Anthony Peters, SwissInvest strategist
Somewhat rhetorically I shall ask the question as to whether today might not be nothing other than the first day of the next US debt ceiling crisis?Rhetorically because, as we all know, nothing has really been resolved.
The United States is living chronically beyond its means and whatever cans might have been kicked down the road by the joint houses yesterday, the one marked “DEFICIT” is the most critical one and the one which has been spoken about least.
The Republicans might have come out of the past weeks with the weaker press and the Tea Party Movement has, in the eyes of the world, shot itself in both feet but we must be level-headed enough to acknowledge that the Washington cannot continue to regard piling more debt on existing debt as a satisfactory and sustainable fiscal strategy. This is, as several commentators in the States put it, no time for high-fiving and spiking the football.
Bill Blain of Mint Partners, a rarely seen beast as he is not an analyst but a market practitioner and hence always a voice of reason, appeared on the TV this morning and suggested that his firm had recommended to clients that they sell into the current rally - buy the rumour and sell the fact - and look to reload lower down. I cannot disagree with him. Although I am not sure is which asset class we should be selling now: bonds, equities, commodities or the greenback? Hey-ho, if we have to waste our time worrying about details like that, how are we ever going to make any money? (Sorry Bill, just a little tweak of the leg…).
Keeping House
So we have 113 calendar days and 76 working days until the patched up compromise agreement of yesterday expires. Most think that before long we will then find ourselves back where we were just 24 hours ago but I’d venture to disagree. By February 7th we will be 10 months away from mid-term elections in which one third of the Senate and the entire House of Representatives will be up. It was in the Republican led House that most of the damage was done through the current crisis and I’d expect those hoping not to join the unemployment statistics in January 2015 to try to be a tad more accommodative next time around.
Irrespective, the USA has to face up to the simple fact that it is spending far too much relative to what it is bringing in. Either it must cut expenditure or it must raise revenue. Expecting organic growth in fiscal revenues driven by rising GDP in a buoyant economy to wipe out the deficit if such a large part of the economy is financed by that very deficit is tantamount to believing in the existence of the “perpetuum mobile”.
The 12 Commandment should be written up as “Thou cannot persistently spend more than thou earneth, even if thou printeth “In God we Trust” on thine bank notes for He cannot help resolve the matter”.
Forex fix
Away from that, I hear that the Forex market is in the process of being investigated for fixing offences. Long gone are the days when the banks met in a panel in order to do just that - to fix a daily settlement rate. Of course they’re not quite the same but I always thought that the idea of a market was to have a forum for the participants to agree what the price of an asset or a chattel should be. That the opinions of those involved should be biased by their respective positioning is axiomatic. The divergence in interests is, after all, what makes a market.
I’m afraid I see a bunch of politicians licking their fingers at the prospect of collecting more eye-watering fines from the banks while at the same time wondering why banks can’t lend due to shortages of capital. Why the shareholders should always be so harshly punished for the misdemeanours of the employees escapes me, if misdemeanours they indeed are. Why, on the other hand, are politicians not summarily cashiered when financial mismanagement or voting irregularities are discovered in their constituencies?
I admit to having been on the wrong side of the argument when it came to the Libor fixing scandal and I shall therefore reserve judgement on the manipulation of exchange rates, until I know more about the charges but if attempting to achieve the most favourable price or valuation for an asset we holds is, ipso facto, an offence, then we might as well all pack up and go home.