Watch for fall in September
I should have known it was a mistake to refer to the cheerier nature of markets. Barely had the words been committed to paper than the European debt crisis deepened again and shares went into retreat. It didn’t last for too long, true, (though as I am writing this last week, heaven knows what might have transpired in the interim) but it did serve to demonstrate what a fickle and uncertain world we currently occupy.
In a busy week that saw me in broadcasting studios, listening to the emphatic opinions of leading economists, chairing debates on commodities and moderating a webcast on how investment trusts have fared so far this year, perhaps I can be excused for feeling spoilt for choice on subject matter.
But I must initially return to Europe as developments there will surely colour investment sentiment in the near term.
The debt rating agencies, no doubt conscious of their shortcomings over collateralised debt obligations, seem eager to paint as desperate a picture of European bailout nations as they reasonably can.
They certainly upset Ireland. Italy is not feeling too chipper either. And Italy is a real problem. As the third-biggest economy in the single-European currency zone and the eighth-biggest in the world, a rescue package there would really test the resolve of the more solvent Northern European nations.
The economist I followed on a news broadcast as the sovereign debt crisis deepened in Europe reminded me that September could be a tipping point in this particular series of events.
September certainly has form. We were forced out of the European exchange rate mechanism in September. And I am sure I recall a Black Friday for the stockmarket in September around 30 years ago, although what triggered it escapes me just now. September crises are easily explainable. During the summer, trading is thin. Governments are in recess and news media enters the silly season. Come September, market professionals have put away the buckets and spades and are back at their desks, hopefully refreshed from their summer vacations. Suddenly the seemingly blindingly obvious, hitherto obscured behind a layer of sun screen, demands action. Volatility results.
Might September 2011 see a recurrence of violent reaction to those unresolved issues taking centre stage at present?
I, for one, would not bet against it but I do wonder if we are not overstating the importance of retaining the eurozone intact. To deal with the apparent imbalances between member states appears to require either creeping federalism or a decoupling of the single currency zone. Neither, I suspect, will command overarching support.
In other words, my money remains on the euro somehow muddling through. What might unseat such a prediction is the force of the market. There will in the end be a limit to the extent that the European Central Bank can be lender of last resort to those countries unable to convince the wider market that they have a future predicated on current exchange rate levels. It might go quiet for a few weeks but I would keep September free in my diary if I were you.
All of which leaves me too little time to comment in adequate detail on the Cofunds commodities roundtable. Detailed comment is what it deserves, too, with as lively a debate as it has been my privilege to chair between knowledgeable and opinionated fund managers, not to mention OBSR’s Peter Toogood. With gold hitting a new peak right now, the timing could not be better but wait it must while we all dance to the tune of a Europe in disarray.