TradingFloor.com Insights
Q2 Insights: The end of the free ride
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So, it’s the end of the free ride as we know it. Or at least it should be, says Steen Jakobsen, Chief Economist, Saxo Bank in TradingFloor.com's Q2 Insights. In economics, the term “free rider” is used to describe a person who benefits from a variety of resources or services without paying for them.
As we move into the second quarter of 2013, the concept can be seen everywhere,
from competitive devaluations to lack of reform in the US and Europe, not to mention
the failure of the European Council to agree on a bailout programme and public sector
resistance to much-needed reforms.
But where to from here?
World growth is being lowered and fiscal deficit projections are on the rise. Sure, the stock market might be upbeat, but that is another example of the free-ride concept – and, it has to be said, it has become a refuge in itself. There is no doubt that the
economic crisis is in a tailspin and politicians are standing idly by.
And with all eyes on Germany and its September election, it has to be asked: will Germany write a big cheque and save the single-currency bloc? The facts state otherwise, while this hope is based yet again on a “free ride” that there will be a German willingness to help. Always.
Throw in the Cyprus bail-in, which created no winners, and the conclusion is that
European decision-making has been left bleeding and without hope of recovery. The
lack of coherent policies raises serious concerns over who will pay for future bail-ins.
Overall, this adds weight to our general theme of a stronger USD and our belief that
much of the investment return for the rest of the year will come from foreign-exchange exposure.
That said, we are seeking a mandate for change, which would be best accomplished by a proactive recognition of the need to reform.
And therein lies our optimism: things can’t get any worse.
As we move into the second quarter of 2013, the concept can be seen everywhere,
from competitive devaluations to lack of reform in the US and Europe, not to mention
the failure of the European Council to agree on a bailout programme and public sector
resistance to much-needed reforms.
But where to from here?
World growth is being lowered and fiscal deficit projections are on the rise. Sure, the stock market might be upbeat, but that is another example of the free-ride concept – and, it has to be said, it has become a refuge in itself. There is no doubt that the
economic crisis is in a tailspin and politicians are standing idly by.
And with all eyes on Germany and its September election, it has to be asked: will Germany write a big cheque and save the single-currency bloc? The facts state otherwise, while this hope is based yet again on a “free ride” that there will be a German willingness to help. Always.
Throw in the Cyprus bail-in, which created no winners, and the conclusion is that
European decision-making has been left bleeding and without hope of recovery. The
lack of coherent policies raises serious concerns over who will pay for future bail-ins.
Overall, this adds weight to our general theme of a stronger USD and our belief that
much of the investment return for the rest of the year will come from foreign-exchange exposure.
That said, we are seeking a mandate for change, which would be best accomplished by a proactive recognition of the need to reform.
And therein lies our optimism: things can’t get any worse.
For more on TradingFloor.com's Insights for the second quarter 2013 see: http://www.tradingfloor.com/blogs/quarterly-outlook