Thursday, 31 January 2013


Once again the economics teams at various investment banks and public institutions failed to predict the US GDP number. US GDP recorded a 0.1% contraction in 4Q12, the first contraction in three years. The best quote I've seen comes from Paul Ashworth, chief US economist at Capital Economics in Toronto:

“Frankly, this is the best looking contraction in GDP you’ll ever see,” . . . “First-quarter GDP growth is going to be pretty weak because of the expiry of the payroll tax cut. But there is nothing in these figures to change our view that US GDP growth will accelerate as this year goes on.”

Did he really say that?

Here's what's going to happen:

  1. The market will assume that this means that the Fed will keep printing money and continue buying MBS at the same rate
  2. Friday's non-farm payrolls will be either confirmation this is a blip or that the Fed needs to do more
  3. The cash bubble will keep equities relatively firm as people continue to rely on the central banking put option
If you think that we're looking at a double dip situation stay in bonds and sell equities, if not you should be selling government bonds now and not waiting for the Fed, BoE or ECB to stop QE. There's a lot to think about. 

I got out on the bike for a couple of hours today and really enjoyed the warm weather in Sydney. The traffic has increased again as the long summer vacation is now over and scores of the ubiquitous "mum bus" of choice, the Volvo XC90 line up around Sydney's leafier suburbs to ferry little Johnny or Janey to school. Some advice for riders brave enough to challenge these ladies of the road:
  1. At lights move to the front of the traffic line
  2. Make your turning intention clear
  3. If you can try and smile and make eye contact with the first driver in the line - hopefully they assume they must know you and so will try and avoid  running you over
  4. Avoid cycling between 0830-0930 and 1445-1600hrs unless absolutely necessary
  5. Assume all XC90's, Audi Q7's, BMW X5's and Mercedes M-series are being driven by someone who is distracted by children, mobile phone calls or pets
  6. If all else fails stop for coffee or a cold drink
Other than that enjoy your ride.


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