1. Another Huge Decline In The Emerging Equity Markets Or A Double-Dip Recession Is Unlikely. The current (May 2010) market turbulence is attributed to the confluence of several factors rather than to Greek contagion alone.
List of non-Greek factors included regulatory and fiscal reform, monetary tightening in China, U.S. mid-term elections, geopolitical concerns, and the Gulf of Mexico oil spill, which has become the largest U.S. spill in history with resulting long-term implications for oil companies and offshore drilling.
Others include the still unexplained May 6 2010 “flash crash,” growing geopolitical tensions in Korea, Thailand, and the Middle East, and persistent signs of stress in the short-term funding market, exacerbated by the potential for bank credit rating downgrades with the passage of financial reform.
In addition, newspaper headlines are touting the worst May 2010 since 1940 for the stock market. Clearly, the less-than-perfect storm has picked up momentum.
This combination of factors has continued to weigh on capital markets. Since their respective peaks in mid-April 2010, the MSCI Europe Index is down 18%, the FTSE 100 is down 17%, the MSCI Emerging Markets Index is down 12% and the S&P 500 is down 11%.
What is particularly notable over May 2010 is the increase in the 3-month London Interbank Overnight Rate (LIBOR) and the related LIBOR-OIS and TED spreads, which measure short-term credit and liquidity risk.
Today (May 2010)’s market participants keenly focus on movements in these measures because they widened leading into the 2008 global credit crisis and did so well ahead of corporate bond or equity market distress.
The key question we face is if this current (May 2010) equity downdraft and widening of short-term credit spreads is the harbinger of either a further major drop in the financial markets and a double-dip recession or simply one of many corrections we are bound to have for the foreseeable future in the face of the uncertainties mentioned above.
To address this question, we need to review current (May 2010) economic fundamentals, which continue to signal recovery and growth in most corners of the world.
We also need to explore how today (May 2010) is very different than 2008, given where we are in the economic cycle, the liquidity of U.S. financial institutions and expanded Federal Reserve policy tools, the existence of non-fundamental factors that may be contributing to widening spreads, fair valuations in equities, high yield, and real estate, and, finally, pessimistic investor sentiment.
Taken together, these differences versus 2008 suggest that another huge decline in the equity markets or a double-dip recession is unlikely. Investor sentiment can shift quickly and dramatically, and sustained negative sentiment can become self-fulfilling.
The Latest Economic Data …The latest economic data illustrate that on balance the global economic recovery continues, and in fact, the OECD raised its global growth forecasts in late May 2010.
In the U.S., the economic recovery continues and leading indicators point to forward growth. On the positive front, May 2010 consumer confidence measures were stable or improving, with the Conference Board Consumer Confidence Index jumping to its highest level since March 2008 on an improved 6-month outlook for business and labor market conditions.
Less positive, however, were the new order numbers in several manufacturing surveys; they remained firmly in growth territory but did weaken from April 2010. In addition, housing data remains mixed with existing and new home sales robust in April 2010 but home prices as measured by the Case Shiller Home Prices Index falling modestly in March 2010.
In Euroland, economic activity data remained favorable but consumer sentiment deteriorated. On the positive front, initial estimates for Q1 2010 GDP showed modest 0.2% growth from Q4 2009, and both the May 2010 manufacturing and services PMIs point to continued economic growth in 2Q2010.
Consistent with these readings, business confidence generally remained stable in Germany and improved modestly in both France and Italy as companies anticipate a weaker euro may benefit exports and fiscal reform may hold down labor costs.
Neutral to negative, however, was the modest fall in consumer confidence in all three of these major European economies amidst the sovereign debt crisis and pending fiscal reforms.
Japan’s economic data have generally reflected a solid recovery, benefiting from strong exports. Q1 2010 GDP increased at a 4.9% annualized pace and accelerated from growth in the prior quarter. The new offers/applicants jobs ratio, which is a leading indicator, improved modestly.
Data in China remained robust in April 2010, with industrial production and retail sales growth stable at 18%-19% year over year. Broad money supply grew 21.5% year over year despite recent increases in bank reserve ratios to help moderate economic growth and inflationary pressures.
Economic data broadly remains supportive of a continuation of the global recovery. Moreover, it is important as well to distinguish between a deceleration in the rate of growth, which is evident in some measures above, and a decline in economic growth, which is not evident.
Is Today (May 2010) Developing into Another 2008? The economic, policy, and financial market backdrops are very different today (May 2010) than in 2008, suggesting this market downdraft is more likely a correction than the start of a major market decline and a double-dip recession.
First, the economy is in the early-to-mid stages of a cyclical recovery as opposed to the end of a long period of economic expansion, as was the case in 2008. Underlying data demonstrate that the U.S. and other major economies are in the nascent phases of economic recovery, the OECD estimates that all of its member countries are in fact producing output below their capacity, and leading indicators point to continued growth in the quarters ahead (June 2010 & Beyond).
In addition, monetary policy remains lax, which is traditionally supportive of equity appreciation and economic growth. By comparison, in late 2007 and early 2008, almost all OECD countries were generating GDP above their potential, monetary policy was much tighter, and leading indicators were signaling future economic contraction.
Second, U.S. financial institutions are better capitalized and major central banks such as the Federal Reserve already have a playbook to enhance liquidity if necessary.
To-date (May 2010), it appears that U.S. banks have not experienced significant funding issues, in part because of several changes in the past two years (2008-2009): U.S. financial institutions have cut their reliance on short-term commercial paper by approximately half; they have raised capital such that their Tier one ratios (which measure their ability to absorb losses) have increased to 11% from 8-9%; and they have cleared up the uncertainty around asset values on their balance sheets.
In addition, the Federal Reserve has shown its propensity to act swiftly, re-instating its program to loan U.S. dollars to the European Central Bank (ECB) to enhance liquidity for European financials. Interestingly, only $6.4 billion has been drawn from the facility, compared with $430 billion at the peak of the crisis, suggesting it still remains less expensive for European banks to borrow U.S. dollars in the open market than through the ECB and Fed swap lines.
Third, the recent (May 2010) widening of funding spreads no doubt reflects renewed concerns about liquidity and credit risk. That said, spreads remain well below peak levels and often not discussed is the impact that new SEC regulations and potential financial reforms may be having on spreads. More specifically, new SEC regulations require money market funds to hold at least 30% of their portfolio in assets that can be converted to cash within 5 days and to shorten the weighted average maturity of their portfolio from 90 to 60 days.
As a result, money market funds’ desire for shorter duration assets has likely pushed longer-term funding spreads higher. In addition, money market funds may be more hesitant to lend to banks given speculation that ratings agencies, including S&P, may downgrade bank credit upon the passage of financial reform if government support of the institutions is perceived to be reduced or eliminated.
Fourth, the major developed equity markets are less expensive today (May 2010) on an absolute basis than they have been historically. Heading into 2008, the picture was starkly different, with most equity markets trading above their historical averages. As a result, there is a greater margin of safety built into valuations today (May 2010) than in late 2007, when the market peaked.
It is important to be aware of both relative and absolute valuations when considering the attractiveness of any given market, as well as what is driving the cheapness.
Lastly, while investor sentiment is pessimistic today (May 2010), this can be an important contrary barometer to the likely direction of the market. Unlike the relatively bullish sentiment and investor flows that prevailed throughout much of 2007, today (May 2010)’s investors remain highly skeptical.
Potentially adding to investors’ pessimistic inclination lately is the often-cited Wall Street adage “Sell in May and Go Away.” This saying originated in England as “Sell in May and go away. Go away till St. Leger’s Day.” St. Leger’s Day marks the last leg of the English Triple Crown and typically takes place in mid-September. It was viewed as the end of summer vacations and the resumption of trading in the markets; however, over time investors have interpreted the saying as “stay away” through October.
While there does seem to be some historical credence to this idiom, given that the average monthly returns from May through October are only 0.26% vs. 1.05% from November through April, much of the difference results from weakness in the month of September, not the early summer months.
Moreover, the economy’s position in the business cycle is a far more important determinant of equity performance than any seasonal pattern per se. On the back of last year (2009)’s cyclical recovery, the S&P 500 was up 18.8% between May and October, 2009. As such, it does not lend much credence to this Wall Street proverb.
In short, there are enough material differences between today and 2008 to make a repeat of that crisis unlikely. However recognize that current (May 2010) market sentiment remains fragile and that negative perceptions can quickly become reality. Market sentiment does, however, work both ways, as a more optimistic shift can also lead to a sharp rally.
What Are The Investment Implications?On the positive front, the global economic recovery continues, policy is largely accommodative, the Fed has tools to help ease short-term liquidity constraints, and valuations are undemanding relative to history.
On the negative side, structural challenges will likely persist with high sovereign debt levels requiring fiscal consolidation and/or higher taxes, not to mention the confluence of factors adding to the uncertain backdrop.
Whether or not these longer-term structural issues actually undermine the current (May 2010) cyclical recovery will depend critically on investor confidence, which is the hardest factor to predict.
Therefore, the risk has increased but base case remains that ultimately policy responses globally will be sufficient to remove extreme tail risk and that global growth will remain intact. As such, investors who can weather the volatility can weather the volatility are recommended to build toward or maintain their long-term strategic weights as absolute valuations are undemanding and economic data remains supportive.
2. Implications Of Europe Debt Crisis On The Asia Economy Asia’s growth is accelerating as companies ship more cars, computers and commodities overseas, highlighting the role of exports in the region’s recovery and the risk of a slowdown should Europe’s debt crisis worsen.
Asia’s rebound is outpacing the rest of the world but this recovery may slow as Europe’s debt woes hurt consumer and business confidence in advanced economies, and a weaker euro makes Asian goods more expensive.
Expecting a moderation in exports because of the negative impact from Europe and the currency appreciation against the euro can really affect sales. Asian exports to Europe are likely to decelerate but those to the U.S. and emerging markets will remain resilient.
Developments in recent weeks (May 2010) suggest that downside risks have intensified. There is heightened market anxiety over the possibility of a sovereign debt default in Europe. While policy makers in the EU have introduced timely and forceful interventions to reduce the downside risk in the near term, significant uncertainties remain beyond the immediate horizon.
The economy of Organization for Economic Cooperation and Development members will have “mediocre” growth in the next two years (2010-2011). Leading indicators for a whole range of OECD economies have started to turn, suggesting that growth may begin to slow sequentially.
Asia’s developing nations are more reliant on overseas shipments than the rest of the world, with 60 percent of their sales abroad ultimately destined for the U.S., Europe and Japan.
Besides turmoil in Europe, Asian economies also face the risk of a slowdown in demand from the U.S. and China.
Growth may also slow as Asian central banks start to withdraw monetary stimulus to stem inflation and asset bubbles. China has ordered banks to set aside more reserves three times for 2010, the Reserve Bank of India increased interest rates twice, and Malaysia boosted borrowing costs in March and May 2010.
Among Southeast Asian nations, Singapore and Malaysia’s export-dependent economies will be worst hit by any slowdown in European growth and demand.
The Impact On Asia ex-Japan …
The recent developments (May 2010) in Greece and Europe have been a pointed reminder about structural issues related to too much debt in some of the developed world economies. The manifestation of this persistent structural challenge in the recent (May 2010) debt market developments has increased the downside risks to the bullish view on AXJ ( Asia ex-Japan)'s growth cycle and reduced upside risk to the inflation outlook.
Indeed, as of now (May 2010) all leading indicators and current data points indicate a very strong trend in domestic and external demand. The current base case forecast assumes GDP growth of 9.0% in 2010 and 7.8% in 2011.
However, the key risk now (May 2010) emanates from the potential emergence of round II of severe stress in the European and global financial system, funding shortages and downside risks to global growth. Of course, the decision by policy makers in the EU to start an emergency stabilization fund for EMU should help to buy more time to implement the serious structural changes needed to improve the underlying fiscal health. Even if the downside risks do materialize, AXJ economies will emerge resilient again even in this round of global growth uncertainties.
The €110 billion emergency (May 2010) lending facility from the EU and IMF has not been enough to calm the markets, as reflected in yields on government securities. Effects are beginning to spread beyond Greece and the EU to other markets. Since then the troubled eurozone countries saw their G-sec yield spreads over Germany move much wider again.
Implications For AxJ Economies: Two-Step Framework
First Stage Impact …
Hopefully, the measures announced will help calm the markets for some time. However, if sovereign credit problems continue to deepen, in the first stage, investors will remain focused on the external balance sheet linkages more than the trade linkages, which will emerge as an issue later.
If the risk-aversion trend continues, the market is likely be concerned about external balance sheet linkages, including FX reserves to short-term external debt ratio, current account balance, dependence on capital inflows, exposure of the banking system to wholesale funding, and commercial banks' holding of European sovereign bonds.
Even in 2008, markets remained in the grip of similar issues until the financial system in the US stabilized and global risk appetite improved. Last time, the three countries that suffered the most in the region in the first stage were Korea , India and Indonesia.
The region was separated into two groups: (a) Korea , Indonesia and India and (b) China , Taiwan and ASEAN ex-Indonesia. It is believed that almost similar distinction will be operative in the region this time (May 2010 & Beyond) as well, if the risk-aversion were to be sustained.
Final Impact …
As we learned from the 2008-09 experience, unless the global financial markets stay risk-averse for a long period, the final impact on AXJ GDP will depend on the eventual downside to global growth, the trade exposure of various AXJ countries, and the ability of policymakers to generate counter-cyclical policy support.
What Will Asian Policymakers Do? …
The region's policymakers have already been slow in reversing monetary and fiscal stimulus. The first step would be to take a pause in current moves (May 2010) to reverse the strong monetary and fiscal policy measures announced in 2008 and early 2009. So far, the only meaningful reversal in policy support has been on the liquidity measures. AXJ's GDP-weighted policy rates have moved up only to 4.57% from the low of 4.44%. Governments in the AxJ region had no major plan to reverse the fiscal stimulus in 2010. While expecting China 's fiscal deficit to remain unchanged in 2010, AXJ ex-China is expected to improve marginally to 4.1% from 4.8% in 2009. Moreover, many countries have initiated measures to prevent speculation in property markets.
In the event of persistent risk-aversion in the global financial markets and a weakening global growth environment, the buffer really exists in fiscal response. Almost all countries in the region except India have enough fiscal room on the basis of public debt to GDP. On the monetary policy front, potential risks in the growth landscape will make it harder for AXJ central banks to lift rates.
Downside Risks To The Growth Estimates …
Expecting AXJ GDP growth to accelerate to 9.0% in 2010 from 5.9% in 2009. The current (May 2010) base case forecasts assume that a recovery in exports would ensure a further rise in capacity utilization, resulting in a strong pick-up in private corporate capex led by India , Korea and Indonesia .
However, in the event of sustained risk-aversion in the global financial markets, the region's external demand and investment recovery will be at risk.
Bottom Line …
The measures announced by the EU leaders on May 2010 should help calm the markets for now (May 2010). If yet another rescue mechanism isn't followed by aggressive austerity measures, the problem would just continue to fester - and could eventually manifest itself elsewhere.
If policy actions are not enough to calm the markets, in the first stage, investor focus will be on the external balance sheet - FX reserves, short-term external debt, current account, dependence on capital inflows and commercial banks' holding of European sovereign bonds.
Second stage: when capital markets settle in response to policy actions, the downside risk from global growth and the ability of the region's policymakers to take counter-cyclical policy measures will be the critical considerations for arriving at the final impact on the GDP growth of various AXJ economies.
The key will be the duration of this global risk-aversion cycle.
If the global capital markets stabilize soon, expecting to see continued strong growth, with bigger risk of asset-price bubbles and inflationary pressures building up in the region.
If not policymakers in Asia ex-Japan will need to start implementing the structural reforms required to accelerate domestic demand on a sustainable basis instead of attempting just a cyclical response from monetary and fiscal policy.
3. Implications Of The Europe Debt Crisis On The Malaysia Economy While most recent data (till 1Q2010) point to continued global expansion, it expects the recovery to move at different speeds for the advanced economies and the developing ones.
The G-3 economies are not firmly on the path to a self-sustaining recovery as their growth potential is being weighed down by fiscal concerns, slow income growth, restrained bank credit and high unemployment.
Overall, the 1Q10 GDP growth of 3.2% quarter-on-quarter (q-o-q) (5.6% in 4Q09) for the US economy looks encouraging, with consumers leading the way. But the issue is whether the trend is sustainable in 2H10 as the economy is still running on stimulus.
The boost from inventories and fiscal support will play out by 2Q2010 and this will pull headline growth back. Without a sustained increase in job creation and disposable incomes, consumer spending is likely to falter.
Europe’s economy improved to 0.2% q-o-q in 1Q10 (0% in 4Q09) as a global recovery boosted exports amid consumers’ reluctance to increase spending. Germany’s GDP rose 0.2% q-o-q, followed by French (+0.1%) and Italy (+0.5%). On an annual basis, euro-area GDP rose 0.5% in 1Q10 (-2.2% in 4Q09).
In contrast, conditions are strong in emerging Asia, which should continue to outpace growth elsewhere. Key growth drivers in 1Q10 were stimulus spending and a strong rebound in exports, which fed into consumer spending.
The real risks of bubble-like feature in some Asian asset markets and the inflows of “hot money” are worrying. One key risk to watch out for is an overheating property market in China.
Global Growth To Slow In 2H2010? Not surprised that most countries reported stronger growth in 1H10, brought about by a rebound in exports, restocking effects and the continued effects of stimulus. The growth has peaked in 1Q2010 and will moderate as the effects of stimulus measures and inventory restocking may fade in 2H10.
Another factor that could contribute is the ebbing of the favourable base effect of a better 2H09. For the advanced economies, the current expansion will only become self-sustaining when we see a sustaining cycle of income generation, job creation and spending.
In the case of emerging Asia, although the pace of growth will moderate, it is unlikely to come off the tracks.
Global indicators continued to rise though they throw off some signs of uncertainty about the strength of global recovery in 2H10.
Cautious Global Growth Outlook For 2011? Cautious about the global growth outlook for 2011 as the faster pace of monetary tightening and fiscal restoration will reverse the key support for the current solid growth pace.
Greece’s experience highlights the challenges facing major developed economies that are running large budget deficits. The advanced economies are likely to move towards fiscal belt tightening as their fiscal deficits balloon. The absence of a credible fiscal consolidation framework would erode market confidence in sovereign debt, which would undermine economic growth and heighten risks for the financial markets.
Backed by its good growth prospects, emerging Asia should continue to normalise interest rates to contain inflation expectations. The synchronised tightening is bound to take some steam out of global growth.
Headwinds To Watch Over Next Six-12 months (June 2010 – Dec 2010). The List of Macro Risks Are:-1. Fiscal sustainability concerns. The deepening Greek crisis once again highlights the vulnerability of the global financial system to fears of widespread contagion to other countries with high deficits and debt. These countries need to put in place quickly a credible fiscal consolidation framework to ease market concerns over fiscal sustainability over the medium term.
European policymakers unveiled a mega bailout package worth US$929 billion (RM3 trillion) and a programme of bond purchase to prevent a sovereign debt crisis. Markets remain sceptical about the reform and fiscal sustainability programmes, including implementation risks.
2. More monetary tightening measures by the emerging economies in an effort to contain inflation expectations, which may slow down the pace of excess liquidity. Emerging Asia will continue to normalise interest rates to a “neutral” level in 2011. By then, the developed economies would have also moved towards a less accommodative monetary policy.
3. Asset price bubbles are a cause for concern, especially for China’s property market. The policymakers have implemented a series of measures to cool property prices. Envisaging a gentle pullback of the growth momentum as the effect of property as well as credit tightening measures kicks in 2H10.
4. A reversal of private capital flows.
The current (May 2010) measured pace of monetary tightening in the emerging markets has widened the interest rate differential vis-à-vis developed economies, thereby inducing strong private capital inflows, especially “hot” money. Prospects for good growth, appreciating currencies and rising asset prices are pulling capital inflows into Asia economies.
The challenge is to manage the influx of short-term capital inflows to prevent the build-up of financial imbalances, including asset bubbles, and manage as well as to stem potential correction in asset prices when there is a sudden reversal of short-term capital.
By Morgan Stanley … dated May 2010 It downgrades Malaysia to equal weight in May 2010. The model ranking falls from #3 to #6 in May 2010. It has been overweight on Malaysia since October 2009.
Malaysia's model ranking decline has been driven mainly by relative valuations. The dividend yield rank has fallen from #9 to #14, whilst on trailing P/E it has declined from #13 to #18.
Morgan Stanley economists' GDP forecast for Malaysia of 6.5% and 5% for 2010 and 2011, respectively, are above the consensus 5.5% for 2010 and in line with consensus 5% for 2011. However, with the 1Q10 GDP recently released, the Street has been progressively upgrading their forecasts.
Cyclical momentum is strong in Malaysia.
Within the three-legged growth model of public sector economy, manufacturing exports and commodity resources, the latter two have taken over in driving the cyclical upturn at the margin. Exports stand only 2.3% below their pre-crisis peak levels, driven by non-commodity exports.
Indeed, the rebound, which was initially led by inventory restocking, appears to be persisting. Improving terms of trade from elevated commodity prices have also augmented the commodity-related trade surplus.
In the near term, downside risks for Malaysia stem from possible spillover via trade linkages from EU sovereign debt concerns. However, if the global policy stance is kept accommodative for longer as a result, risks would be skewed to the upside on growth and inflation.
Looking further out, Prime Minister Datuk Seri Najib Razak has announced the New Economic Model to try to arrest what it sees as a structural downtrend in productivity growth versus regional peers.
Indeed, foreign interest in Malaysia has been waning. As net foreign direct investment (FDI) in certain economies in the region (China, India, Singapore, and Thailand) continues to climb higher, net FDI in Malaysia has generally trended down from the peak in the early 1990s, and is now (May 2010) dipping into negative territory. Net FDI (4Q trailing sum) stood at -3.7% of GDP in December 2009 from +2.4% of GDP in June 2004.
Net portfolio inflows (as % of GDP, 4Q trailing sum) have also performed poorly, staying in negative territory over six successive quarters and showing only a marginally positive number in 4Q09 (0.1% of GDP).
Implementation remains key and the reform pace will need to juggle political and economic needs.
4. Asia Are Victims of Foreign Capitulation As Europe Debt Crisis Unfolds After a year-long hiatus, the stock market bear is making a comeback (May 2010).
While mainland Chinese stocks are largely driven by domestic tightening worries, the rest of Asia are looking more like victims of foreign capitulation as the Europe debt crisis unfolds.
Recent data (May 2010) revealed that foreign investors are big sellers of Asian equities since the start of May 2010.
Net foreign selling had reached US$8.3bil and already making it the worst month (May 2010) since August 2008 (US$11.3bil), just before Lehman Brothers filed for bankruptcy in September. The fund flow data excludes markets in China and Malaysia.
If assume the same selling rate continues for the rest of May 2010 we are potentially looking at net foreign selling of US$14bil.
The previous record month was in August 2009, when net overseas selling hit US$17.5bil. Meanwhile, a monthly survey in May 2010 revealed global fund managers' sentiment towards emerging market equities had slumped to its lowest since early 2009. It also showed that fund managers have turned more bearish on China than any month since February 2009.
Investors worldwide returned to Asia in 2009 and continued to pour money into the region's stock markets right up to April 2010. But as the debt crisis in Europe unravels, investors appetite for risk is beginning to diminish
Nevermind the fact that the region's economy is growing at much faster rate than anywhere else in the world, or the contagion effect from the Europe debt crisis on Asia's capital markets has been and is expected to remain limited. The herd instinct tells money managers to pull out.
Managing the hefty capital inflows into the region's markets is the key challenge. Volatile capital flows pose a significant risk, affecting both macroeconomic management and overall financial stability. The return of capital flows is welcome. But large and sudden capital movements can put the sustainability of economic recovery at risk.
Recent surges (2009-April 2010) in capital flows to emerging Asia have mainly been in the form of short-term investment, driven by widening earnings potential between emerging Asian and mature markets.
Net portfolio equity into emerging Asia amounted to US$63.3bil in 2009, a turnaround from a net outflow of US$54.4bil in 2008.
Past experience shows surges in such capital flows can face an abrupt reversal. Asian authorities should consider the full array of policy measures available in their toolkit” to manage capital flows.
A flexible exchange rate can help absorb “shocks” and in addition to traditional monetary, financial, exchange rate and fiscal policies, capital control measures should be considered as part of the mix of avalailable policy instruments.
Efforts made to improve the resilience of financial markets in the region post 1997/98 crisis have “paid dividends.” After the recent crisis worsened in September 2008, “timely and effective policy support helped emerging Asia economies ride out the worst of the global financial storm and generate confidence in regional markets.
Heading into the current crisis (May 2010), the region's reserves holdings are considered as to be “more than adequate.” There is evidence that large holdings of foreign exchange reserves did provide protection against disorderly exchange rate fluctuations.
Meanwhile, the world biggest bond fund manager Bill Gross of Pimco warned that financial markets are exhibiting “a mini relapse of a flight to liquidity, as hedge funds and other leveraged positions are liquidated to preserve their capital.”
