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17 February 2010 |
Justin Urquhart Stewart Justin Urquhart Stewart is one of the most recognisable and trusted market commentators on television, radio, and in the press. Originally trained as a lawyer, he has observed the retail market industry for 20 years whilst at Barclays Stockbrokers and developed a unique understanding of the market's roles and benefits for the private investor.
Justin Urquhart Stewart Justin Urquhart Stewart is one of the most recognisable and trusted market commentators on television, radio, and in the press. Originally trained as a lawyer, he has observed the retail market industry for 20 years whilst at Barclays Stockbrokers and developed a unique understanding of the market's roles and benefits for the private investor. Justin provides financial advice to clients of Kester Cunningham John Financial Planning LLP.
I think we learned our lesson with the Titanic. It is always worth having enough lifeboats - or in this case even one. Seemingly the Euro was designed without one. So when an iceberg is hit, the horns go off and the result is that all the officers of the leading nations rush around wondering what to do. Seemingly there was no 'plan B'. Because there has been no bailout plan, it has been inevitable that there has been a fear of systemic risk as the contagion spreads to other nations. The latest acronym after the PIGS has been the STUPID nations - to list those with potential the most serious sovereign risks. The STUPID list thus includes Spain, Turkey, UK, Portugal, Ireland and Dubai.
In fact we may get some more cogent guidance as to where we need to see restorative action by governments, from the IMF's own list of nations that need to make significant fiscal adjustments. At the top of the list are the UK and Japan where some 13% tightening of GDP would be required for the public sector to balance its books, then Greece, Spain and Ireland at 9% and then close behind is the USA at 8.8%.
Looking at the US predictions for managing this, the figures don't look encouraging. Although savings in US households have started again, it is unlikely to be enough to absorb the amount of debt issuance currently being planned. The old reliable buyer of days gone by was of course China; however, their purchases are seemingly declining at a rapid rate. In 2006 they bought some 47% of all new issuance. In 2008 this fell to 20% and last year apparently it had reduced to a mere 5%. So who's going to buy the rest?
So from Greece, it looks as though we can see a funding fault line from the Eastern Mediterranean to Spain, from there to the UK and then running across the Atlantic to the USA. This ruction is not over yet.
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I am sure I can hear a fizzing noise somewhere. It's a sound that always makes me slightly nervous as it reminds me of a fuse burning. The sound seems to be coming from the Far East where we are seeing some sharply rising producer prices, house prices and money supply figures. This is all data coming out of China and seems to me to be creating a sensitive economic blister which at least is going to be painful and at worst, could burst causing some most unpleasant side effects and collateral economic damage.
One other China issue that has come to the fore has been the rising attitude of domestic protectionism and anti-foreigner bias. This of course has not been a new phenomenon but has been less prevalent over the past few years. However, the economic slowdown of last year created significant pressures with growing unemployment, and seems to have fostered an attitude of greater preference towards domestic Chinese businesses and against foreign participants. Some have even described it as a 'witch hunt against guilao' (or gweilo |
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