Risk on – Risk off

As the western world moves into either a ‘soft-patch’ or even a double-dip recession, you have to wonder where-to from here. Deleveraging seems to have surpassed our assumptions of an expansion in income. You could in fact argue that central-bank stimulus hasn’t worked. Global growth, corporate earnings and end-of-year index projections have, generally, been revised lower. Currency intervention is prevalent but ineffective. It’s becoming difficult to see what else can be done.

So we’re at a crucial crossroads. Risks to the downside are seemingly insurmountable. The recent divergence between equities and the credit markets, as evidenced by swap prices, is a clear indication that banks could be facing a post-Lehman type freeze in the interbank exchange. The VIX, a measure of volatility or the ‘fear-index’ as it’s called colloquially, trades at levels not seen since the financial crisis.

We all know this. Nevertheless, the merits or consequences of QE3, eurobonds and intervention in the currency markets are moot if CONFIDENCE in ‘the system‘ doesn’t improve. Companies aren’t hiring; private & public debt-levels are not serviceable; commodity prices are too high; inflation is price-driven rather than wage driven and unemployment is rising. The lack of political transparency exacerbates the issue.

The message is simple and it’s for ALL global leaders. Yes we know stocks are historically cheap but who really cares unless you make us believe in the system and prove to us that your plans are tangible in which we, the ordinary people, feature. Give us jobs. That’s crucial. Address financial regulation and incentivise the ‘hiring’ of people. Don’t accept the imminent layoff of another 100000 people in the banking sector. Prioritise spending on infrastructure and development. Most importantly, look to your people first.


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