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Tell me again. How do you reduce debt by taking more on?

Posted by jdavis on October 27, 2011

The media haven’t been – for once – too incompetent about last night’s Summit.  (How I wish I had the catering contract to EU summits…)
They appear slightly sceptical that all is now well.  They are of course right in that degree.

Shaun Richards – an eminent economist has already written a superb piece on what happened and what’s going on.  So, here it is:
EU sorted?  So markets can now soar inexorably?  There are so many flaws in the plan to plan to have a plan.

With the establishment of a €uro group of 17 countries there will now be EVEN more bureaucracy in Brussels.  Yet another layer of highly-paid civil servants.
It couldn’t be the civil servants are playing the politicians, could it?

Unelected people in Brussels will now effectively tell Greece how to run their economy.  That has undertones of which we should all be concerned.

I note that, though the stock market appears to like the announcement, the sovereign bond market has barely moved.  The bond market is usually more right than the equity market.

No doubt the €uro could rise further here from c 1.40 v $ to perhaps 1.46/1.48 which are the previous highs.  And no doubt this would escalate the stock market by 5-10%.  However, I am resolute.  We are in a bear market.  We saw the highs in the Spring.  Within weeks or a few months we will see the move to retest the March ’09 lows.  We will also see the crushing of the €uro, or more to the point, the soaring of the $ as global investors rush to security.

My view is that the markets are very overextended at these levels.  They will pullback before a final assault up (Zig, Zag, Zig).  If we see a pullback I will recommend a lightening of bearish holdings.  Then, if we see a final rally, I will recommend promptly a reinstating of the bearish holdings.

BTW – I want to comment on the UK’s referendum debate and vote in the House of Commons on Monday.  I congratulate the 111 MPs who, mostly, defied their parties and voted with their principles.  Whether we want in or out of the EU is not the issue.  The issue is we should have the opportunity to decide.  There have been deeper and deeper integration treaties since, nearly 40 years ago, we voted to join the COMMON MARKET – a free trading area where the strong and hardest working win.  That is what we voted for.  Not for unelected Commissioners in Brussels to tell us what to do.  Also, I note all the major parties told their MPs to vote against the referendum.  There is no material difference between the major parties.

NB. Brussels has just announced its next year’s budget.  It will cost 5% more than this year.  Makes you think.



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