My compliments to the research team at Commerzbank who put out the best overnight summary – or at least the best one which I receive – and which reported this morning, I quote:
“EU Summit: Government leaders state that “progress is being made towards structurally balanced budgets and the necessity of differentiated growth-friendly fiscal consolidation”, confirming that strict nominal budget rules have been loosened.
EU Summit: leaders reconfirmed the four-pillar overall strategy that was outlined in earlier summits: restoring financial stability, ensuring sound public finances, urgently fighting unemployment and reforms for long-term growth and competitiveness. There were no further tangible results.
EU Summit: Van Rompuy said that there was a “serene and focused” discussion and he sees a “broad consensus” on the EU economic directions. Merkel said the EU has come “a bit closer” to economic cooperation” while she calls for a joint approach to budget consolidation. Hollande sees further scope for EU project bonds. Rajoy says he did not ask for deficit targets to be eased but he pushed the EU to break the bank-sovereign link.”
Anthony Peters, SwissInvest Strategist
In other words, we are precisely where we were before.
Germany remains fairly stubborn in its insistence that the road ahead has to be built on soundly laid fiscal foundations while most of its eurozone partners still seem to believe that one can somehow build now and then retro-fit the necessary underpinning structures. No prizes for guessing which side of the argument I support.
There also appears to be some belief abroad that the stance taken by Mutti Merkel and her merry men is devised to placate the home voters ahead of the September elections and that, if one lets them voice their crowd-pleasing austerity talk long enough for her to get re-selected, Berlin will then soften its stance and all will be well.
It seems as though many believe that this posturing is for the benefit of the gallery; rarely does one hear the opinion expressed that, in actual fact, Frau Dr. Merkel might really believe in what she preaches and that a re-elected CDU/CSU/FDP coalition might not simply back down and play dead when it comes to job creation.
Sitting on youth unemployment anywhere from 25% to 50% is tantamount to sitting on a powder keg with the fuse burning and it is an issue which needs to be urgently addressed. From a politician’s perspective, the worst thing about it is that the blame can hardly be pinned on either the bankers, on Russian oligarchs or on Lance Armstrong. That is, of course, unless one dances an elegant fandango by accusing the banks which blew us up and got us into this mess by giving too much cheap and easy credit of not giving enough cheap and easy credit.
I was reminded recently that the social democrat Chancellor Gerhard Schroeder (some would argue that being a member of the SDP never actually made him a proper social democrat) dragged Germany out of its economic mire of the 1990s by stimulating the economy with a measured mix of cutting taxes, easing labour laws and focusing on controlling the deficit rather than being controlled by it. At the same time, we can now look to France where Hollande is highly successfully achieving the opposite by implementing the opposite – to which his popularity rating in the low 30s duly attests.
Half-way there in US equities
Meanwhile, the US equity rally continues apace. I wrote on March 1st “…… when it really takes hold, the flow of cash from bonds into equities will increase rather than decrease on which basis 15,000 points is just a matter of time. Stay long.” Just two weeks later, and on the back of ten straight days of gains, we’re already half way there.
I understand that up and down this country (and most other ones too), asset allocation committees are currently holding their quarterly meetings where they will surely be patting themselves on the back for coming into 2013 overweight equities and underweight bonds. That this ubiquitous positioning turns the market call into a self-fulfilling prophecy is beside the point but I think I can say with near certainty is that nobody out there is going to suddenly begin to reverse that tactical asset allocation and that therefore we are a long way from the end of the move.
Keep calm and stay long.
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Alas, it is that time of the week again. All that remains is for me to wish you and yours a happy and peaceful week-end. As England travel to Wales and Ireland to Italy, the French will be wondering whether they might have to make room in their trophy cabinet for a wooden spoon. For that they’d have to lose at home to Scotland. Jamais!
Anyhow, one way or the other, planting out the potatoes is just going to have to wait.