Stock markets are not longer a proxy for the ‘real’ economy neither is the price action in some other asset classes.
However, we are convinced that the ‘green shoots’ of last months are nothing more than the logical reaction of the economy after we hit the brakes last September with the Lehman and AIG-drama.
Economic activity came abruptly to a halt. The following months, inventories were depleted and the economic activity we experience now is nothing more than an effort to replenish these inventories.
There is economic activity but on a low level.
The global economy is recovering very slowly and it’s not coming to an end soon.
So the recession is here to stay, people will spend less and no way there is inflation in the pipeline.
That means that after the shake-out of dollar and bonds, they will come back in vogue and that is not good news for other markets.
Although we thing that after this correction in stocks another sharp rally can follow.
And there is Europe: 15% of the British economy is linked to the financial industry (in the States only 5%). This oversized sector is still in a downturn and this can hurt the pound. Spain, Portugal, Ireland and Italy can not cut rates in order to deal with the local economic weakness. As a result they must take on more debt, increasing the probability of more rating downgrades. The risk they will leave the EU and go back to their own currencies is growing. Fast.
Sphere: Related Content
However, we are convinced that the ‘green shoots’ of last months are nothing more than the logical reaction of the economy after we hit the brakes last September with the Lehman and AIG-drama.
Economic activity came abruptly to a halt. The following months, inventories were depleted and the economic activity we experience now is nothing more than an effort to replenish these inventories.
There is economic activity but on a low level.
The global economy is recovering very slowly and it’s not coming to an end soon.
So the recession is here to stay, people will spend less and no way there is inflation in the pipeline.
That means that after the shake-out of dollar and bonds, they will come back in vogue and that is not good news for other markets.
Although we thing that after this correction in stocks another sharp rally can follow.
And there is Europe: 15% of the British economy is linked to the financial industry (in the States only 5%). This oversized sector is still in a downturn and this can hurt the pound. Spain, Portugal, Ireland and Italy can not cut rates in order to deal with the local economic weakness. As a result they must take on more debt, increasing the probability of more rating downgrades. The risk they will leave the EU and go back to their own currencies is growing. Fast.
No comments:
Post a Comment