4 September 2011

Some thoughts for September

A few questions.

When and how is the Euro is going to come to an end?

Here is a guess: 2012; quickly and uncontrollably after a peripheral country gives up on servicing its debt and defaults.

When and how is China’s economy going to stop growing?

Perhaps in 10 years time the US may not look back at these times as the new Great Depression, but China might well do. Their economy is still growing like topsy, powered by export surpluses (unsustainable), debt growth (unsustainable) and demographics (already unsustained, see Barry Eichengreen).

And here is another thought: The current UK depression will be the longest since at least the first world war. So, the Great Depression was more of a US phenomenon than a UK one.

Following Michael Pettis’ predictions for the rest of the decade, first Europe and then China are in for difficult times.

When is the gold bubble going to pop?

It was difficult to disagree with Alex Preston’s analysis in The new gold rush.

Perhaps the collapse of the Euro will see the final run up in the price of gold. Or perhaps we will have to see a few years of financial repression and inflation before interest rates are allowed to rise, currencies stabilise and gold is seen for the ultimate bubble that it is.

So, despite the vertigo-inducing run up in gold over the last decade, it is not at all clear that we are near the end—yet.

And finally, what is going on with stock markets?

If you look at the S&P 500 (or the FTSE 100) over the last 12 years, you just see this extraordinary sawtooth shape with stocks going down and up and down and up before turning down again earlier this year with no apparent trend. But what is not obvious from looking at a chart is that the S&P 500 adjusted for inflation is down 39% since the 2000 peak..

There is really no sign yet that this process has reached an end.

As Alan Beattie just pointed out in the FT, Growth is wobbling, and authorities in the rich world are divided and ineffectual. September is set to be one of the nerviest months of an increasingly perturbing year.

d. sofer