State of play

Final comment for 2009: how was it for you?  Not as bad as portrayed in the world media, or the end to a way of life? 

The G20 are busy doing what they do best: fiddling while Rome burns, attacking bankers’ bonuses, wringing their hands over the world’s inequities and chipping away at the edges of a problem while missing the point entirely. They will fail at producing any new initiatives to safeguard the world’s economy.  For that you would need a cohesive, inclusive strategy that ignores special interest groups, special interest countries and all the obligatory horse trading that ends up diluting an already bad idea (also spelt c o m m u n i s m).  Lets face it, the only way to get through a ‘greater good’ is to ignore those most affected; but who knows the real meaning of a greater good, you, me? I’m not that conceited to assume anything, are you?

So where does that leave us for 2010?  Expect a rollercoaster ride, a few false starts, maybe a double dip recovery, but in all honesty nobody knows, not the central bankers, not the politicians, not the market makers. Everyone has an agenda they would like to see play out but it’s going to be the likes of you and me that end up affecting what happens, or more accurately, the collective you and me.  If we spend more, earn more and feel good expect rates to rise and the economic recovery to start; if we retract into our shells, spend less and perhaps consolidate our lives, expect more of the same, i.e. a longer recovery and a bit of a drag.

I’m doing my bit, are you?

Irrational exuberance has long been touted as one of Greenspan’s most quoted phrases, used in December 1996 as a warning of “unduly escalated asset values” in light of low inflation.  The inverse relation between low inflation and high stock prices caught Greenspan’s eye – the ‘warning’ had an immediate effect of triggering a stock market sell off, only to be ignored later.  The question is, will the same thing happen in 2010 (probably) and what will be the trigger that deflates the balloon? (don’t know!)

I think I mentioned last month the dollar’s risk on/risk off trading pattern – bad economic numbers, risky trades curtailed and the dollar bought (as a safehaven currency)/ good economic data, risky trades bought and the dollar sold.  This pattern looks likely to play out for some time. 

Ben Bernanke joined the party talking about the desire for a strong dollar, the Fed chairman stepping outside of his usual remit, that being to defer comment on the dollar to the US Treasury department, and perhaps in response to the previous weekend’s APEC meeting where Hong Kong, China and Malaysia expressed concerns that low rates and a falling dollar were fuelling an asset bubble. 

The Fed has been consistent in its message on rates, low for an extended period. How long ‘extended’ is is key, the longest mentioned time frame being 2012, coincidentally tying in nicely with the end of the world.  So get spending, fuel that asset bubble!

Disclaimer: The views expressed are the opinions of the writer and whilst believed reliable may differ from the views of Butterfield Bank (Cayman) Limited.  The Bank accepts no liability for errors or actions taken on the basis of this information.



Money Markets: by Butterfield Bank’s Phil Turnbull