New Year: Changed Expectations?

I'm eating my first bowl of cereal of the year whilst soaking in the news from the past Christmas week as part of my daily prep. I know, I should actually be asleep recovering from the health detrimental behaviour of the last couple of days. But what can I do, work is work, you just have to get on with it.

I decide to print out some charts and update the quotes from the last trading day. Immediately I see we have just hit a low that goes way back to August, after a massive sell off throughout the whole of December. Have paper traders readjusted their expectations in this period for the coming year, or have they been securing profits from their activity in the gone year?

I read some news, nothing out of the ordinary has happened. A little terrorist activity here, the odd tragedy there, but nothing that will have any direct and immediate impact on the world economy.

I go through my blog roll: talks on the "January effect", comments from "several reputable analysts" and "forecasters" blabbing on about how we have had a steady rally for "maybe" (and that is the key word) too long and it is time for a crash! Yet, as usual, nobody tells you when!

Timing is extremely important, especially when picking the bursting point. But none of these professionals wants to get their feet wet. So then, why should I?

OK, I'll do it anyway, at least for today: I think the undercurrent is still one of sustained global growth. A recession in the asian giants seems too far away, and would have to follow a prior period of slow down. Therefore demand and consumption from these countries will remain, thus enduring positive commercial opportunities for the rest of the world, especially for the major players in infrastructure industries.

On the other hand stocks have been steadily regaining ground lost in the now long gone post dotcom crash doldrums. The question remains whether the reminder of the dotcom episode has actually made people more cautious or more brave in their attitude towards exposure to risk. I think the steady gains we have seen in the last year are a consequence of slightly cautious yet confident investors trying to establish the next deed to put their money to. However, the herd has not yet followed. And this is where they key lies in regards to timing. If this year we see a steepening of the uptrend, then rest for sure it is a sign that we are approaching a reversal.

Fixed income will be very much dependant on how central banks interpret the general state of the economy. In my opinion they will implement cautionary measures if the growth levels remain high, but may will spread them out so long as inflation, which is their only "official" concern, remains under control. In the short term the prevailing sentiment could be that a rebound is called for after the December sell off, having there been few clearly identifiable reason for such a price difference.

My trades for the day: Bounce off low with day uptrend at least to last session's highs for the morning session. US will probably be quiet being a half day, so Bund price will stay horizontal in the afternoon