IF 200 -- August 29, 2011 -- 3/20

In the five weeks elapsed from the publication of the previous issue of the INFERENTIAL FOCUS, global financial markets have exhibited wild moves up and down, as in a desperate search of a solid anchor.

On balance, however, the results have been rather negative in equities across the globe, even despite a temporary “short-selling ban” imposed by France, Italy and Spain.    Economic growth gives, indeed, no assurance any more of growing equity prices!

Equities around the globe fell off a cliff.    Gains accumulated since the beginning of the year were wiped out in a few sessions.    For instance, the Germany’s DAX lost 24% of its value in the 5-week period and is down almost 20% since January -- rumors were rampant that rating agencies would downgrade Germany.    Likewise, Italy lost 24% and 26%, respectively.    India is down 15% for the 5-week period and 22% since the beginning of the current year.    Brazil has been weak all year around, but the selloff accelerated recently, sending the Bovespa equity index down 11% for the 5-week period and 23% since January.

The main actors in the current drama are sovereign debt, central bankers, politicians, economic growth (or lack of it), stimulus packages, rating agencies, consumer skepticism, savers in search of havens, etc., all being a clear evidence underlying the fragility of the current recovery, the lack of effective monetary/fiscal tools to engineer growth, and the enormous debt accumulated by governments across the planet now weighing heavily on the citizens of the world’s shoulders. 

U.S. Treasury rates plunged -- see historical charts on following page -- as investors accepted negative interest rates as long as they could keep their capital “liquid and safe”.