The Future is on Shaky Ground

Poor old Sam Stosur managed to snatch defeat from the jaws of victory last night. I feel for her. We have all been there at some point in our less decorated sporting careers (i.e. backyard cricket).

At 5-2 up in the third set, I’m pretty sure that the whole crowd would have felt certain of the outcome. Everyone would have been relaxed in the knowledge that victory for Sam was imminent. It must have been a shock to the system to see her implode over the following minutes.

The current state of the stock market feels a bit like that crowd when Sam was looking home and hosed. The future was certain. Everyone agreed the future was certain. Then reality strikes.

There is currently no shortage of data to point out that the future is on shaky ground.

Boral is about to sack 700 managerial and back office employees because they see a long-term structural shift to the downside in construction caused by the ‘strong Australian dollar and a greater number of apartment developments,’ according to the Australian Financial Review (AFR).

The AFR also states that the Westpac-Melbourne Institute Index of Consumer Sentiment rose just 0.6 per cent in January ‘and is only 3.5 per cent above its level in October 2011, when the Reserve Bank began what became the most aggressive interest rate cuts in the developed world.’

So the usual game of lowering interest rates and increasing confidence, spending and thus leverage seems to be, if not broken, close to having a wheel fall off.

In the bigger picture the World Bank has just cut its expectations for world growth over the next year. The AFR reports that the Washington based bank projects the ‘world economy will expand 2.4%, down from a June forecast of 3 per cent…It halved its forecast for Japan, cut the US projection by 0.5 of a percentage point and predicted a second year of contraction in the euro region.’

The Washington Post says that:

The Obama administration will begin to tap federal retiree programs to help fund operations after the government lost its ability Monday to borrow more money from the public, adding urgency to efforts in Washington to fashion a compromise over the debt.

Treasury Secretary Timothy F. Geithner has warned for months that the government would soon hit the $14.3 trillion debt ceiling – a legal limit on how much it can borrow. With that limit reached Monday, Geithner is undertaking special measures in an effort to postpone the day when he will no longer have enough funds to pay all of the government’s bills.’

You really couldn’t make this stuff up. The US government is now taking money from pensioners to fund itself.

But all is not lost. The Federal Open Market Committee (FOMC) is being stacked with doves so if all else fails we can print print print!

The Federal Reserve Bank of Boston president Eric Rosengren says the central bank is still able to enlarge its $85 billion monthly purchases of bonds if policymakers are not making progress towards their twin goals of stable prices and full employment.

The AFR notes that the Boston Fed Chief will become a voting member of the FOMC this year as part of a rotation among Fed regional presidents.

So while the underlying economy splutters along on one engine and the money wizards wave their wands and levitate all assets, the Germans have put up their hands and said that they’d like some of their gold returned from abroad. Smart Germans.


Murray Dawes
Editor, Slipstream Trader

Markets and Money offers an independent and critical perspective on the Australian and global investment markets. Slightly offbeat and far from institutional, Markets and Money delivers you straight-forward, humorous, and useful investment insights from a world wide network of analysts, contrarians, and successful investors.

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