The price of everything

In search of real money

                                       

 

“Osborne says iconic red budget box empty ‘for years’, keys lost”

 

-       Bloomberg headline.

 

 

This will be our final Investment Commentary of 2010. We would like to wish all clients, prospective clients and readers a happy and healthy Christmas and a peaceful and prosperous New Year.

 

The authorities continue to try and paper over the cracks, but the mission is futile because the entire superstructure is rotten. Wholesale banking failure is now colliding inexorably with wholesale political failure. In the US, this has led to a messy compromise whereby expiring tax cuts are renewed, and matched by an extension of benefits payments. US equities greeted the news with their usual Pavlovian dinner-bell yelps of thoughtless enthusiasm, but the Treasury market reacted by collapsing. As well it might: America’s soaring national debt outlook just got measurably worse. In the euro zone, by contrast, austerity is winning out against sanity. Ireland has just been forced to accept bail-out loans from its European masters that represent, in effect, stealth support for their own ailing banks. Two systems, two different approaches. One common aspect: if bondholders weren’t already feeling nervous about the outcome, they should be now.

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Ireland is no Island

 

“A Budget tells us what we can’t afford, but it doesn’t keep us from buying it.”

 

-       William Feather.

 

“In emerging economies, public debt of more than 40% of GDP is considered dangerous. That is less than half the ratio in much of the euro zone.”

 

-       The Economist Magazine, 4^th December 2010.

 

 

Last week, the Financial Times confirmed that the EU, with support from the IMF, had finalised the latest, and almost certainly not the last, European sovereign bail-out. Ireland will receive external financing of €67.5bn from her fellow EU members, a figure that includes bilateral loans from Norway, Sweden, Denmark and her erstwhile foe Britain. Her sovereign wealth fund is being forced to liquidate a well balanced, diversified portfolio and make around €10bn (41% of its assets) available should the Irish government continue its reckless spending. The remainder will be sourced from “other domestic cash resources”. The misallocation of thousands of workers’ savings, which will leave the funds’ participants with an irresponsible level of exposure to their government’s debts, is strangely apt. The National Pension Reserve Fund, like the Irish state, is no longer either sovereign, nor wealthy.

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