I hope you enjoyed the first round of economic history from 2008 to 2011, I think it is time for round 2.
Alan Greenspan was on CNBC last week and his interview is a very interesting take on Europe – which happens to be the first thing he looks at every day (European Bond Markets). Meanwhile Lloyds are reporting that the risk of a 2nd recession in the UK are higher at c. 25-30%.
Greece is the crisis that just keeps giving, The Telegraph has the usual Eurosceptic line but it isn’t about being smug any more. The Greek referendum call of recent days came out of left field and while it may never actually occur the political optics show that the Aegean issues are far from solved, along with the replacement of military officials (the interpretation being the fear of a coup).
And German joblessness is higher for the first time in 2 years, standing now at 7%. The rate of inflation in Germany is currently 2.6% (HICP at 2.86%), having remained over 2% since January 2011. The issue with that (and unemployment that wasn’t growing) is that it lead to a ‘Goldilocks delusion’ where not cutting rates and fiscally conservative policy was considered best. It seems now that Germany has not decoupled from the rest of Europe.
Growing resentment about profligate EU members along with some fear inducing inflation as well as rising unemployment make for a very grumpy Germany, it does not bide well for negotiations. Perhaps hindsight will equally not bide well for the Germany that handled the Great Recession so well (from an employment perspective) either?
Of course at home here in Ireland we are about to pay €700,000,000.00 to speculative/junk rated bond holders who in any normal circumstances would be jumping for joy at a 50% haircut. Politicians are walking out of the Dail due to the lack of discussion, and bingo halls being raided by cops [irrelevant but a sign of the times!].
The Central Bank of Italy (Banca d’Italia) €-Coin ‘one figure for all European GDP’ statistic is also showing a sharp down-trend at present, negative for the first time since September 2009. Italy, with the worlds 3rd largest debtor at €1.9 trillion Euro, and winner of ‘scary chart of the day’ almost every day regarding their bond spreads v.s Germany.
I don’t know of any model that can capture and create metrics out of the information flying around at present. There are interesting twitter based investment tools that use crowd sourced information to imply the trajectory of the markets, but I’m not privy to being under the hood on those.
What I am trying to say is that all of this news doesn’t paint a pretty vista, and in this analysts opinion the October/November 2011 period will be another big turning point or cusp. I last made a call like this in January of 2008 (and while it seemed grim at the time it was understated in retrospect), and during that time I went entirely to cash and advised all of our private clients to do the same until late 08′ early 09′.
Today I am repeating that call – to stay out of the markets for a while and see what comes of this all. You might miss out on the Spring 09′ moment, but you won’t face the burn on the road that gets you there. The news flow is simply too negative at present for confidence to go any other way than down, capital preservation remains key.
Until Central Banks step up to the plate (and it our long held belief that they must and will –they are already our lifeline) with the multi-trillion multi-lateral approach there is no reason to do anything other than earn interest.