Monday, 17 February 2014

Consensus cycling . . .

The consensus is now firmly of the the view that not only did Ben Bernanke do a good job stimulating the US (and to a degree) the global economy, but in fact he should have gone further. I was listening to my favourite left of centre political podcast over the weekend (Slate's Political Gabfest) and found it strange that the debate on this was so reverential of the Fed establishment.

What happened to a bit of barricade burning by angry revolutionaries? That's why I listen to views opposite to mine. To me the left in the US has coalesced with the very people that they most ardently wanted to expose only a few years ago. If you want a truly old school left wing view of the world you need to go to someone like Robert Scheer and read his book 'The Great American Stickup: How Reagan Republicans and Clinton Democrats Enriched Wall Street While Mugging Main Street'.

This blogs view is that the consensus where economics and markets are concerned almost always spells danger.  One only has to remember the tame questioning of latter day guru Alan Greenspan in the years leading up to 2007 to have an example of a dangerous consensus. Is it therefore too much now to question the new doctrinal orthodoxy post the crisis? Paul Krugman is St Paul to Bernanke's St Peter, one establishing a church and the other forming the doctrinal basis for bringing various cells together. Krugman's columns and blog reminds me more and more of Paul's various letters to disparate groups (Corinthians, Thessalonians, etc . . .). Perhaps a reformation is needed? I always cringed when Paul's letters were the reading of the week in my school's chapel as somehow the tone always offended my own sense of logic. It was made worse by the Catholic clergy of my school who never wanted to debate Paul's position in the hierarchy of the Christian church. Therefore given the current consensus surrounding the global economy it's hard to believe that anyone in economics currently is willing or able to nail their argument to the cathedral doors and get a fair hearing. If you try you'll end up like me . . . in detention writing an essay . . . "Why I need to have faith".

Volatility is always close to the heart of this blogs thought process when it comes to accessing markets. Recently I penned a piece suggesting to sell some of the recommended VIX Index exposure and buy back into equities or various types. This has been a winning strategy and can clearly be seen in the charts below:

The established pattern is that every time we get a policy shift volatility escalates as market participants re-weight into more appropriate asset classes. Just as rhythmic has been the central banks pronouncements that have calmed the markets. In the case of the Fed it's the usual hints by various Fed Governors that they remain committed to stimulus over a longer period, or from the BoE which never tires of telling the media that they see no reason to scale back QE operations. 

Sterling is an interesting case study in markets hearing one thing and behaving differently. The BoE under it's Canadian head Mark Carney has indeed been consistent in spruiking deflation, but the markets have not been willing to listen. Here's the GBP over the last year:

Sterling has outperformed all the major currencies not because the BoE has tapered, but rather because they haven't. This blog is of the view that the UK is likely to have to raise rates more steeply in 2015 than other countries because the BoE has ignored inflation being above it's target for many months now. Having said that here's an interesting debate that gives both sides of the argument:

Somewhat predictably this blog takes the view that the UK has built in another cycle of boom and bust. Up until now the view of this blog has been to be long GBP assets. Now is the time to move away from the UK aside from inflation sensitive plays. Investors will be best placed moving deeper into southern European geographies.

I'm currently dogged by a chest infection I picked up while skiing, as such my cycling hours have been somewhat restricted. I managed to get out on Saturday for a short ride before it started to rain in Sydney. My home city has been dry of late and therefore at the first sign of rain all the oily dirt comes to the surface of the roads and makes conditions quite slippery. Needless to say you have to slow down or get off the road. I chose to curtail things in favour of safety.

I changed tires after many months being back on Mavic rubber. I picked up some new Vittoria Open Corsa CX's before Xmas and decided it was time when the number of deep cuts in the Mavics started to become noticeable. The Vittoria's provide a fantastic ride, but downside is the longevity is not ideal for city training. Perhaps I should have gone with their Robino Pro's as they have a tougher all Nylon case which is more resistant to the road debris that big cities throw at you.

My policy is never to skimp on rubber, whether on my car or my bike. In Europe the Avis hire car I was driving had extremely poor winter tires which caused me some grief when trying to dig the black Renault out of the parking area in Austria where I'd basically seen it disappear over a week. I know from my time in Geneva that good winter tires will in the vast majority of cases get you out of most situations without having to go through the whole snow chain dance. I still have some mountain bike tires that I never got around to putting on my commuter bike in Switzerland. They're quite nifty; you get a box of studs with the tires and they have pre-drilled holes into which you screw the studs. Luckily the Swiss are ever efficient at clearing main roads, thus precluding the necessity to try them out. In Sydney they remain an oddity in my workshop as snow is unlikely to ever be a problem here and I left the mountain bike in Geneva. Maybe I'll send them to a friend of mine in Switzerland as a birthday gift?


No comments:

Post a Comment