‘Waiting for Godot’, the great play by Irish writer and Nobel Literature Prizewinner, Samuel Beckett, deals with the meaning of existence. Written just after the Second World War, its two characters wait endlessly for the arrival of Godot.
US financial markets are currently staging their own version of the play:
• They no longer see their role as providing new investment to enable companies to build their businesses for the future
• Today, they are operating in reverse. Companies are not raising new money, but are instead returning it to investors via share buybacks
• Remarkably, as the Financial Times notes, in recent years “companies have become the only net buyers of shares”
• Markets have thus become casinos, where the main players are the high-frequency traders, for whom tomorrow seems a lifetime away
This, of course, is a major reason for the slowdown in the wider economy. Cash used to fund buybacks cannot fund the investment in Research & Development and factories required to provide future growth.
Even worse, it means markets have become ever-more dependent on injections of short-term cash. Since the crisis began, they now look to the Federal Reserve’s August meeting in Jackson Hole, Wyoming, for news of further support:
Liquidity bubbles need ever-increasing amounts of cash if they are not to burst. So last month, the Fed was forced to add another $267bn via an extension of Operation Twist. But this has only enabled the S&P 500 and Dow Jone Index to stabilise, as traders know the extra money will soon be used up.
Thus ‘Waiting for Bernanke’ is the hottest play in US financial markets at the moment. If, like Godot, he does not appear this time, then the audience risks being mighty disappointed.
Benchmark price movements since the IeC Downturn Monitor’s 29 April 2011 launch, with latest ICIS pricing comments, are below:
HDPE USA export (purple), down 28%. “Prices were stable to slightly higher, with material in short supply”
PTA China (red), down 25%. “China’s polyester demand improved this week, driven by firmer feedstock prices”
Naphtha Europe (brown), down 21%. “The fundamentally weak European market continues to gain support from the stronger Asia market”
Brent crude oil (blue), down 16%
S&P 500 Index (pink), no change
Benzene NWE (green), up 3%. “There was a general sense both in Europe and the US that the market had become overheated”