The Great Debate UK
This week’s rehashing of European banking concerns – related variously to the Basel III impact on German banks, the ongoing morass re Anglo Irish Bank or any other scare story you want to exhume -- provided the latest excuse for a global markets wobble as September kicked off. Yet, with some justified head-scratching over what really was new to the world this week as opposed to last week, price moves showed little conviction. Most losses were quickly recouped and decibel level of the commentariat, still frantically competing to warn you of the next disaster, toned down.
The world’s major sovereigns and banks have big financial problems, no doubt, and Europe more than its fair share. The rescues of the Spring did not provide a silver bullet and genuine repair will likely take a painfully-long time. But we’ve also had a lot of time to adequately discount these risks and the marketplace at large is already positioned extremely cautiously. That's why the idea of sudden, blind panic on these long-running sagas seems just a little OTT – especially against a relatively stable, if bruised, economic backdrop. The bigger issue many investors are grappling with is the growing difficulty in making money in a hyper-cautious, low-growth environment. Ask Stanley Druckenmiller. If he threw in the towel because money-making conditions are just lousy, then you can be sure others see the same. Anecdotally at least, pressurised hedge funds – who faced rising redemptions through the summer – are ultra-cautious about open positions and seem quick to cut and run on even the slightest gain, long or short. (A bit like continually shouting 'bank!' on reaching £100 pounds on The Weakest Link!) Big institutional funds, meantime, are sufficiently uncertain about the market and economic direction that many are already keen to lock down for the remainder of the year and are hugging benchmarks to preserve whatever capital they have without resorting to zero-yielding cash or barely-more-attractive TBonds. U.S. midterms in November only add the caution. In short, it will take a pretty major positive or negative surprise to truly set these markets alight and there is every chance we won’t get a decisive one for some time. We already have historically high vol and caution – but relative steady, unspectacular conditions for all that. The smart money may simply be tempted to buy or sell any hysterical extremes. Is may even be possible that some are tempted to foster a long-absent patience gene?
As to next week? There's welter of new economic data to maybe add some flavour. The biggest potential movers are August China production and investment stats (now, oddly, being released Saturday rather than Monday) and then US retail sales, Philly Fed and German ZEW indices later in the week. On the issue du jour re European banks/sovereigns, an informal EU summit on Thursday provides the main set-piece – but BIS central bankers meeting in Basel this weekend and Spanish and Italian debt auctions next week may add their own spice.
The Japanese yen intervention theme will likely rumble, with the Japanese Democrats leadership poll and BOJ Tankan playing a part. China will also likely find renewed political heat stateside, as the US election campaign adds an edge to a congressional hearing on China’s FX policy on Wednesday as well as the monthly Treasury/TIC flow data. All the above have their own ability to surprise -- but few seem game changers in themselves.
You wouldn't know it to hear officials talk, but the strong yen is not Japan's main problem. The Bank of Japan's latest moves on Monday didn't weaken the currency -- though that is one broad objective of fiscal and monetary stimulus. In any case, the trade-weighted yen is weaker than its real 1990-2010 average and Japanese exports are still rising. Export lobbies may have the government's ear, but intervention could make Japan's domestic predicament worse.
When the Democratic Party of Japan took office last year, its leaders talked about putting more emphasis on Japan's domestic economy rather than the needs of major exporters, which had been favored by Liberal Democratic Party administrations since 1955. The DPJ's first finance minister, Hirohisa Fujii, said at his introductory press conference last September that he was opposed in principle to currency intervention because it could distort the economy.
from The Great Debate:
For the growing number of Americans who see China heading for inevitable global dominance, nudging aside the United States, a brief walk down memory lane helps put long-term predictions into perspective.
Not so long ago, Japan was seen as the next (economic) number 1. American executives studied the 14 management principles of The Toyota Way, developed by the automobile manufacturer that grew into the world's biggest car maker and is now recalling millions of defective vehicles.
Japan has quite a way to go to narrow its gender gap and come closer to matching the disparities found between the sexes in other G7 countries, statistics show.
from The Great Debate:
(James Saft is a Reuters columnist. The opinions expressed are his own)
The bad news for holders of U.S. debt, in case you missed it, is that China has sold so many Treasuries that it is no longer America's leading lender.
The worse news is that there is a new creditor-in-chief, and it is Japan, an aging country with its own government debt bubble to contend with.
Mixed reaction from major European banks to appointment of Naoto Kan as new Japanese finance minister. ING is pretty scathing, saying the appointment sidesteps a process of change Japan must undertake to avoid further stagnation or a fate far worse.
"PM Hatoyama has appointed someone with no experience in economic management... Mr. Kan takes on the finance minister role without a well documented, deeply considered policy agenda. Here we rely on reports of positions he has taken in the Cabinet, and from public statements on economic management. These suggest his instincts are to pursue a stimulus strategy involving higher government spending; a weaker yen and ultra-loose monetary policy. Mr. Kan appears tone deaf to microeconomic reform or to the threats to financial stability posed by high public debt."
- Arudou Debito, is a columnist for the Japan Times, activist, blogger at debito.org, and Chair of the NPO Foreign Residents and Naturalized Citizens Association. The opinions expressed are his own -
Japan’s famous mantra is that things don’t change much or very quickly. But I have a feeling that this approaching Lower House parliamentary election on August 30 just might prove that wrong.
from The Great Debate:
That's despite the fact that as much as 70 percent of the value investors put on Yahoo's depressed shares are tied up in its international assets or cash holdings -- factors that have nothing to do with Microsoft.
- Danny Sriskandarajah is Director of the Royal Commonwealth Society. The opinions expressed are his own -
In recent years the Commonwealth has become an easily derided organisation. From its inception as a clever way of easing de-colonisation to the heady 1970s and 1980s when the association showed a radical dynamism on issues like Apartheid, the international association has shown itself to be unique and useful.