Anthony Peters, SwissInvest Strategist
PART OF THE pleasure of having hung around markets for far too long is that there is still always some enthusiastic and thrusting young being who pops by the desk to ask what your particular experience tells us about what will happen in the coming year.
This year is in some way different. As we enter the awards season, and with IFR’s own awards ceremony just around the corner, I have to ask myself where prizes for Greece and the eurozone are to be found? Although Greece borrowed nothing in the public markets in 2011, it should be considered for the prize of Borrower of the Year – to effectively default on your entire public debt without actually being deemed to be in default must deserve some kind of special recognition.
Likewise, when it comes to innovations in global capital markets, the eurozone has rewritten the rules of borrowing so often in the course of just one year that it too should garner some kind of gong for sheer audacity and imagination.
However, we are facing a clear problem. Despite neutrons apparently racing from Geneva to Gran Sasso faster than the speed of light and thus bringing Einstein’s physics into question, Sir Isaac Newton’s laws of gravity still apply. Going back to the Maastricht Agreement and the decision to introduce a common currency in the European Union, the question as to whether such an undertaking was futile without fiscal union has long been out there.
In the current environment, it is hard to remember just how heretical it was at the time to ask the questions that are now occupying us on a daily basis. But it is clear that cat is out of the bag and that simple laws of economics can no more be legislated against than can the laws of gravity.
The eurozone has rewritten the rules of borrowing so often in the course of just one year that it too should garner some kind of gong for sheer audacity and imagination
As we enter 2012, I ask myself what they might dream up this year in order to delay the inevitable. More to the point, whatever it might be will surely eventually bite us in the backside in the same way as the half-baked currency union has done. As Newton also told us, to every force, there is an equal and opposing force and therefore the more energy is put into holding the edifice together, the bigger the bang will eventually be.
Please, don’t get me wrong. I do understand the authorities’ position, which determines that if the bang can be postponed for long enough, then a return of economic growth will help us to dig ourselves out of the rather deep and dark hole in which we are sitting. Sadly, it is not that easy.
PRESIDENT O’BAMA’S ANNOUNCEMENT this week that the “two-war strategy” of the US armed forces is to be abandoned brings with it massive repercussions. American economic growth has for some months now been dwarfing that of all of the rest of the West – bar maybe Germany, which is a special case – and much of this has been built on the steadfast refusal of the Washington parties to affect meaningful spending cuts.
The shift in the military doctrine will not only bring about a significant reduction in uniformed and ancillary manpower but it will also cut the spending power of one of the largest domestic US consumers. The White House has been cautious in not cutting the technological side of the forces; if demand for sophisticated weaponry were to be cut as well, then the waterfall of savings would cut deeply into the defence industry, one of the few in which America still has next to no rivals. Nevertheless, bringing down the size of the services will not go unnoticed and economists would do well to look into what effect this might have on overall GDP.
DURING THE HOLIDAYS, I had the pleasure of dining with one senior automotive executive who has submitted a paper to the board of one of the companies he is involved with in which does not envisage any meaningful economic growth within his lifetime. In direct conversation, he did concede that he was referring to his working lifetime – he is now in his mid-60s – but when pushed whether for him, as a workaholic, there was a difference, he smiled wryly and said nothing more.
Amidst all of this, I must admit that I do not belong among those who believe that the eurozone will entirely implode this year for the repercussions are quite unimaginable. I also do not belong among those who see the day-to-day developments as nothing more than cynical electioneering by Nicolas Sarkozy and Angela Merkel. What I do see is the sleeper who awakens with a start from a deep slumber and a beautiful dream and who is trying to get back to sleep and hoping to pick up the dream where it was rudely interrupted. We’ve all tried it and we’ve all failed.
2011 was the year in which so many questions were posed and we sail into 2012 wondering whether it will be the year during which the pile of questions simply grows or whether it will be the one in which answers begin to be delivered. More to the point: will we be able to tell, and act upon, the difference?
Happy New Year.