After a bad week for alternative asset managers, John Authers, Long View columnist and James Mackintosh, investment editor, discuss hedge funds’ long term performance and why it’s a good time to be a hedge fund manager but not to be a hedge fund investor. (5m 15sec). Watch this clip. (in the flavour of a Monty Python skit)
Some articles today worth considering:
Pimco’s Mohamed El- Erian on this morning’s stronger than forecast employment report. Risk on for how long? Here is the video link.
Meanwhile, there is further evidence this morning that Eurozone growth recessed in the fourth quarter and retail sales dropped 0.4 per cent during January, foiling expectations for an increase.
In addition, on top of another month of negative GDP growth in Canada for November, this morning we learned that Canada produced just 2300 jobs last month and the unemployment rate moved up to 7.6%. Not to worry, only 70% of Canada’s exports go to the US today (down from 85% in 2002, see chart below) I am sure Canada will fare just fine if the US economy continues to flat line for a few years here. (yes, sorry, a little sarcasm…)
Of course, none of this is bothering stock markets today…today they dance, drink and be merry. Those who are sober will have to wait for another day for facts to be faced in the global economy it seems. On the other hand if all is well in the world, why would we need QE3, oops what do you mean you traders already priced it in?
As the first country to experience the full force of the global debt crisis, Iceland opted to default and not enslave its taxpayers in perpetuity to bail out the banks. (You can read more about Iceland’s path to financial destruction in Michael’s Lewis’ Vanity Fair series from 2009 here.
The choice to knock off zeros on their debts has not been pain-free fix for Icelanders, their Icelandic krona plunged spiking the prices for items they import and Icelanders saw an 18% drop in their disposable income in 2009. Mind you, if other nations had chosen to admit the truth and let their bad banks go at the same time in 2009, many currencies would have taken a more simultaneous hit which would have made for less of a relative decline in any one currency. In this case Iceland was the first to admit truth, scratch off and start fresh. They are also further along in recovery now as a result.
Iceland’s pain was mostly front loaded, and their growth in 2012 (est. 3%) is looking brighter than most countries in the debt-plagued developed world. Not spending tax dollars on bail outs, they have been able to double down on investment in things that will strengthen them long-term like education and green technology. They are an example of how it is possible for a country to let the banks take their deserved losses, and still overcome deep economic dislocation without undoing the social fabric. Joseph Stiglitz discusses lessons learned in this video link.
No path out of the debt crisis is pain-free. We have to decide whether to cut out the cancer now or let it continue to sicken and impede our progress for years to come. Countries can choose to let the banks take their losses and reestablish capitalism as the model, or they can keep choosing to support banks and socialize losses that encumber us worker bees for decades. The choice is up to each country to make, and in a democracy, the workers are supposed to have the power to decide.
For a good summary on this see: Here’s what Europe can learn from Iceland.
