Disclaimer

Disclaimer. After nearly 40 years managing money for some of the largest life offices and investment managers in the world, I think I have something to offer. But I can't by law give you advice, and I do make mistakes. Remember: the unexpected sometimes happens. Oddly enough, the expected does too, but all too often it takes longer than you thought it would, or on the other hand happens more quickly than you expected. The Goddess of Markets punishes (eventually) greed, folly, laziness and arrogance. No matter how many years you've served Her. Take care. Be humble. And don't blame me.

BTW, clicking on most charts will produce the original-sized, i.e., bigger version.

Wednesday, October 27, 2010

Debt and the Recovery

click to enlarge

Historically, US recoveries have always been fuelled by debt. Savings rates declined, car loans soared, and housing starts rebounded. In fact we have never had a US recovery without a previous recovery in housing starts.This time round, because there is already too much debt, savings rates have risen instead of fallen, car sales are OK at best, and housing is in the doldrums.

Starts are off their lows, but the contrast with previous cycles is abundantly clear. Vigorous it ain't -- and that's despite the steepest decline since data were first collected back in the 50s. Yet what did you expect? House prices are barely rising, credit remains tight, and consumers aren't exactly optimistic.

Still, with QE2, housing should at least hold steady. But don't hold your breath for a runaway boom.

(BTW, if you click on the image you'll be able to see it in its original size.)

Thursday, October 21, 2010

Double Dip Blues.


Commentators argue about the meaning of double dip. Let's not get pedantic: growth slipping from 3 or 4% to zero, with a couple of quarters of zero or near-zero growth, is pretty much a double dip in my book. And that is what's happening in the US. My COI (US coinciding index) has been updated for the latest industrial production (IP) data. Not good. And the sogginess is confirmed by the ISM indices, consumer sentiment and above all housing. Fact is: there's too much debt, individual and government. So the stimulus applied is ineffective. Pushing on a string.


Ironically, the unwillingness of China to allow the yuan to rise means that US monetary policy is accelerating Chinese growth.  Chinese gold and forex reserves now exceed 2.5 trillion US$.  And every time the Bank of China buys US dollars to stop the yuan rising, it adds to domestic money supply.

Moral of the story:  there is a new bubble just starting in emerging markets.  It'll run for a while before it comes to a sticky end.  And US investors in emerging markets will get the benefit of a falling dollar as well as rising share markets.

That assumes the US double dip doesn't trigger another debt meltdown.  We're perilously close to deflation.  Watch this space.


Of course, we've seen this all before.  As this song reminds us.