Does this Davos-shaped cloud have a silver lining? 02/02/12
After looking at my bank account the other morning, I’m loathed to use the phrase “austerity Davos”. The wine was expensive, the skiing was great and the hotels were packed to the rafters. Yet I can’t help thinking that things were not quite the same as the great and the good gathered for the annual World Economic Forum in Switzerland.
As one well-known US chief executive said to me: “You can come here an optimist but if you leave here an optimist you’re in a minority.”
The eurozone debt crisis was the major focus for delegates and the subject of some pretty heated debates. In one session I attended, European finance ministers insisted the single currency had a united future, but did not underestimate the challenge of fiscal reform ahead. A group of economists told me they were almost certain the eurozone would fall back into recession this year, with little else to cheer about across the region.
The British contingent was busy absorbing the news that the UK economy shrank by 0.2pc in Q4, most likely heralding the beginning of a second, mild, recession. Economists told me the UK will struggle to grow at all this year, but the leading businessmen I spoke to were at least roused by the David Cameron's pro-business speech in Davos and hopeful that this would mark the thawing of tensions between big business and Government.
The various January PMI surveys from the manufacturing, services and construction sectors this week should give an early indication of what sort of start to the year the private sector has had. Some of the economists I have spoken to are expecting them to show a slightly better picture compared with December.
Away from the fondue and log fires, the European Union finally got around to agreeing to its widely-anticipated ban on Iranian oil - effective from July. A number of commentators still predict plunges in the oil price this year as economies continue to stall but I disagree.
Whispers suggest Asian buyers will take advantage of the situation and buy discounted oil from Iran. This could make the pain of the EU boycott bearable in Tehran, dragging out the ban for longer. It would also make the likihood of the price of oil falling anytime soon a remote possibiliy. The current price looks reasonable and fair, although the occasional spike is almost guaranteed.
One thing that looks a surer bet now is gold – thanks to Ben Bernanke. My libertarian friends have been waiting for QE3 to come sailing through the door and the Fed chairman laid the groundwork last week. Goldman says a gold bull play will be relatively risk free. I agree.
But what of poorer cousin silver? Everyone I talks to thinks there’s plenty of upside – but I haven’t found anyone yet willing to bet it will pass last year’s peak of $48.44. Once the Fed’s money printing machine starts, however, there will be one way it can go. Up, up, up as the dollar goes down, down, down.
Next time round, I’ll be looking at the UK banks, which start reporting their full-year results later this month. I doubt Stephen Hester, Royal Bank of Scotland’s chief executive, will be a happy man after having to forgo his £1m bonus. I wonder how long he’ll going to be willing to hang around at the part-nationalised lender after this? Until next time ...
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