City. These PPI data, along with retail sales and GDP, could have sent a market worried about the underlying economy running for the hills. But who cares about the foundations of the economy when we can have a few extra months with no US rate hike?
Even bad news from the corporate sector is ignored – if any excuse to pump the market higher can be found. The S&P 500’s first quarter reporting season is almost over, and it has been awful if you look at revenues – but nobody is. The predictable and contrived earnings beat is all anyone has been looking at.
My favourite dream sequence of last week was over the non-bid for Avon. The shares in the denigrated cosmetics group surged 20 per cent after the hoax Securities and Exchange Commission filing from PTG Capital Partners. Avon said that it had not received an offer, and could not confirm PTG exists. So much for the market doing its due diligence before placing the buy orders. Traders wanted it to be true, and PTG sounded familiar, so up went the stock. Dreams can, of course, very quickly turn into nightmares. And European bond investors have been finding that out in the past few sessions. So for the equity junkies, enjoy it while it lasts. Sooner or later, we might all wake up in a cold sweat.
Steve Sedgwick is anchor on CNBC’s SquawkBox Europe.