Take this badge off of me. It's getting dark, too dark to see...

Mint – Bill Blain’s Morning Porridge September 21 2012

New Iphone 5 today –The maps are apparently useless, but the bright shiney thing will make it all better for lots of people, so buy Apple! Back on planet reality.. lots else to think about as the week draws to a weary close:

What Growth Prospects?

What's happening to the growth rally then? Investor perceptions of global growth prospects remain bleak. On one hand we have central banks outlining grandiose growth and reflation strategies... Fill yer boots with growth stocks and put on inflation hedges!

Er... No.

On the other hand we have markets ignoring the CBs. Investors are fundamentally discounting the inflationary threats implicit in QE3 Fed Growth intervention, BOJ stimulus plan number 74, ECB unlimited buying and even minor economies like the UK trying to push their economies higher by pushing the QE strings.

I'm frankly surprised at how few clients are even neutral on growth - most believe it’s simply not going to happen. That rather suggests no-one will be coming to the party global central banks are throwing. Of course my market survey is based on a handful of conversations (but some pretty important folk), so I'll be watching the weekly bank surveys to see what they say about sentiment.

All of which creates an interesting market moment. Do you decide to step out from the pack and gamble the growth outside runner will still win? The upside of taking that bet (sell bonds, buy growth) is oh so attractive. Or do you decide to simply follow the market? Perhaps this time it's going to happen and early adopters will make a killing by getting into the recovery rally early? Or perhaps the big accounts that dumped their Treasuries last week are going to get massively burnt... Again.

At some stage it's gonna happen. I’m just wondering if I'll be around to see it. Or can I think of a really smart trade that will reward me with a growth kicker, but also pay off as/if misery remains the name of the game. Only certainties I can think of at the moment are buying chains of undertakers or bidding to run a privatised HMRC... (The UK tax office...)

In the face of such miserable sentiment and the realisation QE approaches are as effective as trying to blow a one-ton weight up a hill, just how can we create growth? Spending real cash and doing things like building new airports or decent trains is a difficult ask when economies are already knocking at debt's door? (See what I did there... schweet.)

Everything in Europe is just rosy.. Especially Ireland… Oh no it's not...

After spending a summer sailing and deliberately ignoring Euro news, I've got to say how impressed I am with the new focus on Euro crisis management. I suspect the change just isn't so apparent to you wage slaves who spent the summer being oh so impressed by Signor Draghi.

The new EU is so much better at burying the bad news or blunting it before it becomes critical. The number of empowered spokesmen who might say something daft has been slashed. Dissenters have been sidelined, and effective steps are being taken to identify and address problems before they escalate into crisis. Don't be fooled. It's just the same old Euro-tosh in a bright new shiney wrapper.

Examples of positive news management include the new found willingness of the Troika to "compromise" on deficit targets with problem countries like Portugal and even Greece, the fact acceptable bailout conditions are being pre-agreed with Spain, while dissenters are not rocking the boat. Even countries like Italy shifting deficit numbers to make them look more palatable don’t attract much complaint. One wonders just what dirty laundry the Euro Elites have got on Bundesbankers like Jens Weidmann that's kept them broadly contained in recent weeks? (Of course, the problem with sweeping the bad news under the carpet...)

Which nearly leads me to Ireland, the poster boy for reformed European economies and the efficacy of the austerity medicine. The Euro Elites just love to tell us about the Irish Export Miracle as proof a determined country can correct its debt crisis imbalances. If Ireland can do it - then so can others.

What Irish export miracle???

If you made the mistake of looking at unadjusted Irish export numbers you'd conclude the economy was recovering nicely nicely. Ball-male hens! The services side of the export numbers show an encouraging increase in Irish services right through the crisis, but the truth is the Irish economy is less than flatlining. Irish GNP is overstated by some 30% according to my colleague Martin Malone, because of global US firms like Google and Microsoft booking international revenues in low tax Ireland.

So even though those of us looking closely at the Irish economy discount the nonsense GNP numbers and focus on the GDP - which, after adjustments, shows Irish “growth” tumbling €15bn in recent years, there is a real danger the Euro Elites can simply present Ireland as another success by taking the headline growth number - up €30bn - as proof it's all working. (If you want on the Irish story, I'll send you Martin's note!)

Meanwhile, Citi is warning investors in Irish bonds – which have posted spectacular gains on the perception the Irish economy is somehow fixed – that a crisis is coming. The country remains mired in recession and the tighter bond yields are unsustainable when the country is posting negative growth! And neither is the banking crisis fixed.

As we keep warning.. Europe ain’t fixed. It’s just being presented better..

Have a great weekend

BB

0207 786 3877

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