Jean-Claude Van Damnation

The Prime Minister of Luxembourg, and current President of the Euro Group, Jean-Claude Juncker, summed up the problems of the Eurozone in 2005 with regards to economic reform. His comments remain just as valid today, as the EU confronts the never-ending crisis of sovereign indebtedness within the Eurozone: “We all know what to do, we just don’t know how to get re-elected after we’ve done it.”

As the recently departed Prime Ministers of Greece, Spain and Italy will be able to attest, voters do not respond well to economic crises, and reward the incumbent leaders with a negative verdict at the next election, or parliamentary putsch. The fact that the incoming guys are proposing to implement exactly the same policies seems to make little difference. This approach presumably guarantees ongoing political instability as politicians of various stripes continue to promise the undeliverable (i.e. a pain free restructuring).

The issue, then, seems to lie as much with voters as the politicians themselves, with both moving to the lowest common denominator. Whether its Congressional gridlock in the US (and anyone who thinks that things will change after next year's Presidential election must be delusional), or European politicians who are unwilling to talk publicly about the blindingly obvious (a common currency without common fiscal and monetary policies can't work), each group is running scared of those constituents who seem to think that there is some magic pill for overnight success.

So is dictatorship the answer? As some cataclysmic doom-mongers attest, the last time this sort of thing happened, the only thing that caused a shake out was the Second World War: a cheery prospect.

For the time being, a lot of recent data, particularly out of the US, has erred on the side of "better than expected", whether it be employment / unemployment data, corporate earnings or industrial output. Maybe this is a temporary bounce back from the Japanese Tsunami affected "soft patch" in the middle of this year. However, as a recent note by JP Morgan put it, the fact that interest rates are so low pretty much guarantees that investors won't hold cash long-term, and will be encouraged to dive into risk assets on the merest flicker of good news: hence the current gyrations of stockmarkets between optimism and pessimism between one day and the next.

Not a good environment in which to make long-term investment decisions.

We currently advise continuing patience, hoarding cash, and looking for opportunities on those occasions when pessimism gets overdone. This is not easy nor stress free, and as a consequence those who prefer an easy life should probably retire to Luxembourg.

The Prime Minister there has just continued to notch up records as the longest standing democratically elected head of government in the world (nearly 17 years) - presumably because he hasn't actually done anything worth criticising (in Luxembourg, that is).

Steve
e-mail: steve.davies@javelinwealth.com
contact: +65 65577186

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