Talk of Double-Dip Risk Is Getting Louder
I am feeling a bit gloomy. I started this sovereign debt crisis looking on the bright side but now I have been got at. So many of our guests at CNBC are downbeat right now, that the downdraft has been hard to dodge.
Markets took time out from worrying about government debt at the end of last week to look at economic data, in the shape of the US employment report, but many investors say nothing has fundamentally changed and the sovereign debt threat is still out there.
While I would take issue with some of that sentiment (the Italian, Spanish, Portuguese, Greek and famously the Irish governments have made progress on deficit cutting plans in recent weeks), it does seem that debt has just been passed around the system for the past three years.
Getting debt junkies to abstain could be a long game and might take us, rightly or wrongly, into a double-dip in the meantime.
If we really are heading for another economic slump in Europe and deflation takes hold, then other parts of the world will not escape the gloom. But some areas may fare better than others. Witness the relative out-performance of the BRIC countries (Brazil, Russia, India and China, as dubbed by Goldman Sachs).
A number of money managers are telling us these days that our money could be much safer in emerging market government bonds than in historically safer ‘safe havens’. But which ones?
Goldman Sachs points out not only the BRICs but also the ‘Next 11’ or N-11 for short.
Not a reference to this summer’s cricket, but the next 11 emerging economies that GS thinks, after the BRICs, have the potential to rival the G7 as a source of global demand. GS says that countries like Korea, Vietnam, Indonesia and Mexico have great potential.
The Barclays Capital team echoes some of these views, suggesting a move into emerging Asia sovereign debt. But they warn that any downturn in the regional economy or big moves in foreign exchange should prompt a rethink.
Of course, if things are as bad as Bob Janjuah at RBS thinks, they will get then there may be no place to shelter.
Janjuah sees the S&P in the 800s, resulting in the Fed starting a new $5 trillion quantitative easing programme. His tough medicine is that when faced with a double-dip recession, Western governments should admit that the game is up and remove fiscal stimulus.
Not the most politically popular strategy, so I can’t see many governments going for it, but let's hope they never have to make that decision. Sorry to add to the normal Monday morning gloom.