Market, wither art thou?

It's been a long and volatile week, and the downward trend continues as recessionary fears rule the day.

Specific to the STI, is the bottom in sight? During the height of the SARS crisis, the STI fell around 30% before recovering, and during the Asian Financial Crisis, around 60%. The STI closed at 1600 today, which very nearly brings us to the 60% level. Is this a buy signal? Hard to say as this time around the global financial system is affected. What then - 1500? 1200?

The fundamentals are not yet fixed. The sub-prime crises that started this only represented a fairly small portion of the overall mortgage market. Should the recession progress, then we are going to be seeing a lot more mortgage defaults in the US as property prices fall and prime loans begin to default. A vicious cycle is formed.

As US debt instruments are one of the most prolific in the world today, it becomes a global problem as the global banking market is affected. The move by the various governments to inject capital to ease the liquidity issue still hasn't addressed the fundamental question of who holds the (bad debt) baby at the end of the day. This in turn has led to a credit crunch which is affecting main street, thus leading to the recessionary trend.

As companies and consumers become ever more bearish, fiscal policy becomes less and less effective, as savings become the order of the day - where individuals would rather save in a returns negative environment (interest < rate of inflation) rather than spend on goods and services (and capital investments in the case of companies).

The only way out of this is for the economies of the world to show positive GDP growth - which implies the need for governments to have the political will to spend (on infrastructure, etc) to give private industry a shot in the arm.

So is a recovery likely? Not for now. Will there be any progress on Nov 15? Time will tell.

For now the trend continues downwards with little end in sight.