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| market snapshot this morning 09:10h |
Stock markets in the US fell sharply last night. Especially tech stocks saw a large and ominous sell off. Don’t we all know why
It’s not the debt ceiling, surely! They, that is all parties to the process of resetting the ceiling, agree they will HAVE to do it. Instead, ideological standoffishness and unsavoury arm bending stops law makers from signing on the dotted line. Should we, the rest of the world. care Oh, indeed!
The USA was and remains at the forefront of the fallout of the financial collapse in 2008. Do we really expect to start over with a clean slate, just as if nothing significant happened* just a rhetorical question..
However, the current impasse is not about learning from mistakes, rather how to best manipulate to one’s own advantage. I guess that US grassroot movement now throwing their weight about was named ‘tea party’ because that sounds the most innocent and removed from its intrinsic motives and ideology. Good disguise, but the cat is out of the bag now. When dealing at this level, common sense goes out the window, no matter how fanciful, intelligent, witty or concerned you make the arguments look.
And when arguments fly across the media for everyone to comment on, many more across the globe might easily be tempted to worry and wonder what’s next. However, this scaremongering cleverly disguises that the ‘economic ball is not in the US court’. Yes if they manage to scare everyone into thinking that their livelihood, their stock markets, their investment are at risk then this ‘tea party’ is winning and a much more confrontational life style is in store for US citizens.
But the ‘ball is in Asia’s court’, and much of what happens now, is the result of Asia flexing its economic and growing political muscle. Whether that includes introducing an Asian flair to outdated thinking modes or not, I think, Asia’s efforts will be a positive influence.
Dare to Compare
As in the 1930s when right wing ideology took hold of Germany, it was not economic shortcomings that created the masterplan for a disastrous outcome. It was political failure – or mistakes – and a leadership vacuum stemming from the fall of Germany’s last Kaiserreich, the first World War and the failed concept of the Weimarer Republic.
In the US context, I sense a similar standoff between political naivety, inexperience or simply a lack of personal authority and an emotionally charged righteousness that prevents a visionary solution for a country – and its connectedness to the rest of the world, as ideologically driven power invariably does.
Practicalities
But hey, I might be jumping the gun here! This is not an attempt at a German style fourth Reich of America, after all. “Definitely not”, according to BBC report interviewing a member of the Congress earlier this week, “decision makers will come together and sign off an increase in the debt ceiling BY THIS FRIDAY!” – errr TOMORROW
Then why the sell off in US stocks last night Are some market participants keen to remind us what is at stake If anyone can, stock markets can and will bring back some sense of reality and responsibility, because it will hurt the pockets of those who mismanage the most. Last night was a signal to be taken seriously. If decision makers in the US fail to sternly forge ahead and deal with whatever curtails progress at present then those same investors will not stop to bring markets down to a level where there will be but a few stark choices left to be made, leaving little doubt as to an alternative outcome.
Then hopefully, it will become clear that indebtedness is not the illness we need to eradicate, – but our inability to deal with it, in good times and in bad.
Markets short term
So, if last night’s downer was but a wagging finger of the market, then several things must follow: Asia might suffer some losses – but less than in the US – in today’s market action and may be even on Friday, too. Europe’s bourses will do likewise. The USD will temporarily halt its descend against Asian currencies. But gold prices will stay where they are – above $1600. I still think that the troubling issues will be tackled and last week’s positive sentiments will continue supporting stock markets for a few more weeks.
Come next Monday realities in the US will have changed. Either the country continues with a higher debt ceiling, – and some concern about a lower credit rating, – or they really push the country closer to defaulting on their obligations and – for a short while – markets will enter a period of helter skelter, sharp swings in stocks, currencies and other assets. It is NOT though what I would call my first option right now.
Imagine
Imagine the US managing to sign a respectable deal, giving the Obama administration the time and means to steer the country into ‘calmer waters’.
Imagine a European solution to their debt problems that is not exclusive – but inclusive, not leaving room for straying into anonymity, again.
Anonymity in this context means managing a country and economy without regard to the consequences to the rest of the world (and getting away with it), – which we gallantly term a FREE country. In the old days it meant freedom from oppressive leaders and empires. And yet, in today’s Europe for example, this kind of freedom and anonymity are not the likely qualities we seek. Events today are but the birthing pains of the globalised interconnected world of tomorrow, where cultures and ideologies transcend borders as readily as the economic goods we produce and consume.
Positive outcomes on any of those fronts will instantly bring relief to bond (especially high yields) and stock markets, creating an environment for yet another glorious asset rally.
Imagine … the Beatles singing for the London Olympics 2012 opening ceremony, remembering the one Beatle who dared to imagine grandly, – John Lennon.
