Central banks try to be “precise” in timing a rate increase, but fail to understand the overall context—politically, economically and culturally. What’s needed is a return to a world where productivity and thrift is rewarded.
Peter C. Cavelti
Richer valuations, a super strong dollar and policy paralysis make financial markets vulnerable. Add to that a monetary regime that is out of control and a deteriorating geopolitical climate.
The dramatic decline in the price of oil will have serious unintended consequences. Expect the Middle East to be further destabilized and oil producers everywhere to be plunged into budget deficits.
We don’t need to economically define what that means: given the precarious state of the Eurozone, or Japan, or the bubble characteristics of U.S. stocks or Chinese or Canadian real estate, even a hiccup in interest rates could lead to economic pneumonia.
By immediately embracing a Kiev regime whose legitimacy is suspect, the European Union (aggressively pushed by Washington) is engaging in an adventure that will prove extremely costly, both in terms of money and credibility.
Our views vary considerably from the sentiment of most investors. We are less concerned with a dramatic change in central bank policy, but see anemic economic growth and overly stretched stock valuations as a key challenge.
In the U.S., the rapidly building currency crisis in the emerging markets is hardly noticed.
The past few weeks have blown a few holes into such thinking. Bond yields have risen sharply, major stock indices have been under growing pressure and gold has rallied against all currencies.
Markets are so enamored by the prospect of continued and escalating stimulus that they forget the desperate economic circumstances that make bailouts, stability funds and other support operations necessary.
Last year, as the EU’s political elite dithered over rescue packages of thirty and forty billion Euros, we wrote that a mere stabilization of the Euro–crisis would require at least 2.5 to 3.5 trillion.
In the U.S., massive stimulus has fed through to employment creation, allowing the economy to gradually recover.
Since 2008, numerous stimulus packages and QE1 and QE2 have seriously undermined the integrity of the dollar. In the past few weeks, both the Swiss National Bank and the Bank of England have introduced their own versions of quantitative easing, and now the EU is going down much the same path.