Economics News : 23 Apr

April 23, 2010

If regulation is ambiguous, it’s ineffective;
if law is discretionary, it’s biased.

For Forms of Government let fools contest; whatever is best administered is best. Alexander Pope

Paul Volcker was an excellent Fed Chairman.
The Glass-Steagall Act did to banks in America in 1932 what the Apartheid Provisions did to people in South Africa in 19481. It categorised them unambiguously. It defined them as one thing or the other.

He might have been just as good at advising a President.
Six months ago, it looked as if Obama was going to reintroduce some aspects of Glass-Steagall. That’s no longer certain. In speeches he made last week, he indicated an apparent willingness to rely more on the regulator’s use of discretionary powers than prescriptive ones.

If Volcker’s recommendations are to be abandoned, taxpayers will bear the cost.
That’s a pity. Taxpayers ought to be worried. Segregation of banks into two groups—those that might expect public support in the event of a crisis and those that might not—would have been the best way to limit taxpayer liability. Judgment is very fallible. Those who’ve exercised it in the past do not have an unblemished record: too many examples of their harassing the good guys while being conned by the bad ones.

Is Obama going for the Republican jugular?
It’s possible that Obama is playing politics. Revelations about Goldman Sachs’ putative misbehaviour will have strengthened his hand: voters supporting tough action and congressmen not daring oppose it. He may have decided, therefore, to go a little further than he’d previously planned.

Will Goldmans recover?
The Goldman’s Saga is not going to go away in a hurry. The Courts may exonerate those involved, but the public probably won’t. Edward Kennedy was never charged with wrongdoing at Chappaquiddick, but it didn’t matter; public opinion had found him guilty. Similarly O. J. Simpson. Similarly, perhaps, Goldmans.

Will Greece?
Another story that won’t go away is Greece’s economics misery. Inefficient and uncompetitive, the country is being stifled by the straitjacket of the ECB’s monetary policy and the Commission’s fiscal recommendations. Understandably, voters are disenchanted: the administration they elected is not doing what it had promised. Understandably, workers are angry: they feel they’re bearing a disproportionately large share of the burden.

Not so long as it stays with the euro!
In recent months, GDP has contracted and tax collections fallen. The fiscal deficit has ballooned and bureaucrats have therefore insisted on still more austerity. It’s a vicious circle worthy of the Bourbons. It may end much as their regime did.

British politics is dull, its leaders uninspiring.
In Britain, the second of the political leaders’ television debates was no less sterile than the first. But the LibDems’ man continued to score well. It wasn’t that he said anything sensible, just that the other parties’ representatives were even worse. The Tories will still win, but not by the margin previously imagined. And Cameron’s status will have been damaged. He’ll be vulnerable. It’ll be said of him that, if he couldn’t win easily in 2010, he’d be likely to lose next time round!

And its economy (seemingly) stagnant!
The economy, meanwhile, appeared to mark time. The first estimate if the first quarter’s GDP showed a disappointingly slow advance (0.2% on the fourth quarter). If the number were to be accurate (and it’ll almost certainly be revised higher), it’ll have meant that activity in the bleak mid¬winter months was teetering on the edge of a double-dip recession. It’ll imply that Brown’s fiscal policy choices (rescuing bad banks, for instance) was misguided. And it’ll presage a lot more misery in the cyclical slowdown that lies ahead. Beyond autumn 2011, things are going to get very difficult.

Valuations will rise nevertheless.
The securities markets will probably continue their appreciation, though. Interest rates will have to stay low and credit accommodative. No central banker, certainly not Governor King, will dare raise interest rates in such circumstances. Set that in the context of moderately strong profits and the indices might easily climb another 20%.

Driven by low interest rates and squeezed wages.
Why will profits rise? Not because of sales exuberance, but pay moderation. Thus far, it’s been only the private sector that’s bitten the bullet, but later this year, whoever wins the election, the public sector will be under the cosh. Unemployment will rise, pay will be frozen and retirement age increased.

1 No parallel is perfect. That between Glass-Steagall and Apartheid certain isn’t. But, in one significant respect, there is comparability. The classification was simple to understand, easy to enforce and inexpensive to administer. If, either in the States or South Africa, a Regulatory Agency had been given discretion to alter the classifications, things would have been much more complicated!

Economics Views : 21 Apr

April 22, 2010

All creatures are created equal,
but some, regulators, for instance, more equal than others.

George Orwell was criticising Communism—its principles perverted by human frailty. He might equally have attacked Regulation.

Regulators are potentially useful members of society.
Regulators are the bane of modern society: ignorant but arrogant; omnipotent but unaccountable. In theory, they’re supposed to curb exploitation, to protect the weak from the strong. In practice, they don’t. They’ve become the strong; they’ve become the exploiters. And, from their abuse, there’s no protection!

With a little retraining, they might help rather than hinder.
In finance, this situation has been evident for some time; in aviation, it’s become apparent only recently. When volcanic debris first spread across European airspace, it was quite sensible that regulators act cautiously, that flights be restricted and threats to aero-engines be explored. But it was unacceptable that, a breathing space having been created, no investigation was undertaken.

But, currently, whether in finance or aviation, they’re a curse rather than a blessing.
The regulators pretended that they knew about the effects of silica debris on aero-engines. They didn’t. They were profoundly ignorant and, worse, chose to remain so. It was left to the airlines to do the experiments that showed that the threat was negligible, that the air transport system had been closed down pointlessly.

Will the miscreants be punished? Silly question!
Will the guilty parties be censured? Will their behaviour patterns in the future be amended? Probably not. The FSA is as incompetent and arrogant these days as it was when it failed to deal with banking malpractice a couple of years ago. The CAA is likely to go the same way.

Economics conditions are continuing to drift.
There’s little that’s new on the economics front, meanwhile. Monetary conditions are very easy, but the response of demand is generally disappointing. While consumer activity has picked up in the US, it’s done almost nothing in Europe or Japan. In the latter, but for exports, GDP would be declining again.

How’ll thing be eighteen months hence? Not good.
It’s the prospects for 2011 and 2012 that are particularly worrying. Currently, in the favourable part of the cycle, things are ticking along almost satisfactorily. But later, as the cycle matures and appetites grow duller, activity will slow. If, by then, the expansion hasn’t become self-sustaining, retrenchment will be unavoidable.

In Europe, a disaster threatens.
What price fiscal orthodoxy then? The poor Europeans are going backwards during the strongest phase of the cycle. Their numbers will get progressively worse in the years ahead. Little wonder that Greek debt has been downgraded again. The politicians might claim that conditions are stabilising, but the markets say otherwise. Investors reckon default is almost certain, and that the rest of the EZ will do nothing to help.

Will British politicians want to cut the ties? Sadly, no.
It’ll be interesting to see what Britain’s politicians make of Europe’s problems. In the second of the television debates, there’ll be a focus on foreign affairs. Will Clegg and Brown, Europhiliacs both, regret their past support for a broken model? Will Cameron, spineless appeaser of the EU’s constitutionalists, admit his misjudgment? No, but the chances are that the LibDems honeymoon will be shown to have ended. The man was preferred when the other two were known and disliked. Now that he too is known and disliked, opinion will revert to the status quo ante.

Equities will rise, but possibly not into 2011.
Asset valuations have held up very well in a difficult period. And the expectation is that they’ll continue to do so. Indeed, significant advances are thought likely between now and December. It’s next year that the problems will set in.

Economics News : 16 Apr

April 16, 2010

Politicians look for trouble, invariably find it,
usually misdiagnose it, and unfailingly exacerbate it.

Ernest Benn, referring to the Brits in the early twentieth century, but applicable to nearly everyone, nearly everywhere.

Never overestimate the attention span of a mass television audience.
It was always unrealistic to have expected that a party political debate, choreographed for television, would amount to much. It didn’t. The leaders stated their positions and went through the motions of disagreeing with each other, but failed to impress most of those who were watching. Will the second and third of the events get substantial audiences? Probably not. People were drawn to the first for its novelty value. They’ll not be so easily attracted in future.

The leaders’ debate was dreary politics and poor television.
The big issues were hardly discussed. Nothing on the scandal of the Middle Eastern wars. Nothing on the outrage of the European Constitution. Attention was focused instead on Education, Health and Transport—areas which have been chronically disappointing whoever’s been in power, whatever the budget. Did television executives think this was the way to interest the public? Did politicians suppose that their failings in the past would be forgotten, their reputation in the future restored? Of course not. Did they care? Unlikely; it was a game. All participants, governed and governing, knew the rules. All abided by them. But professionals were better at it than amateurs.

The anti-vote for the others was so strong that the LibDems won.
The “exit polls” unanimously declared Nick Clegg the winner. But that may have been more a reflection of negatives felt for the others than positives for him. It’s possible that knowing so little about the chap was his big advantage. Perhaps if today’s equivalent of Screaming Lord Sutch were to have participated, he’d have been preferred to Clegg.

Economics is easier to understand.
Economies, like voters, pay little attention to politics. The former march to a fairly regular cyclical beat. Currently, about a year and a third from the last trough, activity is rising fairly rapidly. Things are improving moderately in the old developed world, but are doing so rapidly in the new developing one. China produced a provisional estimate of growth, well into double-digits, for the first quarter of the current year. Singapore looks to have done even better. Hong Kong, Korea and Taiwan aren’t far behind.

Ancient regime countries are not faring well.
Many commodity producers have also come up with good numbers. Latin America, Australia and Canada have prospered in conditions of improving terms-of-trade, and all have been able to loosen credit without weakening currencies. So long as raw material prices stay high, their prospects remain favourable.

Europe is worst placed.
It’s the US, Japan and, most particularly, the EU that are lagging. These countries fell quickly in the downturn and have risen slowly in the recovery. They’re finding that slightly superior technology no longer compensates for drastically higher social costs. Their medium term future is not good: an anaemic upturn in the next fifteen months and another potentially devastating downturn thereafter.

Its prosperity under severe threat.
As things currently stand, incomes are going to be squeezed and employment cut. What society has to decide, what the politicians should therefore have been talking about, is how the pain might optimally be spread. They haven’t been. It’s not just in the UK that such issues have been avoided; it’s everywhere. There’s a pretence that public sector incompetence can be countenanced, that social objectives still outrank economics ones.

And politicians are making things worse.
Europe is probably worst placed. Politicians refuse to acknowledge that things have gone wrong. They think that a new legislative tweak here and a new fiscal extravagance there can restore the old magic (that’s not been in evidence since the seventies!). Greece’s tribulations are put down, not to inappropriate priorities, but to lack of hedge fund regulation! Nobody recommends that monetary union be abandoned, dirigisme curtailed, commissioners impeached. Instead, the powers-that-be see these things as solutions to the problem, not causes of it.

Economics clouds are gathering. The storm may be only fifteen months away.
The next year or so may be survivable, but the period after summer 2011 will be difficult. As the cycle peaks and activity retreats, the costs of indulgence are likely to become insupportable. Jobs will be cut, wages squeezed. Taxes will plummet and fiscal deficits soar. Countries that have not made provision in the relatively favourable period beforehand will be horribly exposed afterwards.

Domestic equities are all right in the near term; something safer later on.
Securities markets next year may be vulnerable. But, in the happy-clappy months immediately ahead, advances will probably continue. Easy money, low inflation and rising profits will favour equities. The trick is to know when to switch from high-betas to low-ones; from high-risk economies to low-risk-ones. Rule of thumb: geared positions for not much longer than the next six months; Singapore-type economies from next spring onwards.

Economics Views : 14 Apr

April 14, 2010

If a patient has a fractured leg and a sore throat,

the doctor should treat the former before the latter.

Greece’s fiscal deficit is trivial in comparison with its international uncompetitiveness; solve the second and the first will look after itself.

The politicians and the people have been out-manoeuvred again.
The EuroZone edged a little closer to Political Union last week. Words proved not to be enough to convince investors that Greece wouldn’t repudiate its debt. Guarantees were required. Eventually, reluctantly, they came.

They’ve had political union thrust, unwanted, on them.
The rest of the community conceded that, in extremis, it would underwrite Greece’s liabilities. The language that was used was deliberately ambiguous because it had to mean different things to different audiences, but the markets’ interpretation—the only one that mattered—was that the “whole” would guarantee the “parts.” Put more simply, Germany would do to Greece what it had done to the DDR.

The euro rose, but Greece’s problems . . .
The euro rose strongly on the news. Trichet and the Commissioners were all smiles. They knew that the most significant aspect of political union was a willingness to share tax revenues. Angela Merkel denied that this had been agreed, but realists thought otherwise.

. . . remain unattended.
Will it solve the problem, though? Will Greece’s economy be revived, its competitiveness and efficiency raised, by subsidised borrowing costs? Probably not. The opposite is more likely.

Commissioners are not medics, but undertakers.
In exchange for community aid, Greece has surrendered its management of economics affairs to the Commissioners. Do these guys know what to do? Have they demonstrated insight in the past? No; their track record is appalling: problems mis-diagnosed and therapies mis-applied. It looks as if they’re doing so again now.

What’s required is faster growth, not more regulation.
Greece’s fiscal deficit isn’t particularly large. Other countries have successfully dealt with much bigger burdens. The trick is to get extra revenue via quickened GDP growth rather than higher tax rates. Devaluation and deregulation are the standard treatments.

The US has demonstrated how.
It’s no surprise, therefore, that the US has fared better than most other countries. It was more heavily borrowed than the EZ and thought by the Commissioners, therefore, to be likely to be handicapped. Not so. While Europe has stagnated, America has rebounded. In the last six months, the latter’s growth has exceeded the former’s by about 3% per annum. That’ll show up shortly in the fiscal returns: the US’s deficit declining, the EZ’s rising.

The UK similarly. The pity of it is that politicians here . . .
Perhaps significantly as well, the UK’s numbers have taken a turn for the better. Domestic demand picked up in the fourth quarter of 2009 and appears to have accelerated again in the first of 2010. Concurrently, the trade balance improved a good deal. That’ll have generated extra tax revenue. There’ll be downwards revisions to estimates of the fiscal deficit in months to come.

. . . are as willing to concede sovereignty as those in Greece.
Whether that’ll be enough to save Gordon Brown is very doubtful. People vote on what has happened in the past, not on what is likely to in the future. Cameron, of course, is also vulnerable on this front. His campaign promises to return power to the people. Really? Why then did he renege on the commitment to hold a referendum on the European Constitution?

Happily, for the moment, equities are appreciating.
Despite generally unsatisfactory politics, equity markets are likely to continue to rise. Money will be accommodative and interest rates low until the end of the year. Inflation will decline and profits improve. The indices will test, probably exceed, the old highs.

Economics News : 9 Apr

April 9, 2010

Is the man who congratulates himself too readily
better pitied or despised?

William Thackeray knew politicians and the political process very well. He stood for Parliament, but, happily, wasn’t elected.

Hubris is regrettable in the politician, especially in retrospect.
Government Ministers congratulated themselves last week after it emerged that Britain’s economics growth had probably continued in the first quarter of 2010, had very possibly quickened. “Job done,” they claimed, “Crisis over.” And the media, newspapers and television alike, reiterated the upbeat assessment.

Has the economics crisis been remedied, or merely delayed?
It was all a little premature. The test of the economy’s rehabilitation occurs, not when the cycle is helping, but when it’s hindering. At the moment, fifteen months from the last low point, conditions are as favourable as they can be. It’ll be different eighteen months hence. That’s when the cycle is due to peak. So it’s only thereafter that we’ll be able to decide whether the authorities deserve to be congratulated, only then that we’ll know whether the crisis may be said to have been resolved.

Clouds are gathering on the horizon.
The early indications are not particularly encouraging. Though the public sector has been spending furiously, the private sector hasn’t. That’s not a viable pattern for the medium term. We know the former is to be reined in, but we don’t know whether the latter will take up the slack. The danger is that we’ll get the worst of all worlds: a cyclical downturn, exacerbated by public sector cuts and not mitigated by private sector enthusiasm.

It’s not better in much of the rest of the world.
The picture is fairly grim in most of the rest of the world. Japan, for instance, is deflating. Its exports are fine, but its domestic demand is appalling. It may be able to keep its head above water so long as China grows rapidly, but is likely to drown otherwise.

Japan troubled; the US not out of the woods.
The US is a little better placed. Its GDP, like Britain’s, has undergone a cyclical acceleration in recent months, but may suffer a corresponding deceleration in the period ahead. Job creation has begun, but has been slow. Worryingly, the consumer has neither the income nor the borrowing power to finance a spending spree.

Europe is in a hole and still digging.
Europe is a disaster. Apologists claim that all had been going well, the economy reviving strongly, when wicked speculators attacked Greece and disrupted the recovery. What a fatuous misanalysis! Speculators were merely the agents, Greece merely the symptom. The cause of the problem was the arrogance of the politicians.

The Greek wound is haemorrhaging and the medics can’t staunch the flow.
They’d built a system that was untenable: its governance undemocratic and its finances unstable. It was bound to fail. The only question was when. If those who support “the project” were sensible, they’d go back to the drawing board; they’d redesign it; they’d incorporate more pragmatism and less dogma. Will they? No chance, not yet anyway. They think that political will can defeat economics logic. Learning otherwise will be a humiliating (and probably a lengthy) process. In short, things will have to get worse before they get better.

Only Germany has the wherewithal. Will it act?
What that means for the world economy is that Europe will be a drag for the foreseeable future. It’ll contribute little to growth in the next year and a half, but quite a lot to retrenchment in the subsequent period. Germany, of course, will be crucial. If it should decide to bailout Greece (as it did the DDR), it’ll condemn itself to another decade of debility. If it should decide not to, it’ll be Greece that suffers the debility.

The British election is boring.
Are the politicians in the UK, in the run-up to the general election, discussing these things? Of course not. They prefer the banal. They worry that honesty will offend more than it’ll please. So, they say nothing, hoping to get elected by default.

Cameron will win. Will he grow into the job?
The Tories will almost certainly win. The campaign itself is irrelevant. Voters decided a long time ago that they wanted a change. Nothing that Brown or Cameron might say, or not say, is going to change the outcome. The turnout for Labour will be low; likewise that for the LibDems (who are not trusted, partly because they are pro-Europe, partly because they are supportive of Brown). There’ll be a sizeable absolute majority, possibly a landslide. The biggest losers will be the pollsters!

Asset prices will keep rising, equities in the van.
Equity markets will continue to rise. For a while, growth will seem to be satisfactory, profits good, inflation and interest rates set fair. It won’t last forever. But it may see out 2010. A FTSE target of 6500 is eminently obtainable; one of 7000 not particularly difficult.

Economics Views : 7 Apr

April 7, 2010

Judge a tree by its fruit, not by its leaves.

Euripides—similarly, an economy by its residents’ living standards, not its central bankers’ arrogance!

Employment is an indicator of past production and future sales!
The labour market plays a pivotal role in economics and political cycles. Like Janus, it looks simultaneously in two directions. On the one hand, it’s a monitor of what’s already happened; on the other, a harbinger of what’s about to. No economics recovery can be said to be mature, can be thought sustainable, until the process of job creation has started. And no politician can expect his popularity to improve, can hope for re-election, until employment statistics have validated his policies.

Little wonder it’s scrutinised so carefully by politicians, economists and investors.
Unsurprisingly, therefore, news that March had brought a net increase in jobs in the States was greeted with enthusiasm in many quarters. The Dow Jones ordinaries index soared; the US dollar followed suit, and likewise the President’s approval ratings. Not so, in Europe and Japan. These countries’ economies were stuck in on-going debility, their labour markets sclerotically vulnerable, their politicians headed for an early bath.

America’s numbers have turned up! But not by much.
But just how good were those American numbers? Not very! By the standards established in earlier cycles, they were a little disappointing. In the post-war period, the onset of recession has typically caused a loss of 2% of jobs over a subsequent period of twelve months. This time, the decline was steeper and lasted longer: 6% of jobs shed in twenty-four months!

A start, but only a start.
The March upturn, amounting to 160 thousand new positions, came as a welcome relief. But it was only a start. At March’s rate, it’d take more than four years to return employment to its earlier peak. No problem, said the optimists, things would quicken in the near-term. Quite right. But they’d also slow later on. If the cycle ran true to form, a new downturn would have begun long before the economy was returned to equilibrium!

Europe hasn’t started: it seems not even to know where the starting line is.
If America were not yet out of the woods, what could be said of Europe? Nothing very encouraging. Greece, for instance, was going from bad to worse. Last week, the yield on its 10-year bonds was more than 400 basis points higher than that on Germany’s. The ECB’s “rescue package” had not just, not worked, it’d made things worse. Investors had no confidence in Greek paper—whether denominated in euros or dollars or anything else. Over the next ten years, they estimated there was a 65% chance of a 50% repudiation!

But it’s willing nevertheless to sacrifice Greece on the altar of the euro.
The country was being slowly strangled. Financially, it was being asked to live with a penally-high currency but nevertheless pay penally-high interest rates; socially, it was required to raise taxation yet cut public spending; politically, to abuse domestic voters but respect foreign commissioners! It was a pressure-cooker that was bound to explode. The only question was when.

Felix qui potuit rerum cognoscere causas.
The Brits were very lucky not to have had to face similar agonies. If the Blairs and Browns and Mandelsons had had their way, we too would now be writhing in a Greek tragedy of their making. Let’s hope that when Cameron becomes the next Prime Minister, he’ll see the error of his predecessor’s ways—and confine Clarke to a role consistent with his manifest lack of judgment.

Economics News : 2 Apr

April 6, 2010

As a general rule,
high risk is associated with high reward.

But not always: sometimes high risk induces calamitous loss; the trick is knowing when!

Asset valuations are rising rapidly.
Global equity markets rose again last week. They may have begun the first quarter nervously, but they ended it confidently. Tokyo was the star performer: up 5½% over the three months. London, with a 5%, advance was not far behind—though its surge was largely a reaction to the pound’s 2009 slide.

It’s the consequence of liquidity . . .
What drove the appreciation? Excess liquidity, of course. Central banks created the cash and investors were unable to resist the temptation to use it to acquire longer-term assets. There’d been a few commentators who were cautious at the turn of the year, but the sustained levitation in valuations subsequently was sufficient to convert all but the most intransigent of them.

. . . rather than fundamentals.
Analysts and economists, like investors, donned rose-coloured spectacles as the quarter passed: their forecasts seemingly driven more by the momentum of the indices than the fundamentals of the data. The reality may have been that economics activity and earnings per share quickened only slightly, but the popular prejudice was that both were advancing exuberantly. Gloom was dismissed; euphoria reigned.

Equities are faring best, but other asset classes are also rising.
Nearly all asset classes were lifted by the rising tide of sentiment (and liquidity). Bond prices climbed impressively, for instance. Investors were unfussed by huge increases in Government issuance, and enthused by continuingly low rates of inflation.

Bonds impressive; commodities likewise.
Commodity valuations also picked up. China decided to create strategic stockpiles—and, in doing so, drove up prices. Speculators elsewhere in the world were quick to jump on the bandwagon.

Amazingly, property too made ground!
Even real estate valuations, so great was the magic of liquidity, edged ahead. It didn’t matter that the number of empty properties was high and rising. Nor that rents were low and sliding. Liquidity burned holes in investors’ pockets: nobody could resist the allure of the prospective capital gain.

The advance is likely to continue as long as credit remains expansive.
Will the trend continue? For the remainder of 2010, it may. The world’s major central bankers (the Fed, ECB and BOJ) won’t be eager to tighten credit conditions until economics growth is thought to have become self-sustainably brisk. They’ll acknowledge that it’d be better to raise interest rates later than earlier: preferable that inflation be faster than recession deeper.

And that’ll be the case as long as economies stay dull.
But what if this cycle weren’t capable of producing satisfactorily brisk growth? What if, even at its peak, the rate of progress were to be unacceptably slow—implying that, at the next trough, it would become substantially negative again? Would central bankers, in that event, dare pursue monetary orthodoxy? Would they forget exit-strategies and focus on the world as it was rather than as they would have it be?

But what if anaemia should turn to debility? Will liquidity gush even faster?
Nobody knows. Hitherto, they’ve been assuming an imminent return to economics “normality.” They’ve not (in public anyway) considered the possibility of protracted debility. If the worst should occur, however, (the critical period being 2011) it’s likely that policy would for a while become even looser—the authorities trying desperately to revive sentiment.

Not if history is anything to go by. Central bankers tend to tighten at the worst possible time.
The problem is that very accommodative credit, set in the context of very dull economics, may induce financial misbehaviour again. The “respectable” parts of the commercial and financial community would not be able to absorb the liquidity, and “disrespectable” parts would emerge to do so instead. That’s what happened in the States in 1929; in Japan in 1989; and in the States again in 2007! And, on all three occasions, though it wasn’t part of their mandate, the central bankers hiked interest rates to re-impose financial probity. They judged that the benefits would outweigh the costs. Dozos!

At the top of the current cycle in 2011?
Will they make the same mistake again? Nobody knows. But it’d be foolish to discount the possibility of their triggering another calamity. What they say is mostly banal. What they do inspires no confidence.

Prior to that, investors might sensibly become more wary.
Perhaps, therefore, investors should ride the bull only during 2010. In 2011, when the cycle is due to peak, it might be sensible to be cautious, to take some money off the table. It’s possible, of course, that the authorities would respond to an economics deceleration with an intensification of the monetary relaxation. But it’s possible as well that they’d tighten in a fatuous attempt to forestall impropriety.

Crystallise gains this year and don’t play next year.
The losses consequent upon the latter response would be much greater than the gains from the former. So, it’d be right to sell some stock, or buy a put, or write some calls. Not until 2012 is it likely that the smoke will have cleared; not until then will investment strategy become a little easier.

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