Macro Digest: First, it will get worse...16 ноября 2015, 16:55
I have never liked having to comment on incidents of terror like that which hit Paris on Friday, but unfortunately too often I have had to do so since 9/11.
There are no words covering the loss people in France have experienced over this weekend. It makes no sense and neither will it ever.
France is strong and it will recover but the loss will forever remain unjust through acts of cruelty and cowardice. Bless the lost lives and their families.
The market impact will be limited. Of course, this is an event which will not benefit the market, but neither will it stop France, Paris or the markets.
We have come to ignore geopolitical risk in markets for the statistical reason that they rarely, in recent history, have impacted the ability of the market to go from strength to strength.
Whether this has to do with a policy response which at all times has been lower interest rates or a fundamental tendency to put too high a risk premium on events is too early to tell, but I am increasingly believing it's the lower rates which is the driver.
I have been in the market since 1990 and I have only seen three hike cycles from the Fed: 1994, 1998 and 2004. Many of today's traders and analysts have never seen a rare hike. Talk about one-way traffic.
The world is changing in so many ways which is ignored by markets and commentators. I see this on my global travels, writing this on a bus heading to Tokyo on a morning where Abenomics failed. Japanese GDP just landed in another recession with a quarter-on-quarter GDP print of minus 0.2%.
The US Federal Reserve will hike unless S&P breaks 1,900 before Christmas and we are about to feel the true pain of too much debt and no reforms.
In other words, as the last 18 months rise in the cost-of-capital has shown, the headwind from rates is rising and hence the support for geopolitical risk has fallen.... Meanwhile I'm afraid that Paris may only be a first look at the fight of civilisations.
This weekend's Paris event could be the beginning of the end for ignoring geopolitical events. The fact Islamic State took responsibility is a major change of its modus operandi. Traditionally its terrorism has been limited to the area it controls in Syria and Afghanistan but now it has gone global in its fight.
Some military observers will put this down to ISIS losing control vs. Nato and US led bombing and that may be the case but that only makes Friday's events in Paris even more concerning for me.
A friend of mine from Paris said to me on Saturday that it will get worse before it gets better. The Pandora box opened by the Iraqi war will not be shut down anytime soon.
The ability to execute six simultaneous attack shows how little ability we have to monitor communication despite more and more intrusion on privacy by authorities.
FBI Director James Comey recently predicted this could happen talking about how encryption meant that intelligence services was 'going dark' .
We have never been more monitored and never been less private, yet the ability to preempt terrorism seems low.
Maybe technology is not the answer? More jobs, less debt, less inequality, more, far more education, more belief in people and perhaps less in machines is the answer?
We live an era where the most successful people and businesses create a social virtual reality, where updating your social status is more important than manners, respect and thinking.
I think the Paris event is yet another wake up call for the markets on geopolitical risk, for the under-investment in education and basic research, but most importantly for how we continue to ignore facts. The Iraqi war, Syria, Lebanon, refugees, inequality, an absence of reforms, debt-driven societies and a lack of education and productivity.
I remain optimistic on our ability to deal with crisis and loss but my friend from Paris is right... First it will get worse.. we are simply not prepared for geopolitical risk to matter for markets neither are we yet willing.