The MB Team Discuss 2012

Before taking a break after the end of a remarkable year, the team at MacroBusiness sat down recently to share their views on the events of 2011 and the risk and opportunities that lie ahead.

The discussion was framed around 5 questions with the first 3 answered in Part 1 posted yesterday, with the final 2 questions discussed below.

 

 

 

 

 

 

 

 

Question 4. Where do you see the risks and opportunities that lie ahead for 2012 and beyond?

Delusional Economics (DE): Well the biggest risk for me currently is obviously Europe. The issues are mutli-dimensional, however the underlying issue of competitiveness imbalance still exists and very little is being done about it. We could see a resolution in 2012, but the latest “fiscal compact” and economic data suggests that the problem is going to get even worse before it gets better.

In regards to opportunities it really is a wait and see game, if we get some form of resolution in Europe then EZ FIRE (financials, insurance, real estate) sector would be an interesting place to look for the risk takers.

On the short side there are opportunities all over the place specifically in Europe but also China and the emerging markets that are export reliant as the world’s economy slows.

The Unconventional Economist (UE): Risks are definitely a China hard landing, a soft landing is coming but anymore than that…. As with DE, I think a big risk coming out of Europe is a global credit freeze, this would likely entail sharper housing correction in Australia.

The Prince (TP): The greatest risk and opportunity is the reliance of our economy and hence an investor’s portfolio, on the China story. I subscribe to the “this is China’s century” view, but like the 19th century for America, and in other eras where new empires dominated, there will be recessions and roadblocks along the way. This is not unusual nor “bearish”, its just history repeating.

The danger is being leveraged so much that nations on the periphery are caught up in these inevitable and frequent setbacks. The opportunity lies in capturing that volatility in the short term, and recognising the risks over the long term.

Asia is our future, but Europe and US could drag us into the past.

Deus Forex Machina (DFM): It’s a trader or speculators market so the risks and opportunities go hand in hand with volatility. Volatility of sentiment, of price action, of politics, of economies and of markets.

Houses and Holes (HH): Catch the medium term rallies on the way up – that’s the opportunity. The risk is missing the peaks on the way down…

DFM: It’s a play with what you can lose kind of game and if you’re not up for that then retreat to the safety of TD’s for a couple or few years until the wounds in the global economy can at least start to heal. Where is there a better risk adjusted return on the planet than an Australian ADI TD for the next few years???

DE: DFM is right – for the rest of us, it is fixed income in strong sovereigns and cash until we see some resolution and/or strong direction to the macro issues.

Rumplestatskin (RS): The main risk is the European countries fail to gather enough support to change the rules of the game to allow a broad economic recovery. I think that a resolution, one that would allow the economic growth to be established once again, will come when things are looking most grim, but the timeframe is anyone’s guess.

For Australia in particular, it seems the terms of trade has peaked for now, and our key export commodities are seeing prices fall.  Under these conditions the AUD will trend lower, while we may see some of the major mining investments delayed again.

The general impact of disleveraging, will see growth maintain a slow pace far below the pre-2008 trend and very slow in per capita terms.

Q Continuum (QC): The US political situation is concerning, with some zany antics on the Republican side.  The Syrian situation could also lead to further instability in the Mid East, pushing oil prices higher.

I still think some high-quality stocks will be worth picking up when the market gets into one of its funks, especially at current yields.  Fixed-interest securities/bonds will increase in popularity and hence price, so the race for yield will probably quicken

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Question 5. What have you learnt and/or appreciated the most since blogging at MacroBusiness?

DFM: I learnt that when like minded individuals who have an obsessive inquisitive nature it can make for really good insightful analysis that is often on the money. I’ve been reminded that an open mind is much better than a PhD.

I hope that our readers have learnt that you don’t need an economics or finance degree nor have the title of Chief Economist or Strategist to be good at this stuff.

DE: Most so-called economists have absolutely no idea what they are talking about. They simply string a long line of “finance” words together and hope that no one notices that they aren’t actually making any sense or that their previous calls were wildly off the mark!

HH: The biggest lesson? There are many smart Australians that know far more about the global economy and our place in it than our idiot media that purports to be an expert.

DFM: Absolutely HH, there is a broad and growing cabal of people in Australia and beyond who we can learn from and who are questioning conventional media and wisdom.

RS: Yes, the mainstream media is doing a terrible job in this country.  The journalism profession needs to seriously rethink its place in society, especially with the wave of new and social media.

The main lesson for me is there is no right or wrong way to ‘manage’ nation’s economy.  There are simply choices about the future the people desire.  Some prefer to trade-off the high risk of commodity dependency for short term gains, while others prefer long term stability at the cost of short term gains.
TP: I’ve had my empirical model of how stock markets behave, derived from Minsky, tested in the real world whilst broadening my understanding of macro – mainly through the eyes of the team here at MB.

Most of all I’ve enjoyed the response from our broad and growing group of readers and commenters.

UE: Me too – I really appreciate the intelligence of my fellow MB bloggers and our readers, all of us have benefited.

QC: My learning curve outside of fundamental analysis through the macro view has been dramatic and very appreciated.

I have also gained an appreciation for how flawed much of the mainstream analysis is, even though it is presented as fact or fait accompli to what used to be a naive reader.  The coverage of the WAN-7 merger was a classic case….

DE: The most important lesson for all of us at MB is that there is a huge population of Australians who feel the same way about the Australian media’s inability to provide an intelligence and balanced assessment of the political economy. A lot of them appear to be young Australian professionals from all walks of life, which gives me a lot of hope for the future of Australia.

We may only be houses and holes now, but that doesn’t mean we have to keep it that way.

Comments

  1. I only came across MB recently after a fellow had posted a link on my site and have been intrigued ever since.

    I’m a subscriber now so I visit regularly to see what your insights and observations are.

    Keep up the good work.

  2. Diogenes the CynicMEMBER

    Thanks MB team for a great 2011.

    Looking forward to a more prosperous and insightful 2012!

  3. I would love to see some political and economic reforms come out of this site, Prince’s idea with R& D bonds for example.
    There are some wonderful new technolgies out there being developed in a lot of cases by Australians in Ausssie Uni’s but the IP is owned by China. The whole ongoing aspect of trade and currency imbalances and how that sorts its self out hopefully without a conflict.
    I agree also with the quality of the commentators as well

  4. You guys are awesome, and I hope you keep going along the path you are on currently. You’ve managed to turn a neo-classical economist in my household into one that thinks along the lines of reality!

    Also, I hope that you guys pick up some more quality bloggers along the way who have more insights into the world and how it affects us all through our work and investments.

    Keep it up!

  5. I’m a bit over ‘mainstream’ before I found MB. I was thrilled to find your guys questioning everything like I do, but analyse it much much better than I ever can. I read MB every day. Thank you so much for the food for thoughts. Wish you a very successful 2012!

  6. Failed Baby BoomerMEMBER

    Thanks and congratulations MB on providing such good value economic and investment commentary. I was with some BBB (Bogan Baby Boomers) last night, and I felt sad for them – they are so brainwashed by boganomics and MSM – they do not have a clue, and they don’t even realise that they are failed yet!

    • Hey ,VR..saw you sittin here,how’s it going ..thought I’d pop in wish-ya,Merry Xmas my friend..It’s been a great year..Hey,
      like a forward facing radar and clear vision on a path of excellence with a timely ability,to regulate the Arrival and Departure of peoples thought’s…Displayed…
      What more could a passenger need….right..o and just a quick-question,
      who’s frank..cheers JR

  7. Merry Christmas to you all… I’m a medico and am a novice in the financial world (and have a battered equities portfolio to prove it).

    I read MB religiously daily, and I think this is a fantastic frank financial forum (FFFF)!

    Thanks for the interesting analysis!

  8. I would like to add my embrace to the group hug too.
    The quality of your contributors is the most complimentary feature of MB .
    That said I feel that it has been an easy year for anyone with some clear thinking to shine … above and beyond the mainstream deadhead economics commentariat .
    I have thoroughly appreciated the Prince’s contributions… insightful and measured . he deserves every success in his business.
    and thank you to the many other contributors
    in 2012?? …we keep trying………..

  9. I think that the risk is an armed conflict with Iran, which could be beneficial for us in the short term, but long term the USA is very bad at finishing wars in the Middle East (anywhere really) so it could drag the USA down again.

    Europe will do three things, print, print, and print.

    Opportunities – I think the USA is now the place for opportunities in 2012. Something I wouldn’t have expected to say 12 months ago.

    Cheers all.

  10. I work in a bank and I can’t remember the last time any of the people here came close to matching the level of intelligence and foresight that has been shown throughout the articles (and the replies by its readers!)

    Thanks for the great read and for teaching me so much!

  11. The problem with the media is that journalists are poorly paid and are suffering from low morale in an industry which daily seems to be on the cusp of it’s own Armageddon. Bloggers(many experts in their field) and the Internet have fuelled the creative destruction of traditional media outlets.
    As traditional media is accountable to its advertising department it can’t ask the hard questions. How can some newspapers which practically rely on the real estate industry for its survival have held the banks and real estate agents accountable for fueling the property bubble? They are essentially the flipside of the same coin. It’s this very reason that subscribing to traditional media is a complete waste of money. The truth is out there.

  12. Different China Fanboy

    Youse have made valuable contributions to the finance/economics information landscape.

  13. Well done, MB team – the blog is an important innovation to Australian/NZ views of the world in 2011 and beyond. I reckon that DE’s closing remarks sum up the situation nicely.

    All the best for 2012.

  14. Thanks for the comments and support everyone. MB wouldn’t be the same without the calibre and passion of your contributions.
    Have a merry Xmas and safe New Year!

  15. Hi Thanks for all of the work you guys have done this year, I have learned a lot, can you give out any info or even a graph of the visitors numbers to this site and if they are growing by the week plus have you have any trouble/threats etc come in, in relation to any of the information you have given out here during the year, I hope the momentum keeps building so the correct information is getting out to the people. Main stream media have been controlling the masses for to long. thankyou.

  16. MB is my Top 1 most frequent visited website each day/week. I even backlink great MB posts from another private value investment forum so others can see. Keep up the great work.

  17. You only have to listen to Obama’s speech in the Australian parliament to realise that the USA is still the biggest threat to the world and he is a moderate. Heaven help us if some nutter like Newt Gingrich gets into the White House.

    BTW, great work gents. I have really enjoyed reading your blog.