If the U.S. government was to undergo psycho-analysis it would prove interesting to see if one of its so-called independent thinking entities named the Federal Reserve sub-consciously had a desire fulfilled when the shutdown occurred. Whispers are growing in noise that the Fed is now going to back off of its ‘tapering’ until sometime in March because the U.S. economy will have proven to have suffered during the shutdown, and this will somehow legitimize Fed speak to come which in essence will have to backtrack and cover up its overly optimistic ramblings in the late spring and early summer of 2013.
Since August it has been clear that not all the data in the U.S. has been smelling like a rose and the Fed likes its counterpart across the ocean – the ECB – has proven again that it really has no genuine clue on a cure for creating true growth free of toxins except its own ideology and covert political leanings. It is only our opinion, but it is one thing for a government to try to ‘buy’ its way out of a recession and create a bigger government which creates long-term dependency as ‘care jobs’ are given compared to fostering free enterprise and work that is not dependent on handouts from a federal agency.
Yes it can be argued until we are blue in the face about the recession (and depression) that might have ensued if the U.S. government had not taken its current stance, but this is not a black and white issue. Certainly mistakes were made and if a different policy had been implemented problems would have developed from other reforms. The question is what is going to take place over the next couple of years with the global economy and if it is being managed correctly by political interlopers disguised as servants of the public and what the long-term effects will be from misguided policies.
If the market is the scorecard, one would have to say equities are priced rather well compared to a few years ago and that FX and commodities are not suffering from too much degradation. But again what is to come? While it is easy to bask in the light of optimism and say all will be well, or cower in the dark shadows and say an apocalypse is on the way. It is more practical is to ask where the risk is going to come from and what type of opportunity it will lead to. The bond market seems to be pricing in some future volatility but has not reached a panic state. Most investors appear tranquil for the moment.
Which brings up the case of the gains made by the EUR, GBP, and AUD since the U.S. government has reached the conclusion of its recent drama and proven that it is not ready to jump off of a death cliff quite yet. The Single Currency is above one year highs, the Sterling seems intent on testing it upper realms and is battling near key resistance levels, and the Aussie is acting like it is determined on building its way out of a value hole that it begun to dig in earnest mid-spring. The USD is going to find consistent pressure for a while, certainly it will not skid forever, but look for the Greenback to weaken under the haze of well-intentioned deeds and monetary policy.
Which brings us back to the beginning of this brief piece, politicians acted in an all to predictable manner in the U.S. the past few weeks. Investors stayed calm throughout the affair because they had seen this piece of theatre before. While it is a constant cry of citizens to lament that there is no true leadership within governments, one must pause and ask if the leadership in the U.S. has any interest but their own? Who are they serving exactly and why are they serving, to do good or to secure a good salary and pension for themselves? Unfortunately current U.S. economic policy – and Digital Markets Advisor is talking about the U.S. budget – is not exactly going to be looked at as a glaring case of right thinking come the future. But until then friends, the broad markets are functioning properly and opportunities exist for the masses willing to participate. How much risk are you willing to take?