views

Withdrawing the stimulus early would be mistake

Ross Westgate
So not bad at all! &nbsp;Historically the two most volatile months for stocks &ndash; October and September &ndash; have passed in the most benign fashion. September crackled by rounding off the FTSE 100&rsquo;s best ever quarterly performance and in October the index has been almost flat. No gremlins there but of course investors now want to know if the market will witness a Christmas rally or has the liquidity fuelled fizz already run out?<br /><br />One hedge fund suspects November could be the start of something grisly. The technical chartists at Hermitage believe there&rsquo;s a sell off coming that might eventually retest the lows from last Spring. That would mean the FTSE 100 again eyeing up its March bottom of 3512.<br /><br />Serious stuff but a technical view that looks fundamentally very hard to justify.&nbsp; Last March the markets were priced almost for the end of the financial world and something would have to go seriously wrong to return to that level of despair. Since then global fiscal and monetary policy has provided enormous liquidity and stimulus to enable, if not the UK or Spain then at least the greater world to emerge from recession. Ironically it&rsquo;s the stimulus that provides the food for both bulls and bears.<br /><br />The bears argue the world cannot sustain growth without it. When stimulation stops bears say recession will start again and point to continuing high levels of unemployment and still cautious consumers. <br /><br />The bulls argue you don&rsquo;t bet against the liquidity and we&rsquo;ll get more of that this week. The Bank of England is expected to announce an increase in quantitative easing by possibly another &pound;50 billion.<br /><br />So who to believe? I wrote in this column at the beginning of September that G20 finance ministers and central bankers had effectively told us they wanted us to buy assets; reflation was the only game in town. Since then we&rsquo;ve come a long way and investors are right to question how much is left. Perhaps the single biggest threat is a policy mistake from central bankers. The mistake would be to withdraw stimulus too early, before we can be sure of getting the self sustaining recovery the bears are worried about. <br /><br />Ross Westgate co-presents Worldwide Exchange and anchors Strictly Money each weekday on CNBC.