Markets are currently extremely volatile. So, definitely time for tin hats. There’s not a lot of good news around, and continued bad news erodes market confidence. Four big issues overhang the market, each of which have no immediate signs of being resolved.
They are in no particular order,
- The weakness of many countries economies, where the level of sovereign debt is too high coupled with unaffordable social policies where national spending is greater than national income.
- The fiscal and economic policies of the USA, or perhaps we should say the vocal and divergent views on what these policies should be. Economic policy weakness in the world’s largest economy isn’t good for market stability.
- Doubts over the future of the Euro. The market is applying pressure to resolve the essential unresolved policy failure at the time of its creation – that of no mechanism to allow any member of the Euro area to use its own monetary policy to regain lost market competitiveness by devaluing its currency.
- The failure to introduce effective global banking and market regulation.
I think volatility is set to remain, primarily because of political weakness. Where politicians show courage in facing up to unaffordable social policies, as in Ireland, then the economy shows signs of improvement. The Irish Economy has a link to a super Google data visualisation – worth a look HERE [play around with the bottom slider].
My solution for Friday is Keep Calm and Carry On. I’ve pinched The Reformed Broker’s recent idea to offer up Crosby, Stills, Nash, and Young’s great song – Carry On.