Remember economic conditions then were highly predicated then on Fed and ECB action and some continuation of this has occurred in the aftermath of the crisis.
Note the recent bounce from the low referenced the rise of the economy during the housing bubble. I am suggesting perhaps conditions then were too controlled by central banks policy and there have been attempts to resurrect this which the market seems to be rejecting.
Now whether it was the intention of the Fed to do this is another matter, but the blog has noted some possible causal mechanisms by which this was possibly done.
In the aftermath of the crisis the need was to stop the credit markets from melting down. Then it was the attempt to restore asset values sunken by the recession. As this blog noted, the way companies were affected by the crisis is terms of share prices could be broadly grouped into different categories. But even very very very good companies saw falls of 33% - 50%, an astonishing loss of equity.
This blog has examined some of these companies, if you remember I made a list before the crisis of crash companies to watch what would happen if that crash happened. In a way though, the crash did not exactly happen.
A huge surge of money flowed out of stocks, driven into that spike low this blog mentioned by margin calls on hedge funds and so on, but the creative output of strong US companies continued almost unabated. The question I asked myself before the crash is, was this event going to damage the structure of companies.
This blog has examined some and noted that they have really tightened up their balance sheets, in the manner US companies do and I even conjectured that they would be stronger in a company led recovery.
An examination of the share prices of powerful companies has revealed that the crisis seems only to have changed the slope of the trend line (as happens in a market correction). Now for those holding financial companies this crisis is a crash of epic proportions.
But in a way, it is just a move by the market to correctly value these companies as some of their value was predicated on a housing bubble which popped.
Now whether these companies are correctly valued in another matter. At a guess and it is only a guess, in an economic recovery they are not. Thus the aftermath of the crisis reveals a mixed economic landscape, but not necessarily a disaster by any means.
Perhaps a better term for all this is a valuation crisis consequent on use of target rates to simulate an economy (note 'simulate'). Thus could we say forex references economic structures rather than data points.
© 2010 Guy Barry - All Rights Reserved.
