Anthony Peters, SwissInvest Strategist
What appears clear is that the four days we have been away from our desks has not made things any better.
Meanwhile, in a country far away, something rather extraordinary has happened. The USA is a country which most Europeans neither know nor understand. However, it is a democracy. I can bore on the subject of democracy, as I can any many others, but suffice to say that countries are not democratic, societies are. The greatest of failing is to believe that by writing a constitution and by holding periodic elections, a democracy has been created.
The lives of thousands of NATO soldiers’ lives have been sacrificed in Iraq and Afghanistan on the back of that misunderstanding. However, America, for all its failings, is and remains the greatest of democracies for it combines a democratic society with the parliamentary and extra-parliamentary structures of a democratic state and, for better or for worse, it works.
This past week-end saw American democracy at work in the form of a “recall” vote on the governor of state of Wisconsin. Fiscally ultra- conservative Governor Scott Walker fired up the ire of the unions in this mid-western State by slashing public spending and banning collective bargaining. The unions took issue – as they would and as they should – and collected the one million signatures needed to force a recall. In winning support of 53% of those who voted, Walker has become the first governor ever to survive a recall.
He also appears to be, as near as it goes, the first politician to find support for promising that, if elected, people will have less than they would have had, had he not won. He declared: “What has made America amazing has been the fact that throughout more than 200 years of our history there have been men and women of courage who have stood up and decided it was more important to look after their children and grandchildren than their own political futures.”
Obviously, Republicans were very quick to jump on the Walker bandwagon and declare that the tide is turning against President O’Bama but I would be very cautious in trying to read more into the Wisconsin poll than is expedient. Mitt Romney, now assured of the nomination after his victory in Texas, made hay by saying: “Governor Walker has shown that citizens and taxpayers can fight back – and prevail – against the runaway government costs imposed by labour bosses. Tonight voters said ‘no’ to the tired, liberal ideas of yesterday, and ‘yes’ to fiscal responsibility and a new direction.” Yeah, year, sure. The campaign supporting Governor Walker outspent the opposition by a ratio of eight to one in the run-up to the poll. Walker is a Tea Party movement kinda guy, the likes of which need to be treated with the greatest of caution.
Nevertheless, I picked up one comment out of this process which does ring a bell and is that the people must not expect more from the government than they are prepared to pay the taxes to provide.
Not to labor the point…
Friday’s US Labor Report was hugely disappointing and now that all is said and done the Dow is in negative territory for the year. The Dax, not long ago the star performer by having rallied over 20% this year, is barely clinging on as one of the few indices still to be in the black for 2012.
Talk across the street is of an impending change in investor sentiment as hope springs eternal for a positive and final policy response. Pigs’ll fly! The near endless creation of money, be it under the name of QE or LTRO, has so far achieved relatively little. Yes, it has cushioned the fall but it has not broken it entirely. I have heard it likened to trying to keep a hot air balloon aloft with a stick lighter. The adjustment to the model of “tax plenty but spend more” will have to come; the question is only as to what speed this is to be achieved at and how the burden is to be shared.
All the while, Singapore is becoming the new Monte Carlo as wealthy Americans and Europeans congregate there and make it the place to be. Global mobility has added a new variable to the efficiency of taxing the rich; it will be interesting to see what response we get out of the US when the Bush tax cuts finally expire.
Anyhow, the market liquidity which London provides has clearly been missed over the past two days and it will be interesting to see what happens now that we are all back. It might be good, it might be bad but the thing to fear most is that it makes no difference at all. Securities markets are looking and feeling ever more like a pod of beached whales on a falling tide. Yikes!