An American President once said, “Oh for a one-armed economist so he cannot say, on the one hand, etc…”
As the new American President joins the other 19 leaders at G20 in London I have been trying to fathom JM Keynes’s jargon and decide if Quantitative Easing is going to succeed and reignite the world economies fuelling the new BULL market or whether this is just a dress rehearsal for the hardships to come. It’s a pretty confusing picture not helped by the media hoping for the odd scrap on Threadneedle Street as well as in the Excel Centre, arrive left “Sarko” with his new maiden “Merkel”. Poor Carla seems to have been rudely sidelined; she’s probably entertaining the wags.
What is clear to me is that the safety nets put in place by Central Banks to kick-start lending and presumably the investment climate isn’t working. The ongoing debate about “mark-to-market” and the calculations concerning “toxic debt” may have come to a head by now if liquidators had been forced to dispose of these failed bank derivative positions but of course the tax-payers have effectively bailed out these banks (pirate vessels). Lehman and Bear Stearns didn’t receive their bonuses so I’m at a loss to understand why politicians, non-executive directors, regulators and all and sundry think it perfectly acceptable to allow for failed businesses to reward those who’ve been at the centre of the toxic mess. Those who work for General Motors, Ford or Chrysler (Chapter XI is inevitable I think for Detroit), CitiGroup, JP Morgan Chase, RBS, Lloyds Banking (notice how it has reverted to it’s pre-TSB HBOS name) and a plethora of other names should not (never?) receive a penny in bonuses until all the tax-payers debt is repaid. Sorry to be brutal and blunt but what we are witnessing is hardly capitalism but more reminiscent of piracy in its heyday. Well done to Obama for his comments on this matter to date. So is QE going to work? Well, I don’t know the answer to that (and no doubt that will still be debated 30 years from now) but I keep reminding myself of my first economics lesson (age 13) and can hear my teacher drumming into me Keynesian doctrine and the definition of inflation as “too much money chasing too few goods”. Looking at Wikipedia and reminding myself of the definitions of Demand-Pull Inflation and Cost-Push Inflation I’m not sure I fully understand the extent of what he said then and I’m even more certain that he wasn’t sure of what he was saying back then either. With the global markets being far more elastic than back in the ‘30’s it seems to me that the current inflationary outlook is a combination of both types as the Monetary Supply accelerates. The Governor, Mervyn King, is clearly aware of the QE implications but as for our SocioCapitalist leaders in Downing Street it seems to me that they’ll do everything in their powers to maintain property prices in UK at the still absurd heights safeguarding their futures long enough till the next General Election. Inflation by then may have started to rise further along with interest rates (they can hardly stay at this level as there’s not much evidence of excessive lending and depositors are getting increasingly impatient) and thus the outlook for ordinary businesses, tax-payers, SME’s is truly depressing. Sorry to use the “D word” but when I see the levels of Public Sector abuse in France my toes curl up at the thought of some hapless Guardian reader responding to a highly paid job for some neo-socialist county council. Have you all noticed how the issue of “productivity” in the private sector has been replaced by job securitisation for the public sector? So where exactly is the productivity in paying someone £40,000 pa to cycle around the neighbourhood checking to see if one’s colleagues yesterday completed their paintwork, testing whether it’s dry and returning to base (a Chesterfield sofa and a glass of Irn-Bru) to instruct a second-paint job the following day? The UK should change it’s name to The Forth Railway Bridge Paintshop because that’s what everyone will be doing if the Public Sector is empowered any further!
The shares strategy for 2009 has worked pretty well so far with one notable exception being Anglo-American which cut its dividend out of the blue; I am holding them for now. The position with other base miners has been confusing too; in particular Rio Tinto has over-run itself at present and I am pleased to have exited it (albeit early) due to its high gearing. Although the volatility has diminished I am still recommending Hochschild (still my favoured pick for 2009 recommended at 138p in January now 243p), Randgold (HOLD- touching £39-40), Royal Dutch & BP (probably the cheapest and safest stocks in the market as oil rises back above $50pbo and perhaps is destined to rise back to $100pbo very soon), Templeton Emerging (risky but this is where the world’s engine is right now) and Yamana Gold (a Canadian precious producer recommended at 525p) at 680p. In the UK domestic market I have been trading Ladbrokes, Tate & Lyle and Marstons recently but one has to have pretty nifty footwork to keep pace with events at the moment. I don’t believe that many UK domestics provide solid and sound Buy and Hold strategies at present and would expect a market sell-off quite soon (sell in May & run like…). What has been surprising throughout the crisis is that very few large capitalization businesses have failed and unlike the aftershock of the ’87 crash none of the Treasury divisions of large caps have announced drastic trading losses as a result of excessive trading in derivatives, f/x, etc. So far there have been a catalogue of trading failures amongst banks and brokers and very few public statements regarding hedge fund losses (although clearly many have closed their doors). In other words there hasn’t been an Enron-esque fatality on main street although it’s predicted that Detroit will fail. The markets seem to be discounting Detroit anyway and a surprise is on the cards in my view. The next leg of the Greater Depression may only just be starting and I believe precious metals and oil stocks may be the only way to safeguard the £ in the pocket. I recollect an ex-colleague broker during ’87 continually remind his clients that equities are the best way to combat inflation so some further analysis (looking for solid earnings lowly geared businesses) is required on my part.
I continue to favour portfolio weightings such as 30% Fixed Interest (incl Index-Linked), 20% cash, 50% equities (overseas earners mainly incl. up to 25% in precious metals) throughout 2009. Keep an eye on gold test levels of $963, $1163, $1332 & $1461; a trading range of $1200-2000 is still predicted for 3rd and 4th Q’s 09.
I wonder what JM Keynes, JK Galbraith and Milton Friedman would have made of it all? Let’s all hope the summer arrives early; that way the paint can dry better.
No comments:
Post a Comment