Now we have reached and perhaps even collided with the limits. The time has come to consign Keynes to the top shelf of the bookcase and to take down our books by Robert Malthus. Malthus, who lived at the dawn of the Industrial Revolution, wrote extensively on the relationship between economic and demographic growth. Does this sound a long way from the markets? Well it isn’t, I’m afraid.
A gust of wind has fed the fires of social and political unrest recently, and it is still far too early to gauge the consequences. The only certainty is the sheer magnitude of the movement. It is raging all around the Mediterranean basin, toppling ministers in France and (lest we forget) sowing popular disgruntlement in Greece and Portugal. But it is also spreading to remote corners of the Persian Gulf. How far can it go? To the east, Asia is not entirely unaffected. Financial markets have remained surprisingly calm, but a spillover of the turmoil could change the forces at work. Moreover, inflation threatens the emerging economies—another gust of wind that could whip up new conflagrations.
The economic fallout of the surging oil price will rain down in the coming months. Gold can still be considered as an investment alternative, despite its recent highs. As I said at the beginning of January, 2011 will be a year fraught with dangers. A Pandora’s box has been opened, and no one has the slightest idea what it will all lead to.
On the face of it, a certain amount of caution is advisable in the circumstances. We recommend taking profits on equities and playing it very safe in fixed income. To my mind volatility (now less than 20 points) is much too low in such troubled times. On the forex front, the dollar’s retreat would appear to reflect belief that the US recovery will abort. Yet the New York stockmarket is saying the opposite.
Unfortunately only one of these prognoses can be right—another reason to take profits.
Frédéric Binggeli - 03/2011