Japan has the Name, the EU gets the Fame
Pfäffikon SZ, Switzerland – Regarding Japan, I’m sure there’s very little I can tell you you don’t already know. Since the early nineties of the last century the country has been wrestling with a negligible rate of economic growth. Moreover, Japan is stuck with an enormous mountain of debt as well as suffering from structural deflation. In Japan more incontinence diapers are sold than normal ones. Initially the Japanese had coined the term “The Lost Decade” but that was more than twenty years ago. In my column of March of 2007 I pointed out the strength of the Swiss currency and the open air museum that is The Netherlands. Eight years later Timothy Geithner submits that Europe, for the moment, is a worse place to be than Japan. Geithner was the US Treasury Secretary during the financial crisis which started in 2008.
Luck
Geithner is seen by many as one of the architects of the resurrection of the US as financial superpower. Moreover Geithner took it one step further and stated that Europe would “be lucky” if they share the same fate as Japan. “Even the best, most optimistic view of what’s possible is going to result in very limited, fragile and divergent growth trends,” says Geithner. The euro ecompasses 19 member states with 19 different tax regimes and 19 different expenditure patterns. In which the ECB has the neat task of maneuvering through these conditions, which in practice is pretty much undoable.
Prepared for the worst
Another remarkable point of attention were the remarks on the part of Thomas Jordan, head of the Swiss National Bank (SNB). Jordan in the meantime is very worried. “We have to be prepared for the worst case scenario, that the joint currency collapses,” said Jordan in the Financial Times. He quickly added – politically – that he does not expect such an outcome, but still. It is also notable that the Swiss want to accelerate the increase in their defense expenditure. What do they know that we do not yet know?
Greek drama
Greece meanwhile continues to try and free itself from under the weight of the trojka. However the situation with Greece may unfold, Portugal and possibly Spain and Italy are next on the illustrious list. If the Greeks book a victory, however small it may be, the weaker countries within the union will demand the same conditions. The Greek drama underlines the political contagion which has characterized the European monetary union since 1999. Ultimately, it seems political wrangling and pure unwillingness are what is splitting the European Union with all the consequences that entails, something we could all do without. According to former Federal Reserve (Fed) chairman Alan Greenspan, it’s only a matter of time, as supposedly the euro is doomed to fail. A financial ice age would then be imminent. Perhaps Juncker and Timmermans should pay a visit to Moscow to gauge Russia on EU membership. Perhaps you’ll find that a ludicrous proposition, but take a moment and contemplate it some more. It’s likely that it will take twenty to thirty years for the penny to drop for the politicians, when it’s too late and Russia has leveraged its ties with China and India extensively.
After-party
Meanwhile investors are celebrating their little party – and they are entitled to. But I am of the opinion that what we are witnessing is the after-party where many investors are drunk on happiness, but don’t know why. They live in borrowed times. “The New Normal” is a time in which many – geopolitical – risks are being ignored and investors only pass judgment on shiny business figures. That is a shortsighted approach and the market will, sooner or later, settle the score. Something that usually happens unexpectedly.
It remains for me to wish you a good weekend.
Jan Dwarshuis is a senior asset manager at Thirteen Asset Management AG, where he is responsible for the Thirteen Diversified Fund. Dwarshuis writes his columns in a personal capacity and is not paid for them. Nor is he paying for his columns to be placed. Professionally, he holds positions in major European, American and Russian stock funds. The information in his columns is not intended as professional investment advice or a recommendation to make certain investments. At the time of writing, he has no position in the above shares and has no intention of doing so in the next 72 hours.
