At the risk of being dubbed Roubini's love child for my sometimes dour outlook over the last couple of years, let me start by saying that the economic data of late has been somewhat encouraging.
Let me then immediately point out, that clearly, we are hardly out of the woods.
Dubai World/Nakheel and its rescue by the UAE Central Bank is a very clear indication. Greece and its growing sovereign problems and the markets lacklustre response to how they will resolve them add to which the constraints of the EU's growth and stability pact, puts Brussels over a barrel.
How can they not rescue them, without forever damaging the EMU even as they own rules dictate that they cannot.
What about Austria and what we have seen with Hypo of late?
It brings our focus back to today, even as we wind down for the holidays with liquidity creeping backwards, in what has been a tumultuous year, questions galore exist on what next and all eyes on the FED.
Today the FED is likely to hold pat on its monetary stance; but with the recent foray into tri-party reverses, and as some of the QE measures coming to their natural end, the signals are probably starting to grow on how it may start dealing with the enormous amount of liquidity swilling in the system. We see the ECB finishing up on its 12 month LTRO and of course we know of jurisdictions actively hiking globally. While the market is starting to write rates higher, the futures curve is correctly of the opinion that we are looking into likely Q3 of 2010.
At all times one asks, if 1% rates back at the start of this decade led to the ensuing bubble and its consequences, what sort of implications will ZIRP have on a go forward basis. Despite that, the deep concern however is still whether all the cheap dosh has delivered what was intended. Sure we have observed some clear results from the cash for clunkers and the help for homebuyers; but as we have seen once that particular artificial support has been removed then conditions snap back to reality.
In my humble view the jury is still out. From a quick overview we are certainly in a much better place than a year ago, and while the data on the face of it looks good, the deeper reviews leaves lots of reasons for concern on how well the overall economy is performing. Lets hope that its starts to move to a deeper and more entrenched reality.
Season greetings to everyone!
