Stock Take

RISK MANAGEMENT:"Lighten up on risk-taking now," warned legendary value investor Jeremy Grantham recently. Traders seem to be taking his advice. On Monday, the Nasdaq suffered its biggest one-day fall in two months while the semiconductor index has fallen below its 50-day moving average.

So has the small-cap Russell 2000 index, while Hong Kong’s Hang Seng index this week struggled to stay above its long- term 200-day moving average, indicating waning risk appetite.

Stocks and commodities have fallen while the VIX, often known as the fear index, has risen since the Federal Reserve indicated that it would end its second round of quantitative easing in June.

Cantor Fitzgerald strategist Pete Cecchini this week warned that just as “massive” liquidity injections led to lower volatility in stocks and commodities, “any withdrawal of liquidity necessitates a higher volatility environment”.

The technical picture is not all gloom. The SP 500 remains above its key averages, sentiment surveys have not shown the bullishness typically seen near market tops and even the Nasdaq’s aforementioned one-day fall – 1.6 per cent – was hardly damning.

Nevertheless, market watchers will be watching whether this dip is eagerly bought or whether risk- aversion is truly coming into vogue.

DSK AND GREEK DEFAULT:Ahead of Dominique Strauss-Kahn's departure as IMF chief, Mohamed El-Erian, chief executive at Pimco, the biggest bond fund in the world, warned it would increase the likelihood of a Greek default.

Certainly, investors appear to have given up on Greece. A Bloomberg poll of 1,263 investors and analysts found that 85 per cent expected a Greek default. For Portugal, 59 per cent expected debt default, with Ireland (55 per cent) close behind.

AN UNKNOWN KNOWN:Worried by it all? Don't be.

“Philosophically one has to question whether there is any merit in being worried about anything,” a Deutsche Bank note read this week.

It went on to matters existential. “Sartre’s philosophy of negation simply points out that we need a context for something not to exist. A crossroads where there has never been a stop sign is very different from one where there used to be stop sign, but that has since been removed. In the first instance we have nothingness, in the second non-existent.”

The moral, apparently, is that while markets are rightly nervous “as we navigate the unknown” following the imminent ending of quantitative easing, there is no cause for panic. “It is an unknown that we know!”

Don’t be worried if your brain can’t process all that. After all, there’s no point.