Crest of the Wave
I really enjoyed the following article from itulip and it follows nicely on from the comments at the end of last month's post.
http://www.itulip.com/forums/showthread.php?t=252
There is a very perceptable change in sentiment taking place at the moment. Let's take a look at the key factors that are shaping current economic commentary:
Interest rates are universally on the rise.
Everywhere you look Consumer Price Indices are rising and central banks are responding with interest rate rises in an attempt to contain inflation. This is almost universally a post-monetisation hangover and the inevitable result is a stagflationary environment. Normally this would precipitate a recession, but with a world economy lathered in government and personal debt the consequences may be more severe.
Equity markets are trading sideways.
Markets are efficient, but not smart. That is why smart people make money from them. They reflect a collective position. An extended cycle of sideways trading is actually worse than a correction in my opinion. It suggests that the collective consciousness of the market is reassessing itself. In colloquial terms the bear is rising from hibernation. While the economic fundamentals support a bear market in equities, until the core psychological sentiment of the market changes it will not formally begin its bear cycle.
Oil prices are surfing the crest.
The monetary expansion has translated into consumption and debt in the US and production and savings in Japan and China. The US has been able to fuel this expansion through ever growing deficits and government debt. If you think of 'core' CPI as the very tail end of the expansion then oil is on the crest of the wave. The inflation in the money supply has expanded economic activity, which is not necessarily productive activity. Rising oil demand has reflected this expansion and is in turn driving producer and consumer price inflation in its wake.
Political environment is unstable.
Well, this is a relative statement. One could say the political environment is always 'unstable', but now perhaps particularly so. America's military adventurism is beginning to prove unsuccessful. Civil war is now a virtual certainty in Iraq. Afghanistan was not brought under control and a lower level insurgency persists there. Iran continues to compete with North Korea for the 'Rogue State of the Week' award. Together with Syria it funds its Hezbollah brothers in Lebanon who are forcing the entire country to pay for the sins of a relative few. Israel is taking the predicable course of action and using its vastly superior military capabilities to assert its will upon its adversaries. This could be more of the same, or a step-by-step decent into a Nostradamean nightmare.
Again, and as always, we need the patience to watch history unfold, but unfolding it is.
http://www.itulip.com/forums/showthread.php?t=252
There is a very perceptable change in sentiment taking place at the moment. Let's take a look at the key factors that are shaping current economic commentary:
Interest rates are universally on the rise.
Everywhere you look Consumer Price Indices are rising and central banks are responding with interest rate rises in an attempt to contain inflation. This is almost universally a post-monetisation hangover and the inevitable result is a stagflationary environment. Normally this would precipitate a recession, but with a world economy lathered in government and personal debt the consequences may be more severe.
Equity markets are trading sideways.
Markets are efficient, but not smart. That is why smart people make money from them. They reflect a collective position. An extended cycle of sideways trading is actually worse than a correction in my opinion. It suggests that the collective consciousness of the market is reassessing itself. In colloquial terms the bear is rising from hibernation. While the economic fundamentals support a bear market in equities, until the core psychological sentiment of the market changes it will not formally begin its bear cycle.
Oil prices are surfing the crest.
The monetary expansion has translated into consumption and debt in the US and production and savings in Japan and China. The US has been able to fuel this expansion through ever growing deficits and government debt. If you think of 'core' CPI as the very tail end of the expansion then oil is on the crest of the wave. The inflation in the money supply has expanded economic activity, which is not necessarily productive activity. Rising oil demand has reflected this expansion and is in turn driving producer and consumer price inflation in its wake.
Political environment is unstable.
Well, this is a relative statement. One could say the political environment is always 'unstable', but now perhaps particularly so. America's military adventurism is beginning to prove unsuccessful. Civil war is now a virtual certainty in Iraq. Afghanistan was not brought under control and a lower level insurgency persists there. Iran continues to compete with North Korea for the 'Rogue State of the Week' award. Together with Syria it funds its Hezbollah brothers in Lebanon who are forcing the entire country to pay for the sins of a relative few. Israel is taking the predicable course of action and using its vastly superior military capabilities to assert its will upon its adversaries. This could be more of the same, or a step-by-step decent into a Nostradamean nightmare.
Again, and as always, we need the patience to watch history unfold, but unfolding it is.
posted by Peter at 1:52 pm
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