Take A Step Back And Look At The Macro Picture

Wednesday, September 7, 2011
By Paul Martin

Maurice Pomery of Strategic Alpha

Good Afternoon/ Good Morning America..I have decided to take a step back whilst all are so concerned with the short-term headlines and take a look at the macro picture developing. Many are questioning risk positions but as you will read below the risks remain extremely elevated and policy mistakes look more likely than ever. Currencies may just be losing their store of value and precious metals may have to take up the slack!!!! See below…

Keep the Faith….

Let’s take a step back and look at the macro picture that is developing across the globe:

In my humble opinion the global economy is facing one of the toughest times it has seen in decades and the inter-connectivity of the “global village” will actually exacerbate the problems the developed world faces. The idea that the emerging world can de-couple and save the world is quite ludicrous when they rely so heavily on exporting to the developed nations. The demand drought that is coming from the consuming, developed world is only part of the problem. The perfect storm is still building out there and the consumer is the key. Global growth expectations seem far too optimistic in my view!

The problem is that to make austerity measures work, the governments need the consumer to be strong not weak and they certainly do not need them to start deleveraging and refusing or reducing credit. This however, is exactly what austerity brings. A lack of confidence amidst rising unemployment and a reduction in benefits, coupled with falling housing prices and to some considerable extent, a loss of faith in government, does not fill consumers with an appetite for more risk. In fact the opposite is the case. Consumer confidence tells us that deleveraging will increase very soon.

However the problem does not only lie with the consumer, the banks and to some extent many sovereign nations are in deep trouble as well. What a cocktail. Economists always look back and suggest ways out of this and the Keynesian believers seem to think history can help them. I am afraid this time is different as I am not sure we have seen anything of this nature before (maybe 1929-1933) and the central banks are run by academics and economists who use models which simply do not have the scope to predict what is potentially coming, as evidenced by their disgraceful predictions based on little more than hope than knowledge recently in my view. The models at all the central banks have been proven yet again to be useless along with many economists, in predicting slowdowns, financial crisis or recessions! Unfortunately the models are designed by the economists and this needs to change quickly.

The Rest...HERE

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