Three market problems solved, sort of…
by Peter Switzer
Three big issues confront stock and all financial markets — the US debt challenge, the Euro-debt drama and the possibility of the US economy double dipping.
Yesterday’s nice rise with the S&P/ASX 200 up 81.6 points, or 1.83 per cent, to 4549.7 was a reflection of what can happen when there’s progress on one of the big issues, namely the US debt ceiling and deficit talks. But, of course, it was progress, not the end point.
On the economic likelihood of the US double dipping into recession, it looks unlikely and we should see this in coming months, provided the debt squabbling in the Congress can be resolved sensibly by 2 August.
The whole issue is so big, the former treasury secretary Lawrence Summers has told CNBC that if it’s not resolved it will be like “Lehman on steroids!"
And you wonder why stock markets are spooked. It underlines the fact that politicians in all countries are like a bunch of highly intelligent, precocious school students, who delight in debating about matters of great importance such as the nature of humanity, the distribution of income or climate change but do so on the hard work and sweat of others — usually their parents! And worse still, they don’t show appreciation to the people that make it all possible.
In the Congress, both the Democrats and Republicans are playing political fiddles while the US stock market and economy flirt with being burnt big time. Of course, the problem is that they (and we, for that matter) are short of incredible leaders. Any country that thought it was a good idea to vote in George Bush — twice — really needs to have a good look at itself.
Summers argued, "More important than anything else is that we protect the creditworthiness of the country by raising the debt limit".
And the bi-partisan recommendations from the Gang of Six, made up of both Republicans and Democrats, was a positive step, which shows what politicians are capable of when they stop playing politics.
On the US economy, I did a conference with BT’s chief economist, Chris Caton, last night and he dismisses the chance of a double dip categorically, provided the Congress settles its differences.
He is also relaxed about the Euro-debt disaster pointing to the spreads on the bonds between Germany and Italy and Spain, which is quite small compared to the likes of Greece, Portugal and Ireland. For the latter three, the spread gets up towards 15 per cent or so!
He also points out how small these three economies are in the grand scale of things — combined they are smaller than the economy of Florida!
He expects the three challenges will get resolved to varying levels of satisfaction and that our market will head up towards 4900 by year’s end.
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Published on: Thursday, July 21, 2011
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