Monthly Archives: October 2012

22nd October 2012 – An indebted world without growth

Another quick blog today, but there are two excellent Zerohedge pieces I want to keep.

The first looks at the implications of a world without growth. I often think about this theme and at some point our economies are going to have to move past the traditional model of need growth to flourish. This will require a fundamental shift in mindset, but there is something inexorable about this notion.

The second spells out some of the key facts we all need to be aware of which illustrate just how bad the situation is for everyone. It brings me back to the Wyle E. Coyote moment I had a week or so ago.

19th October 2012 – Eurozone bank supervision deal reached

I am very conscious that I am actively looking for evidence to support my recent turnaround in outlook, but today’s announcement from the Eurozone strikes me as significant. I’ve certainly suffered from this sort of selection bias in the past. Even so, I can’t shake feeling that a near-term turnaround is in progress.

Establishing the Single Supervisory Mechanism (SSM) is the final step required before the European Stability Mechanism can be activated fully to start bailing our Spain (which doesn’t need a bailout – ahem!) and Italy.

The agreement over the SSM is the usual European compromise. Apparently the French wanted it activated by the start of January. The Germans didn’t. Meeting somewhere in between, the legislative framework will be in place by January 1st 2013, and the SSM will come to life later in the year.

Stock market reaction to this news has been muted at best. We’ve seen so many “summits to end the crisis” that summit fatigue has naturally set in. Also I don’t think anyone really believes that the ESM is a true, permanent solution. Vast structural reform is required, which it is doubtful this political class has the will or ability to deliver.

Even so €500bn coming into the market, is surely going to have an effect? Continue reading

14th October 2012 – How long can denial last?

A few days ago I read this cheery piece on Zerohedge. Although it recognises the likelihood of a compromise agreement being reached to avert the fiscal cliff, it also describes the dangers of a repeat of the brinkmanship of last summer, which destroyed confidence in markets.

 The metaphor of running over the fiscal cliff being similar to a classic Wile E. Coyote plunge stuck with me (a mad dash over the edge, followed by a momentary pause before the inevitable plunge into oblivion). I started to wonder whether or not we are all living the same reality as the ill-fated Coyote, our legs pumping away, with nothing but a precipitous drop beneath us. Have we in fact already taken that sprint over the edge?

With this thought in mind I caught two news items from two of my favourite people in charge, Ben Bernanke and Christine Lagarde. The day before yesterday Lagarde was pleading for more time for Greece (because, yes, that is what they need, more time!) and today Bernanke has issued a robust (at least as robust as he ever gets) defence of his monetary policy (and, no, this policy is not designed to steal market share from the emerging nations through currency devaluation).

I’m actually getting quite bored of all this.

Week in week out we hear the same old lies, trotted out to make us feel secure in the knowledge that our leaders know best, they understand the crisis and are taking active steps to seek its speedy resolution.

Of course this is all nonsense.

None of them are prepared or capable, it seems, of taking the decisions that are necessary to bring this mess to a conclusion, so that real growth can start again. The paucity of leadership has been the defining element of the Credit Crisis. None of the measures have worked and, as it turns out, a debt crisis cannot be solved with more debt. Who knew?

So here we will stay, in limbo, sprinting as hard as we can, all the while knowing the bottom of a chasm awaits us.

(Even so I am still pretty bullish for the next few months. There may be a pullback but so many people seem to expect the fiscal cliff to bring about the end, it will almost certainly turn out to be a non-event).

11th October 2012 – Interesting signal in the PunchLine

The PunchLine is a newsletter I signed up to. I think I originally saw it referred to on Zerohedge, but can’t remember.

Anyway, written by Abraham Gulkowitz, the PunchLine is a regular, amusing, off the wall economic commentary.

The latest copy can be read here.

What has really caught my attention was page 15. If these stats are correct, this could really signal the beginning of a turnaround in credit markets. As banks lock in longer-dated securities (bonds) they are basically taking advantage of the Zero Interest Rate Policy (ZIRP) to provide them with potentially profitable revenue streams for decades to come.

I could be wrong, but this looks to me like a signal that finally QE might be about to start having an impact on the real economy. Obviously banks will need to start lending again (and I still don’t think that is a solution, but this is the world we live in) and if they do consumer confidence could start to return and demand increase.

I accept this is only one small piece of information and cannot be relied on to draw a definitive conclusion. Even so I find this encouraging for stock markets.

1st October 2012 – Can markets collapse?

I still find I don’t have much time at the moment, but I have been pondering the muted reaction to QE3. Just how much of this was already priced in?

The Fed and ECB have really fired up the printing presses with their commitment to open ended monetary easing. Logic and history suggest the outcome of these policies will be highly inflationary, which will be positive for stocks and gold.

However with recession biting home in Europe and forecast in America, the fiscal cliff looming and a gridlocked political system there is so much pessimism out there.

The Technical Take and the MoneyWeek Trader have both published their views of tops being in, in both equities and gold. The sentiment gauges they use have been pretty accurate barometers for market direction.

Even so everything just feels so off at the moment. We live in a world where up is down and black is white. Nothing makes much sense. Continue reading