The Ice Storm

Our 2011 theme was The Great Differentiation. We were oriented toward "higher and wider" on rates and spreads and slow growth support for equities. The Great Differentiation came but not in the fashion we had originally mapped out. By April, the economic backdrop had deteriorated and the US became the beneficiary anchor of "higher and wider" rate structures elsewhere. Since September, a volatile but old story has ebbed and flowed through capital markets on a wild ride to nowhere. A substantial amount of the chaos was engaged in the name of stability.

My theme for 2012 is The Ice Storm. Bureaucratic muddling, regulatory confusion and balance sheet hoarding will create "stability" of the worst type. Periodic, rather than systemic, volatility blooms will pop through currency and interest rate markets. Equity markets will gradually screw down the ripple waves of the credit super cycle breaking. The 1 minute bar chart will be downgraded as an investment adviser. The neo-inflationists will continue to point to CB balance sheets as price level tinder. Loss recognition, finally embraced, will offset their hopes/fears. Europe will be years in rehab but players will tire of the Kardashian-like headline whoring of the topic. MENA will heat up for Arab Spring 2.0. The US election will be a constant distraction of low brow and populist attacks from both sides. As the Ice Storm settles in, running your business will supplant churning your stock. Under the ice, the seeds of restoring capital markets to purpose and integrity will germinate.

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