The calm after the storm

while an overnight bounce after my psoting yesterday is nice to see, I doubt the volatility will die down that quickly. But i think it does show that the underlying fundamentals in many of the world's major economies are strong enough to sustain this recovery. And the Central Banks won't be inactive - particularly in the US were the new Fed Chairman is a known dove. Rates will stay low long after tapering is done, and until the Fed raises, none of the other major central banks can - hence I remain very long GBP bonds and have a few equities thrown in for variety.

The Central Bank raises in some EM countries, however, are more worrying. Growth was already slowly in many developing countries, and rising rates will hurt them further. I fear they have given a short-term boost to their currencies at the expense of long-term economic pain - which will also be bad for their currencies further out. What most of them need is a weaker currency, but arrived at in an orderly fashion.

Other thoughts....?

Italy - looking like a basket case - it's likely to replace Spain as the major worry in Europe.
France - going to grind along the bottom until the lunatics in charge see sense. Doubt it will go into a tailspin though.
The Euro - as ever, it'll survive, because the ruling elites in Europe want it to. Nothing to do with economics or logic.
China - complete ponzi scheme but they have enough money to bail it all out when it starts to go pear-shaped. When the bust comes it will be a drag on the world's economy but I doubt the disaster everyone fears. Unless you're the Chinese Communist Party. A recession and a few investor haircuts could easily spell the end of their rein.

But for all the doom and gloom out there, somehow the world always seems to manage to bounce back - it has before and I expect it will again.

Here we go again...

Well 2013's feelgood factor didn't last long. So far in 2014 equity markets are well down and bond markets are well up - pretty much the 100% opposite of what every economist was forecasting. Why do banks pay fortunes for these guys - they're best used as a reverse indicator.

But my gut feel is this will pass. Yes there are potentially huge financial problems coming in China, Indonesia is wobbling, Thailand is shooting itself in the foot, India is going nowhere and Brazil is reporting record trade deficits. But, for all the talk of the importance of these places, 50% of the world economy is Europe and the US. Those areas are showing enough signs of recovery to think that there will be a global slowdown, but not a meltdown.

The Fed may or may not continue to reduce its stimulus, but for all the talk of tightening it is in fact still pumping $65bn a month into the US economy, and can increase that again if necessary. The ECB can and will cut rates to 0% if needed, and the Bank of Japan is still printing Yen like it's going out of fashion.

The current wobbles are an over-correction from excessive optimism late last year to excessive pessimism now, made worse by terrible weather in Europe and the US, and Lunar New Year slowdowns in Asia.

Hang tight - it'll come good.