In the early parts of Franklin D. Roosevelt’s initial inauguration speech he uttered the famous words: “There is nothing to fear but fear itself.”
And according to Tobias Levkovich at Citi: FDR was right.
And right now there are a lot of investors afraid of fear despite a US economy that in his view looks pretty good.
“There appears to be fear of fear itself as sentiment is simply awful,” Levkovich wrote.
“Almost every investor we talk to thinks we are too pollyannish by thinking the world isn’t about to go off the edge.”
Clients are coming to Levkovich, the chief equity strategist at Citi, with constantly changing concerns over financial developments, most recently the developments in European banks.
On Thursday morning, of course, these skittish investors seem justified as global markets are tanking while traditional “safe-haven” trades like gold and US Treasuries seeing an influx of buying.
“The banking woes across the bond and sharply weaker equity markets in periphery countries like Greece and Italy appear to be generating new anxiety in the US,” Levkovich wrote. “Terms like counterparty risk and potentially new European bank equity capital needs to offset write-offs are coming to the fore when chatting with investors.”
To Lekovich, this indicates that fear is driving the market. Levkovich highlights recent labour market data from the US — including the latest readings on job openings, which showed a high degree of turnover in the labour market, signalling confidence among US workers — which indicates an economy that is not about to roll over.
And while global markets can certainly have a huge sell-off without a recession, at some point this will stop when markets realise, as Levkovich writes, the world isn’t about to fall apart.
As Levkovich writes, “It looks very much like 2011-12 and nothing like 2008.”
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