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I’m watching the Euro and using it as an indicator of the future. Whatever goes on behind the scenes in Europe today is fed into the euro’s price very quickly. The insider trading on the Euro crisis is staggering, but in the end who cares? There it is a useful guide.
You can predict what kind of news is due from today’s price. The last week or so has seen Europe beat up on Greece and Spain behind the scenes and it is likely that a softening in position has occurred in the last days of negotiations; a pretty obvious scenario when you think about it.
My theory is that Europe will print big time and at the same time do at least a little austerity for show.
If the Spanish/Italian situation is consolidated the next leg of the crisis will be France. That is probably set for next year and if the ECB, and its economic limbs, gets it right it will be just a ripple rather than a full blown aftershock.
Then the crisis will be off to the US, where we will see strong inflation and huge printing as US turns its vast short term ocean of treasuries into cash. The dollar will nose-dive.
Japan is anyone’s guess. The Yen should have dived years ago but the QE magic trick, which was invented in Japan, could hold out a lot longer. When it ruptures it will be the crash of the century and an amazing asset buying opportunity.
Meanwhile, I’m expecting a pullback in stocks. If this rally continues it might just be the beginning of a new equity cycle. This cycle will start again sometime in the next three years and when it does it will be a monster.
It’s just a case of waiting and jumping on it when it hits. If you look at emerging market valuations of stocks, your eyes would bug out if you applied them to London or the US equities. There is no reason apart from bitter experience that this couldn’t happen again here.
An old broker said to me during the dotcom crash “the market won’t boom again for a generation”. I thought that was a bit unlikely, but here we are – half way there. Perhaps we are closer to the beginning of the new cycle than we can imagine as the bottom of any cycle feels like, and is, the pits.
