One of two ways

Did you miss me?  You probably didn’t even notice I’d been absent from the paper! I was working out the other day (a quiet one), with nearly 80 articles of 500 words written for the Journal I have managed to spin 40,000 words on, well, one subject.  And what exactly have you gleaned from those pearls of wisdom?  Probably that it could go one of two ways… that one always brings a smile to my face.  I first heard that from a friend while in earnest discussion over the future fate of the dollar, my focus was such that it didn’t quite sink in as fast as it should have!
On to 40,500 words…

Greenspan, love or loathe him – he’s a bit like those advertising shots you usually see in the airports – the ones where they compare two photos and have ‘love it’ or ‘loathe it’ – depends on your point of view.  I’m half expecting to see him there with ‘old fool?’ as one of the captions! Not sure what the positive comment could be, ‘though.

Anyway, he might have this one about right, latest comments put the rest of 2009 in a fairly positive light, stimulus packages still propping up businesses that perhaps would ordinarily have failed the Darwin test.  Take one of his notes, there are currently 20 per cent more cars and light trucks on the road than there are licensed drivers in the US. Smacks a little of oversupply and one that is currently being buoyed by a government programme to entice more buyers of new cars to mop up the oversupply.  The take away is that the problem will still be there long after the stimulus has been spent.  On the positive side, US consumption has been running at levels above economic output –  if the economy produced more to catch up the gap GDP would grow by 5 per cent in one quarter, or if the catch up were spread over two quarters you would see two quarters of 2.5 per cent growth – nothing to be sniffed at!

One thing that might add more fuel to the economic recovery is the reduction in interest rates, not the official ones; they have been slashed to a bare minimum, the actual rates that money can be borrowed at.  Rates have been sliding as the stock markets have been rallying; the effects of this cheaper money have yet to be quantified, or really understood.  The result is that there is more, cheaper, money in circulation and than we’ve seen of late.

How will that affect you?  You might see less competition for your cash, those loss leader rates may well evaporate if banks can access reliable sources of cheap cash in the interbank market again.  Lending may become more competitive, to the point where it could spark another bubble if not careful.
Clench your buttocks; we could be in for a bumpy ride! 

Phil-Turnbull-Colour

Money Markets: by Butterfield Bank’s Phil Turnbull

NO COMMENTS