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Tuesday, 17 October 2017

Focus shifts back to US

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Having spent a few weeks watching Greece in the headlights but only keeping an eye on the US in the rear-view mirrors, it might be time to turn around and look the other way. I must admit that it has been fun trying every day to find new, imaginative and witty ways to describe a situation which fundamentally has not changed, irrespective of the rhetoric.

Greece will move on to the austerity vote, it will be passed and for six months all will be fine. Then we’ll suddenly discover that the privatisations aren’t going through, that the ones which do will be at a fraction of the expected price, that spending isn’t falling at the forecast rate and that fiscal revenues are significantly behind expectations.

Anthony Peters, SwissInvest Strategist

Anthony Peters, SwissInvest Strategist

Meanwhile, Stavros SixPack will have taken advantage of the window of opportunity and, completely legitimately, moved his savings out of the country as the chance of imposing snap capital export and exchange controls will have been missed. Greece’s last hope of righting the ship will have been sacrificed in order to protect the reputations of those who Howard Wheeldon referred to as the “idiots who let Greece in in the first place”.

Meanwhile, Evangelos Venizelos is off to a cracking start as finance minister: he has already begun to try to renegotiate the terms of the austerity package. I don’t know what he’s smoking, but I want some too! I understand the he was responsible for the financial disaster which was the Athens Olympics too. “He managed to say everything he shouldn’t have said,” said one Eurozone diplomat of Mr Venizelos’s proposal, according to this morning’s FT.

Alas, Fed President Ben Bernanke neatly moved the agenda back to United States. In a speech in Washington, he intimated that the time for tightening monetary conditions has not yet arrived. In classic Fed speak he said: “We don’t have a precise read on why this slower pace of growth is persisting.” He went on to state in the context of jobs growth (or the lack thereof) and the sluggish situation in the housing sector that “Some of these headwinds may be stronger and more persistent than we thought”. In plain English: don’t expect the Fed to start tightening any time soon, not least of all as its own economists have downgraded their GDP growth estimate for 2011 to 2.7%–2.9% (from 3.1%–3.3%) and for 2012 to 3.3%–3.7% (from 3.5%–4.2%). Although he specifically did not rule out further quantitative easing, it now looks unlikely that we will see more unless the economy takes another turn for the worse.

The question is, how bad is the US economy? It would be childish to underestimate the effect of some of the “extraordinary items” which have impacted on the overall performance. There was the Japanese earthquake and tsunami, there were the catastrophic floods in the Mid-West (and overall unusual weather conditions) and there is the Greece crisis. All of these are conducive to distorting the overall position. Sure, the economy would not firing on all cylinders, even in the best of all possible worlds, but the big “one-offs” have certainly not helped. Hence, it is quite understandable that Bernanke does not have his “precise read”. However, Japan is beginning to emerge from its post-disaster chrysalis and a pick-up in activity both there and across the globe should not be missed.

Somewhat perchance, I was also treated this morning (thanks Moff) to a contrarian piece on copper by an Australian gentleman called Gavin Wendt (www.minelife.com.au) in which he argues that prices are not about to fall from the current level of US$9,000-ish but that they are poised to rally further with a target of US$11,000.

He gives a lot of technical mining details about shortfalls in supply due to a fairly broad-based degrading of ore contents at some of the world’s leading mines but then also goes on to look at the demand side. He does not believe that demand is going to collapse, as China will continue to grow and that demand there will hold up nicely, or at least that supply will be under more pressure than demand. If I add that a post-earthquake catch-up period might be ahead of us, then his arguments make plenty of sense. In other words, there are clearly some prospects of an unexpected but sharpish recovery in economic activity in the last third of this year. On the other hand, somewhere there is a large warehouse full of false dawns.

PS: Euro/Swiss has just dropped below 1.2000 – for a record low.

Anthony Peters, Strategist, SwissInvest
(EDITOR’S NOTE: Anthony is now providing daily commentary to IFRe)

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