Unlike the days of old, today's investor has to have his eye on the next potential bubble 24/7
It is time for the tired, old and utterly irrelevant adage 'Sell in May, go away' to reappear. Traditionally, City gents used to declare a truce and pack up for a summer season of sporting and social delights ' Chelsea flower show, followed by Ascot, Wimbledon, Henley, a spot of cricket and a day or two banging away at the birds on the moors. Business would resume, by common agreement, on St Swithan's day.
But with our modern 24/7 focus, there is no such larking about. Languid investors are merely sitting targets for their predatory colleagues or the next bubble looking for somewhere to burst. According to many UK experts, this is forming in the residential property sector, where house prices are rising at their fastest rate for a decade, interest rates at their lowest for 30 years and housing demand is at its highest for half a century.
This may be so, but there is an even bigger floater endangering the prospect of global economic recovery. The US dollar may finally be testing the limit of its remarkable buoyancy. The demise of the greenback has been predicted regularly since 1995, when it began its ascent. It was supposed to fall as Japan's economy stumbled, when the euro was launched, when the US recession took hold, and after the terrorist attacks on 11 September last year.
Each time it has risen, defying the dollar bears and confounding the currency speculators. Calling the money markets is widely seen as a mug's game, but there are a lot of people playing it. Most of them agree the dollar is overvalued. What they can't predict is when it will fall, and how fast.
There are some pointers. Last year the US current account deficit, which reflects the balance of capital inflows and outflows, stood at just over 4% of gross domestic product. This year, it could rise to 5% of GDP, knocking on the 6% that the US Federal Reserve's own studies show is an unsustainable level. At that point America would need fresh capital inflows of around $2bn each day to sustain the deficit.
If that money fails to materialise, the first drop in the exchange rate of the affected currency is customarily between 10% and 20%. Note: this calculation does not include any outflows, if investors actually start selling US assets. It just calculates what happens if foreign players decide to stop buying.
This is not a remote possibility. The US slowdown has been pretty severe, and there are plenty of hints that it is not over yet. With lacklustre economic growth and a dim corporate profits outlook, global investors are no longer mesmerised by the US. Also, if the financial crisis finally blows up in Japan, institutional investors will repatriate their overseas funds, including their dollar holdings.
The build-up to such a critical point often goes un-noticed. Then suddenly, the market smells blood, and any hope of an orderly, managed outcome disappears. The backlash comes in the form of a sharp recession or a plunge in the currency, or both. No industrial country will avoid the fallout, especially those who base their own economic growth on their exports to the US.
Monetary authorities no doubt have the US current account deficit firmly in their sights. But let us have no more loose talk of imminent rises in US and UK interest rates. We are not out of the gloomy recessionary woods yet, by a long way. Cheap money may fuel a little house price inflation in the UK, but let it. There are bigger bubbles to avoid bursting.
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