Anthony Peters, SwissInvest Strategist
Politics has hugely become a matter of form over substance but if one chooses candidates of the Romney ilk where substance is lost in the lack of form, then they will always struggle to defeat an opponent where the lack of substance is masked by a surplus of form. Watching O’Bama prancing around in shirt sleeves makes my heart sink.
Meanwhile, the question remains as to which of the two is better for the economy? In my book neither. It is American entrepreneurial spirit which is best for the economy along with the gentle slide in Chinese competitiveness as wages rise and the cost advantage which has always hidden some rather dodgy business practices continues to erode.
However, as much as middle-America puts its back into making, selling and consuming, until the elected representatives in Washington (and all the state capital for that matter) refuse to get their arms around debt and deficits, all is for nought. We have trodden the “kicking the can down the road” analogy to death here in Europe but the dire state of US public sector finance seems to remain amazingly under-reported.
I had lunch with a friend over the week-end who, amongst others, sits as a non-exec on the board of a major US company. He travels to America with monotonous regularity and reports that amongst the people he meets with, there are none at all who are expecting Romney to carry the day. However, more to the point, when it comes to the “fiscal cliff”, they all agree that between the election and the end of the year, the grownups will come out and resolve the issue. That may be but avoiding the “fiscal cliff” resolves nothing, just as raising the debt ceiling resolves nothing either. Both are no better than discovering that one can, after all and completely against expectations, write off for another credit card just when one thought that the credit score had finally fallen too low.
Greek dance
Meanwhile, Greece this week reminds us that in matters fiscal time is not a great healer. A two day general strike and the vote in Parliament on ever more stringent austerity measures don’t make for recovery. It is highly likely that Parliament will vote in favour of new, austerity imposed, fiscal targets which cannot and will not be met any more than previous ones were. One analyst put his finger on the issue, as far as the rest of the Eurozone is concerned, by concluding that the cost of keeping them in is more or less the same as the cost of kicking them out. In other words, Greece’s partners are free to choose which pocket they wish to have picked.
The raft of probable measures to keep the good ship Hellas afloat include delaying deadlines for repayment of loans and meeting formerly non-negotiable debt/GDP targets, the lowering of rates and fees applied to outstanding loans, rolling short bond maturities into T-Bills… and on and on.
Most notably of all, some elegant dance steps will need to be learnt with respect to the supposedly mandatory privatisation programme as the assets have become unsalable at anything approaching a sensible price - who would want to buy into a trades union ridden entity in a faltering (to put it mildly) economy? Securitising receivables would look to be the next step but I wonder who, other than the ECB, will invest in them.
On one hand, there is plenty to keep markets guessing but I suppose that they must be generally pricing in an O’Bama win – good for stocks as the devil one knows – and a contrived compromise on the Greek re-bail-out. That should help to loosen up some cash reserves and I’d expect this to turn out, despite everything, to be quite a benign week for risk asset prices.