Macro vs. micro - The disconnect!

Few, if any, professional money managers / traders have experienced the current market volatility at any time before. If the movements in global financial markets are unprecedented, the obvious question we should be asking is why..

The growing dissonance or disconnect, if you like, between macro economics and micro corporate performance is concerning. Most of us accept that the global economy is faltering. Confidence has declined in Europe. Austerity programs to address deficits will impact growth. Unusual dissent within central banks compounds the broadly inept leadership response. Educated predictions of a break-up in the Euro zone adds to the soup of confusion. On the flip-side, corporate profits are robust. Companies have cash, lots of it. Corporate fundamentals are sound and on that basis 'value-managers' (Warren Buffett most famously) and other 'bottom-pickers', Blackrock included, have been buying equity.

Given current economic conditions economists have, rightly, adjusted their growth forecasts lower and yet financial analysts forecast average earnings growth of 17% for S&P listed companies. 

So what's the missing ingredient? In a nutshell, CONFIDENCE! Until traders / investors accept the economically-negative medium-term consequences of the financial crisis, the most serious financial shock since the Great Depression, as part and parcel of the recovery process and that these things take time and money to rectify, volatility is here to stay.