What a fascinating week in the markets… Just a shame volumes are so thin. I’m very bullish on the UK after the strong employment data and I’m really not too concerned about the low wage inflation numbers, and which are perhaps a tad disappointing as it suggests most of the new jobs are minimum wage stints flipping burgers or pouring lattes. A situation that to my mind is not such a good thing for sustained consumption growth.
Still, it is great news for the Tories ahead of next year’s elections. Taken together with Mr Carney’s fears about property and other asset bubbles, its bad news for Gilts holders though as rates are most certainly going higher! Should I buy stocks I wonder? Well of course I should. Long term studies always show that a balanced stock portfolio held long-term will always outperform bonds. Problem is Mrs Badger and our cubs keep eating into the family cache… my supposed long-term investments have been sacrificed on fripperies like the cub’s education, cars, weddings etc… And, the youngest shows a distinct unwillingness to use her new degree in “Trendy Studies” to actually get a job. Well I’m holding on to my Apples this time!
Another reason to buy stocks is the same as the reason not to buy US bonds; Pimco, the world’s largest bond fund manager and now the world’s best reverse indicator on bonds, is going large on US Treasuries once more… I scream over to the toads on the Treasury desk and growl “Sell” at them…
Suddenly we are distracted by the news. We’ve got an outbreak of extreme beastliness in the Middle East, and everyone is acting all surprised. The immediate effects of ISIS in Iraq include an oil spike and lots and lots of worries about just which dominoes might fall next in the region. The headlines and photos in the press are shocking, and I’ve read conspiracy stuff about oil firms being behind it all. Nonsense I say! I’m considering the chances that post this trauma, perhaps a more stable Middle East may actually emerge an which of course means the ISIS crowd are likely to bowled out quite swiftly.
The fact that the lunatic extremist fringe of Islamic Militants who were fighting in Syria and have now been squeezed out and so have decided to “liberate” Iraq should surprise no one. The key question is where next?
Listening to my sources – and I spend a bit of time out there on my badger’s travels, I’m detecting conspiracy… conspiracy for America to quietly turn a blind eye as the former Baathist retired generals in Baghdad use the insurrection as the moment to establish strong leadership and split the country into ethnic zones for Kurds, Shias and Shiites – making the ungovernable governable. That could be a big plus for both the Saudis and Iranians as both will have “client” states to nurture.
But how are the markets reacting? I read some rubbish about “buy Iraq – the American’s will make it all better.” Utter codswallop, the last thing Obama wants is involvement in another Arab entanglement. He will look for them to sort themselves out. Where we may actually see knock on effects is Europe. Pray tell do I hear?
Well, the Americans were keen to support Europe vs Russia, hence the swift legislation allowing energy sales to Europe and building new LPG ports to squeeze out Russian Gas exports. The effect was to crush the Russian economy and which worked as the recent “be nice” sessions with China have shown. Any de-stabilisation in the Gulf and the commensurate oil spikes will scare our American cousins whereupon they might go all soft and floppy on the Energy Exports to Europe policy thus allowing the Russian bully a potential swipe-back. Worrying indeed… There is far more to this Iraq business than meets the eye.
Now, what is the Badger’s rade of the week? I think it has to be short treasuries, and be neutral on stocks. Why? I got a feeling we need something in terms of US economic good news to kick start the next leg up for stocks… As for bonds, they are going down, down, deeper and down…