Remember just a half-year ago we were supposedly headed for a global nutrition Armageddon? Why didn’t it happen? Because folks largely misunderstand what prices are: one of the ultimate technologies for information transmission. Prices are signals, when they go higher producers (like farmers) respond by shifting available resources (like arable land), investing in increased productivity (like genetically modified seeds and modern irrigation), to get more of those higher prices. In fairly short order, via competition, prices come back down as that new supply (which shows its first signs of life in the futures contract markets and is a reason so-called “speculation” on such things matters and is largely a good thing) comes online.
In the very short term, food prices can spike, drop, shimmy and shammy. Food prices are volatile. But it’s clear by now, once again (because such a scare seems to materialize once every couple years) global food fami-geddon isn’t happening. Generally efficient allocation of resources and utilization of technology via free markets is the reason.
Have a great Thanksgiving weekend!
Likely to be the next head of the ECB when Trichet leaves later this year, Mario Draghi is currently head of Italy’s central bank. He’s got the right resume:
PHD in economics from MIT
- 1984-1990: Executive Director of the World Bank
- 1991-2001: Director General of the Italian Treasury
- 2002-2005: Like seemingly every central bank official, he worked at Goldman as vice chairman and managing director of GS International
- 2006-present: Governor of Bank of Italy
On first glance, Draghi seems an excellent candidate with the experience needed to navigate the multifaceted, multi-interest ECB. But there’s a different way to look at this resume. One, he has the pedigree of all the same folks who had all the same successes and failures in the past. That is, he’s a status quo guy with the same worldview—more or less—as everyone else. Meaningful change, this is not. Two, this resume is like an archetypal, picture perfect show of what it takes to be successful in the political side of economics. Make no mistake, and as has been said on this site often, central banking is a political position both in the US and abroad now. Folks like Sarkozy, Merkel, and other EU leaders know Draghi is going to play ball with them. That’s central banking today.
While there will be a spate of global economic data out this week, too, earnings is perhaps the key thing to watch. This week, 180 of the S&P 500 companies are scheduled to report. So far, about 75% have beaten expectations (according to Thomson Reuters). Mind you, it’s common for earnings to beat too low expectations set by analysts and executives.
After a shaky start last week tied to macro fears, from my view, positive earnings ultimately overwhelmed those worries and stocks finished the week up. Expect fundamentals to increasingly drive stock price results this year.
Much has been made in the last few weeks on the notion of a “critical pivot point” in global monetary policy. With the ECB raising rates, the BOE pretty sure to follow soon, many developing nations that already started tightening, and, of course, the prospect of the Fed’s QE2 ending this quarter—seems like the era of ultra-easy money is going to give way to…still pretty accommodative.
In my view, the need to act on “critical” moments for just about anything in capital markets is fairly rare. Most stuff moves pretty glacially. Of course there are exceptions (Fall 2008, for instance), but when it comes to macro policy stuff—don’t expect the world to shift under your feet radically in a day.
For some of 2011 monetary policies globally might look divergent, but my guess is by this time next year basically all of them will be on the same track of tightening in some form or another, and only the degree will vary.
Will all that trigger a reversal of the dollar’s weakness? A shift in asset flows? It will certainly play a role, whatever happens. But in the meantime, there’s no need to get panicky and move on a dime. The QE2 finale will probably be quieter than many expect this summer.
Lara Hoffmans, co-author of several bestselling New York Times investing books along with Ken Fisher, a senior editor over at Fisher Investments Marketminder, and all around mad genius, has come up with a term you should know: Grey Pigeons.
The grey pigeon is a response to the concept of a “Black Swan”, which people seem to be seeing more and more of every day.
Sorry, but Japan’s earthquake (devastating as it was in human terms), or the problems of the Middle East are not only NOT Black Swans, they’re not all that uncommon. I challenge someone—anyone—to find a year where some major geopolitical, geological, financial, or otherwise big scary event didn’t happen. The world is full of them through history—now is no different than any other, though folks always feel the present moment is “different this time”. Goodness gracious, 1998—a fabulous year for stocks—was also the year of Long Term Capital Management, among other things like the Russian Ruble problems and Asian banking issues.
As I said on Fisher Investments MarketMinder months ago, the whole point of a real black swan (if they exist at all) is that they’re hugely rare. Note that recent events did not crater the markets—they were grey pigeons.
It won’t all happen within the course of my career, but one day the concept of a stock broker—or really any kind of broker at all—will be more or less extinct. The middleman will be replaced by the availability of information and its speed. Because, sad to say, most brokers are generally salespersons first, and don’t add so much value in terms of expertise. So if you cut out their basic function to simply execute or link buyers with sellers—most will just go way over time. The best of the best—those that can really add expertise and value to the process—can probably find a way to survive. But overall, this kind of thing is only going to shrink over time.
So Barclays threatened to leave the UK (probably just a political tactic without any real teeth), and Statoil put on hold a $10 billion plan to further develop energy assets tied to a UK-initiated tax hike on so-called “windfall” taxes. Mind you, the reason Statoil says it isn’t doing the projects isn’t because their profits would be diminished, but because now those new projects are explicitly NOT profitable because of the tax. Not good.
This is not the kind of thing you want to see from a country struggling to recover. You want to see an inviting, welcoming business environment—a place that wants to encourage more and new commerce. I’m all for trimming the government budget fat (particularly when it comes to entitlements), but the concept that tax raises is a worthy way to help get your economy out of debt trouble and on firmer footing is asinine.
Fisher Investments Press announced this week the release of its latest sector guide in the Fisher Investments On series: Fisher Investments on Utilities. This guide takes an informative look at the industries and sub-industries that comprise the Utilities Sector, along with the macroeconomic drivers that may impact it, and unique challenges facing the Utilities companies. Read more about the sector guide here: Fisher Investments on Utilities Released.
Tuesday’s WSJ Review and Outlook asks, “Whatever Happened to IPOs?” The editorial correctly highlights the problems of today’s regulatory environment and how they mitigate what free markets would otherwise do. (We’re looking right at you, Sarbanes-Oxley.)
I wouldn’t go so far as to say onerous regulation is the sole culprit of lesser IPO activity—these things wax and wane through time, and eventually folks will want to tap the equity markets again (probably when it’s less cheap to simply borrow at low ultra low rates or tap private capital with the snap of a finger).
As mentioned in my book review on Fisher Investments MarketMinder last July, this world is vastly more regulated now than bygone days. Yet, much of the intelligentsia believes in some mythical “age of deregulation” starting with the Reagan presidency. The confusion lies in a mix up between actual regulation (i.e., rules) and an era of privatization. Indeed, the last 30 years have been a global era of privatization—a tremendous thing, not just for stocks, but for society. But we’ve piled on more and more rules at avalanche rate.
We can dither a bit about the dissolution of Glass-Steagall and Gramm-Leach-Bliley, but otherwise, I’m not going there—finding a corner of the economy, let alone financial industry, that isn’t more regulated today than it was, say, 25 or 30 years ago, is a tough task indeed.