Objective discussion of North American financial and economic matters is often made insuperably difficult by the inherent optimism of so many resident commentators and players. Possession of an invariably sunny disposition is in most respects an enviable characteristic, but in investment markets it can, on occasion, be a desperate vulnerability.
Market commentator and online diarist Charles Kirk comes to a similar conclusion: ‘I love the bulls’ consistent and valiant effort to find ways to spin just about any negative event. The latest is that the Fed is going to be put on hold due to the aftermath of higher oil prices and the hurricane’s destruction. Perhaps we need a nuclear terrorist event to really jump-start this economy?’
But if the dollar is any gauge as to the monetary impact of oil and Katrina, its fall for the eighth week in nine against the euro suggests that the Fed may, indeed, be close to pausing in the interest rate hiking cycle. Bond investors didn’t need to be told twice – 10-year US Treasury yields are now back close to 4% again.
Michael Santoli for Barron’s Magazine rather uncritically reports that, as always: ‘the designated market forecasters at the major brokerage firms are leaning as a group toward the bullish end of the boat. Their collective wisdom holds that the U.S. stock market can climb from 5% to 10% in the final four months of the year.’
The less charitably inclined would hold that a) Wall Street forecasters consistently amount to a herd chanting ‘Buy stocks’; that b) both individual and institutional investors increasingly ignore this message on account of its inevitable banality; that c) market forecasting is an essentially worthless occupation, and that d) this message’s essential triteness is thrown into starker relief during a time of acute national crisis in which the implications for economic growth or corporate profits are hardly unequivocally supportive. Santoli does, fairly, point out that these same analysts have been ‘consistently erroneous’ in their predictions of long-term interest rates above 5% – perhaps Wall Street forecasters do serve a purpose after all, as fairly reliable contra-indicators.
Mahalanobis (Michael Stastny) draws a few conclusions from the wreckage left behind Hurricane Katrina. The first is that government is generally incompetent. Why was the Red Cross denied access to New Orleans? Is the Department of Homeland Security little more than a bureaucratic nightmare? Second, that the first priority of government should be maintaining law and order. Third, that some communities within the US, despite its obvious wealth and power, are as dangerous as any place on earth.
And fourthly, and perhaps most pertinently for this commentary, that risk is a part of life: ‘No amount of money can prevent 1-in-100 year storms from disrupting communities and causing loss of life. It is impractical to have a standing army ready to jump into the fray when such improbable occurrences happen. Those who get most upset by the inability of federal government to instantly ameliorate these situations just show their childlike naiveté, as if the government, especially the federal government in Washington DC, has an efficient plan to protect every enclave from its particular risks. It doesn’t, and it can’t.’
Christopher Caldwell, writing for the weekend Financial Times (‘How a society burst its banks’), seemed to catch the European popular mood, which has already been interpreted as anti-Americanism, but which one senses might more accurately be described as anti-Bushism.
With corpses floating down the streets of New Orleans and amid warnings of cholera, typhoid fever and other diseases, one doctor was quoted as saying: ‘In a lot of ways, we’re functioning as if we were in a developing country.’ And as Caldwell rightly observes, there is a sense ‘not unusual at times like this, that civilisation is a thin veneer indeed’.
If President Bush does indeed attract growing domestic dissent on the back of Hurricane Katrina, it would make up for the lack of domestic dissent apparent during a reign akin to that of an absentee landlord, marked by an ill-judged foreign adventure in Iraq that has surely triggered greater political uncertainty in the Middle East and throughout the world, and by prolonged physical absence from the seat of government itself, prompting suspicions of dilettantism.
It’s all too easy to make sweeping judgments about apparent chaos in the American South from the comparative comfort of an almost universally temperate United Kingdom. But somebody will have to pay for the aftermath of Hurricane Katrina – a cost that in financial terms will run into tens of billions of dollars, but that in human terms will be incalculable.
Roughly one million workers in the Gulf Coast have been displaced. Grain shipments on the Mississippi have been suspended. Notwithstanding the medium-term boost to the local construction sector, and the perennial can-do spirit of North Americans which is such a marvel to foreign observers, it’s difficult to view current events as being anything other than negative in financial terms – a surge in government spending is hardly going to reduce the deficit (will thousands come to initiate legal claims against the federal government?), while anything that dents consumer confidence in an environment wherein US national prestige has taken a whipping is unlikely to be particularly supportive for the stock market. Mainstream Wall Street forecasters have looked like clowns before, but given the current atmosphere of economic denial, they seem more than usually foolish now.
Tim PricSenior Investment StrategisAnsbacher & Co Ltd