Flavour of the Week

metalk As we enter this, the first full post-holidays week of 2018, I bring you exciting news: the gap between household wealth and the underlying economy in the US has never been larger. This is exciting news in the sense that some forms of over-excitement – a major exam, a head-on car collision, walking to the gallows and so forth – often require urgent visits to the bathroom.

From time to time in the past, we have seen that those fine young cannibals on the flying trapeze of bourse trading return from their vacations marginally closer to reality. They’ve had time to think as the kids buried them on the beach. Maybe they read a book. Or maybe they pretended to be on holiday, and covertly read Forbes in the plain clothes guise of Gentleman’s Quarterly.

There, they read about the household wealth bubble. It’s the sort of bubble to make the South Sea bubble seem nothing more than a fart rising to the surface of a bath. In Forbes I mean, not Gentleman’s quarterly: in GQ they read that David Lammy is the UK politician of the year, which is more akin to a turd rising to the surface of a sewer.

You see, in a normal world where people only bought what they could afford (some time before 1956, and even for some time afterwards) not surprisingly household wealth moved in line with gdp. On a couple of occasions either side of the millennium, credit spending outstripped growth to such a bonkers degree, it became a bubble followed as always by a bust. The bubble we’re looking at now is bigger than both the last two put together, and the basic reason is….yes, you saw it coming – the QE to Zirp Can-Kicking League, which has been won seven years on the trot by the US Fed.

Forbes goes on to point out that stock market valuations are more inflated than in 1929, as are house prices thanks to, um, Zirp again. We knew this already, but what this essentially capitalist Establishment organ says is that we had a commercial property bust, a stock market bust, a dotcom bust and a housing bust. This time it’s the Everything Bust. They’re right.


“When will you make an end of it?” as the Pope said to the decorator.  Well, perhaps there’s been an increase in clarity of thought in Acapulco and Bali, on the Cote d’Azure and the Amalfi, or even in Miama. And maybe that will have an influence this week. Possibly.

A lot of what’s coming depends on the average algorithmic ability to truly understand what’s going on. The machines are currently set to zero on that dimension, because as yet they are only as good as the binary-brained pointy-heads who wrote the software. Artificial Intelligence is fine in theory, but not of much use when a few wealthy directioneers decide its time to shoot all women and children before robbing the Titanic’s safe and heading for the lifeboats. In times of trouble, the real thing is better.

The thing to watch out for is when the Older Headed Second Class cruisers who are neither technophobic nor stupid realise that the directioneers are right, and the algorithms need to go take a long walk on a short plank. Once their selling volumes get above a certain level, it’s time to ring your brokers and give them the four-letter internationally recognised emergency code, SELL.

SOL trading and all the rest of the hidden depths mean that’s no longer possible to gauge beyond simple trading volumes, which don’t help much. Your best bet, frankly, is to frequent some bars in close proximity to your nearest financial district.

But in the meantime, one can rest reasonably easy. Last Friday’s US payrolls data was the perfect sucker magnet likely to make the last Bear start charging blindly at the toreadors. The US “created” over 200,000 jobs in the last reporting period (five percent more than expected) hourly earnings jumped by 2.9% (eight per cent more than expected) and unemployment fell to ‘a generational low’ of 3.9%.

Never mind that we don’t know what the jobs were, what the contracts were like, how many hours of work are involved and why anyone believes the Bureau’s unemployment stats: it all sounded good, and the President is basking in it. The New York Times missed a golden opportunity for Trump-bashing on these bases by calling the data ‘a showcasing of the economy’s growing strength’; nobody ever got better informed by underestimating the stupidity of the NYT, which chose instead to witter on about President Trump’s trade-war ‘madness’.

Time will tell whether the Donald turns out to be Herbert Hoover II, and whether Queen Elizabeth II is once more forced to ask, “Whey didn’t anyworn see eet camming?”


As for the events upcoming between now and the end of the week, there’s plenty to go at on paper. Everywhere you look this could mean light the blue touch-paper, because one of the unalloyed joys of globalism is that Everything is Connected.

India for instance is nervous at the moment because Asia usually gets kicked in a trade war, and Washington is busy exchanging insults with Beijing at the minute. The upward manipulation of the oil price also has the Indians worried because it is now at a ludicrous $80 per barrel, and the country imports 80% of its oil.

In the medium term, the growing Indian middle class is far too dependent on easy credit, a disturbing amount of which is non performing sub-prime waiting to happen. I’ve been bearish about India for two years, even more so since visiting last winter. Already the rupee is under pressure.

Any feelgood factor there was in the US from last Friday’s payroll fantasies got neutered by Trump announcing more tariffs on Chinese goods. But that’s the way the system works: greedy folks in Dallas and Saudi Arabia plus a maverick in the White House create fireworks in Kelkutta and Beijing.

Potential Third World chaos is creeping up on the rails to become the overriding biggest single fear in Western stock markets. To read the main US commentators, you’d think the American Fed had nothing to do with it: they write in this manner:

‘…….U.S investors are increasingly worried about the domestic economy’s ability to insulate itself from growing signs of Third World meltdown.’

Well Loopylou, if the Fed didn’t keep on hiking rates on dollar denominated debt, you wouldn’t need to insulate. And if Wall Street loafers weren’t so damaged by kicking every can into the future since Greenspan’s 2003 kop-out, we wouldn’t be trying to normalise rates that can no longer be normalised without gigantic worldwide economic damage.

Insoluble problems for emerging economies include a recession in South Africa, Turkey’s high levels of debt and inflation, political uncertainty in Brazil, and Argentina’s central bank raising interest rates to 60% to contain a currency crisis already at Level Red thanks to debt; but I covered all this stuff last week, so let’s move on.

A mere hop and skip across the Mediterranean lies a very very big continent called Europe, most of which is now in the European Union, or trying to get out and shaking it all about. The eurozone isn’t so much an emerging economy as a 19-humped camel emerging from the single currency…..an experiment with the worst consequences since Dr Jekyll decided to liven up his Martinis.

This coming Thursday, there is a quarterly ECB press conference fronted by Mario Draghi. It has the potential to be a Crash2 creator: but as nobody will tell the truth, it’s likely to be a squib more damp than a neglected nappy. All the blood spilt in the ongoing battle between the Bundesbank, the ECB and the Italian government will have been meticulously hoovered away. All will be calm, and security measures will ensure that no young ladies jump onto Signor Draghi’s rostrum to spoil the Party.

Other Blighty highlights include the release of UK manufacturing and gdp data later today. The gdp will probably be up and the manufacturing down, reflecting once more Britain’s ability to be a world leader in financial services while turning out one bed-spring a week. Tomorrow brings average earnings stats (likely to be up a tad) and employment data every bit as silly and therefore useless as that coming out of the US. The Bank of England’s policy report later in the week promises to be on the same level of tedious enervation as the news from Frankfurt: no change is widely expected by the bookies.

And finally, we come to Sweden. Or rather, we won’t for some time yet, because Sweden is the slowest vote-counter on the planet: it will take ten days for the final result of yesterday’s General Election to be known. But exit poll projections suggest that 22% of the vote will go to ‘hard Right neo-Nazis’ (aka the Democrats fed up of being called racists by the RoboLeft) and 25% to the ruling Social Democrats, who usually win because the country’s archaic voting system ensures that things go that way.

All this stuff is making me homesick for England – not least because the fluffy Establishment in Sweden pays roughly the same attention to the ordinary voters’ concerns as the Dingbats in Westminster.

However, from a market-reader’s pov, this huge leap in the reality vote has enormous ramifications for the European Bunion as a whole. With AfD in Germany, the Right’s triumph in Austria, the dominance of Viktor Orban’s nationalists in Hungary, the importance of anti-migrant feeling in Italy and a Brexit driven largely by the UK’s desire to have a halfway sensible immigration policy, the Wind of Change is blowing through Europe.

Living as they do inside a hermetically sealed bubble, the crazed architects of Brussels will be (as always) interminably slow to recognise the problem. Meanwhile, a previous member of their club will be rubbing her hands with glee: for Chrissie ‘Maths F’ Lagarde, it’s a win-win world for her International Misérables’ Fund. Until, that is, she finally realises that a business strategy based on the inflexible in pursuit of the insolvent is not sustainable.

Onwards and, er, who knows wherewards?