Gaeia's Market Insight - February 2013

A month or so into 2013 and everything is rosy in the financial world – that is, if you look at the recent sharp rally in stock markets around the globe. The year started with a resounding bang as US politicians agreed a short-term measure to delay the arrival of the grandly-named “fiscal cliff”, so-called because investors apparently feared that the American economy would plummet, Wile E. Coyote style, as a result of the calculated hit to GDP. Thanks to this heroic kicking of the can, aided by a Republican body licking the wounds inflicted by President Obama’s re-election and therefore apparently devoid of their usual resistance, investors instead jumped on the Road Runner’s tail for a wild ride. Meep meep. Furthermore, the fact that Mario Draghi, President of the European Central Bank, promised “to do whatever it takes” to save the Eurozone has also provided a boost to sentiment over a period of months. We need no longer fear the collapse of the global financial system because some Very Important People say so. No wonder that investors have chased stock prices higher with gay abandon! Signor Draghi also assures us that the banking system will be more stable with centralised Euro-area supervision. Best keep it quiet, then, that he was responsible for oversight of Banca Monte dei Paschi di Siena –the world’s oldest surviving bank – while it conducted a series of fraudulent concealed transactions during the crisis to pretend it was financially stable. Of course, it isn’t quite that simple. Unemployment remains a major issue that needs to be addressed in many countries – not least it is not simply a matter of the overall unemployment figure, but the fact that youth unemployment continues to be much worse than the headline figures. This is a real social problem in the making, which would be best served with mitigating policies now as opposed to the greater costs it might entail in the future. Spain & Greece are regularly identified as particularly at risk on this front, but even in the United States, all of the apparent improvement in the employment data is being seen in the over-55 age group. Taking authorities around the world to task is the least that can be done as long as prevarication over budding social issues remains the order of the day.   Political indecision has other ramifications, too. The last commentary highlighted the impact the moribund economic picture was having on the renewable energy sector, as a result of subsidies being scaled back given government budget pressures. The issue runs deeper, though. One only has to look at the policy mess here in the UK to recognise that businesses and investors are unlikely to commit substantial capital without greater certainty on the conditions they are investing in. Nuclear power is an issue that divides many, including within the committed ethical community; whatever our or your view on it, there appears little political will to phase it out on these shores. If this remains the case, the UK is most likely to be served by new generation capacity in both nuclear and wind. However, neither is being encouraged by political dithering and nimbyism. Headlines, meanwhile, are grabbed by the prospects for shale gas from fracking. There are substantial environmental concerns about the risks associated with the fracking process, while an interested observer might note that the firm behind the Blackpool earthquakes – Cuadrilla – is chaired by Lord Browne. Lord Browne, of course, was at the helm of BP for a period that included the Texas City Refinery explosion and a litany of safety violations that led to a series of fines. A turbine on the horizon or the risk of a polluted water supply? The risks are arguably asymmetric. SMSHBlog/120213  

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