This week I take a break from the charts to ponder the events that surround us.
Greeks took a big breath and voted in a relatively moderate government who, it seems, will make some effort to stay in the Euro zone. But, Greece aside, there are still many other issues relating to Italy, Spain, Ireland, Portugal and the list goes on.
The G20 met in Mexico and looked down their noses at Europe as if ‘they’ have all the answers. Yet even the most troubled Euro economies have smaller national debts than the UK and USA. Prime Minister Gillard said all other countries should manage their financial affairs just like Australia (she?) does. Hmmmmmm. Well, I guess if these countries were as lucky as Australia and had vast resources and a small population, then perhaps they too would find their lot a little easier.
The world has reason to take this headline grabbing and any agreements that may come out of the G20 with a grain of salt. Especially those Europeans who genuinely want jobs.
Away from the hype, the real dilemma for Europe is how to deal with day-to-day issues. Many of these countries are bankrupt and if they were a company they would be put into receivership and if there was no buyer for the complete sovereign, the assets would be sold off to a myriad of buyers - to the highest bidder, probably without much concern for ‘suitability’ or ‘fitness’.
Apart from meeting the day-to-day bills - such as paying wages and maintaining services such as power, sewerage, roads and railways etc - there are many more fundamental dilemmas to resolve. And, frankly, this is where little assistance is being offered. To tell Europe to get its house in order is to state the bleeding obvious. What about some constructive solutions as to how each country could work through their individual issues? They are all like individual companies. There are some common elements and therefore common solutions, but some specific tailoring is required.
To continually make cuts is not the answer. While cuts may still be needed, the world needs to focus on the ‘me’ element of stimulus. Otherwise the moral and spiritual fibre of these nations will be permanently destroyed. Without consumer confidence it is not possible to have a lift in consumer spending, which is the minimum starting point for the next boom.
Economic stimulus will eventually happen and the world will again be pumping iron and back on steroids. The bottom line is that the world's economic engines are dependent on excess exuberance and obscene consumption. We need global GDP growth rates in excess of 3% otherwise the patient is pronounced as ‘near dead’. So should life-support machines be called into action?
Is there a problem with some quiet years? In theory, no. But the problem with that is that the impact of no stimulus is soul-destroying for the ‘masses’. No job. No soul. No life.
Economic stimulus will eventually happen but unfortunately it will mask the real cracks in the core structure of 21st century consumerism and economies. We will kick-start our economic engines one way or another but personal debt, government debt, corruption, lazy life-styles, bloated remuneration and ludicrous payments for entertainment stars will all linger. What I am talking about here are deep cultural issues. These cannot be fixed in a year or two and once we go into the next up-cycle, most of us will feel ‘lucky’ again and the underlying problems will be forgotten until the next crash.
This is why the world of equities has changed forever. It is now a faster, more slippery roller coaster with bigger runs and deeper falls.
Be vigilant or be scared.
Enjoy the ride