Three out of four, but we're heading towards a cliff
Well, it’s three down and one to go. We’ve got the ECB’s line in the sand, we have the constitutional court ruling from Karlsruhe and now we have the great QE3 programme in place. That’s the three. The fourth awaits us on the Tuesday after the first Monday in November which happens to the 6th this year and is seven weeks tomorrow.
It is, of course, election day in the United States which just happens to include the quadrennial Presidential set-piece.
The race for the White House, which is looking progressively more like a stroll for the incumbent, is now going critical and it might be the time when the questions which have been pushed off the front pages by the travails of the eurozone will come to the fore again in the form of what is now becoming known as the “fiscal cliff”.
To me, O’Bama is the wrong man in the right place and Romney is the right man in the wrong place.
By November 6th, we will have heard so much of it, that most of us will probably want to throw ourselves off it. The concept is simple and no different than the problem facing Spain, France and any number of other developed nations. Either the administration implements mandatory fiscal discipline which means cutting spending and raising taxes which will, in all probability, push the country back into recession or it postpones both in which case the deficit and the debt mountain continue to grow which would inevitably result in a downgrade of its credit standing by the agencies and the possible wrath of the markets.
The Americans have been incredibly scathing of the Europeans and their seeming inability to come to grips with the fiscal crisis and although I too have had more than a few laughs at the expense of the politcos, at least there is a discernible political will to get something done, even though they can’t agree on what it is and, as I keep reminding, who will pay for its implementation once they have.
In the US, on the other hand, not even the political will seems to be there.
I will at this point step out of the shadows and plant my flag. To me, O’Bama is the wrong man in the right place and Romney is the right man in the wrong place. The GOP has lost its way in that its brand of Tea Party inspired conservatism appears to believe that if spend enough time of dreaming how great it all used to be, that it will become like that again. With all due respect to Mitt Romney, his train appears to be going backwards and as I alluded to last week, as long as O’Bama persists in doing nothing glaringly wrong, he’s on a winner.
However, there are enough fiscal challenges facing the States to keep us all busy for the next few years and the political landscape there does not look conducive to dealing with too many of them. The fractious and confrontational nature of Washington politics will most probably have us guessing where the country is going and if markets hate uncertainty, then American asset markets and the greenback are in for a spanking next year. I shall therefore go against convention and suggest that this is the time to start switching back from dollars into euros.
America has celebrated the fourth anniversary of the demise of the house of Lehman by pushing equity prices back above the level they were at when the bottom dropped out of markets. At the same time, AIG, one of the more prominent victims of collapse in credit markets is up and running again and about to be sent back out into the world. Bank of America stock is proudly trading at $9.55, over three times it value at the June 2009 low of $3.14 (better not remind anyone that its high was $55.08 in November 2006) and Goldman Sachs, at $121.36 is only a sniff away from being back at 50% of its all time high of 250.70. Not all is bad.
Yet, I’d like to remind that it has taken three rounds of quantitative easing to get us here and that while monetary stimulus has been making the headlines, fiscal stimulus has not been modest either and that we might be obliged to see how the world looks if, as and when that tap is turned off or, truth be told, if it isn’t. We’ve had our fun looking to the Med and “Europe bashing” – time to start focusing over the Atlantic again.
Go ahead, you’re entitled
Driving back to London, I listened to the radio and gave up counting the number of times the word “entitlement” was brought up by those complaining about the context of the planned reforms to social welfare in the this country. My thanks therefore once again go to Moff in Melbourne by way of another old and retired market dog called Rob Pritchard for the following look at “Ineptocracy” which is apparently defined as: “A system of government where the least capable to lead are elected by the least capable of producing, and where the members of society least likely to sustain themselves or succeed, are rewarded with goods and services paid for by the confiscated wealth of a diminishing number of producers”.
Work hard this week; the others need it.