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Recent monetary policies driven by major central banks of the major economic regions have in common flexibility clouded by tensions. It's unnecessary to remind theses risks that asset owners face but it's useful however to precise again that the use of monetary policies has become essential, crucial in order to add
fuel water to the flame. Expansionary for certain, restrictive for other, central banks policies leave no one – economic actors - indifferent. Without getting once more into the specifics – see earlier postings - external factors which are spread to the Euro area on the road to economic recovery don't suggest that however that all is lost.
Indeed, if we focus on the ECB ultra-accommodating policy (previous, current and incoming), it must be noted that the single European currency is now evolving in a bearish channel in relation to the U.S. dollar (around 1.3138$). That is a pretty good news because we know that the recent M. Draghi concern was the rate of exchange. It's good to add this Euro weakening in relation to the dollar isn't really linked by the ECB but especially by the anticipations of American economic actors (because of the increase of Fed-funds rates). I said previously and humorously that an addiction develops gradually between Janet Draghi and Mario Yellen with their monetary policies admittedly in opposite directions but complementary. We are there. Moreover, we can underline the easing in credit conditions to companies reported by the European Central Bank for the first time since the middle of 2007.
It looks to be a swinging return in any case. Our central banker's job over the summer was (we realized that) to align expectations and making comments that are summed up as “Have a good holiday, more on that later”. But what to expect? Simultaneous collapse and creation of speculation bubbles on the European and American markets maybe? An euro at its level of September then July 2013? Jesse Colombo, who I have had the opportunity and the pleasure to as, gives us his opinion concerning these questions. Mr. Jesse Colombo is an American independent economic analyst and investor. He was recognized by The Times (London) for predicting and warning about the 2008 housing-price bubble and the stock market crash.
Are you the one of those who are thinking we are in a bubble or not yet?
J.C: Yes, we have been experiencing a global bubble in Canada, Australia, China, emerging markets, U.S. stocks, global bonds, U.S. higher education, tech start-ups, and some areas of U.S. housing. Global central banks are fueling this bubble through their low interest rate and QE policies, and it is creating a temporary global economic recovery that I call a “Bubblecovery” or bubble-driven economic recovery. I don’t see it ending right away, but most likely within the next several years.
Some analysts predict a strengthened dollar (1.31$ or even 1.27$) in the near future. Do you agree? What level would you give to the long term?
J.C: I don’t make predictions about short-term market movements, but it is possible for the dollar to strengthen against the euro as the Fed continues to taper its QE and if the ECB launches a QE of its own soon. On the other hand, some of this is likely already priced into the currency markets because the dollar strengthened against the euro in the last few months.
Concerning Draghi, do you think his recent monetary policies stance will restart the economic machine? (low-flation, debt, deficit, dichotomy and unemployment)
J.C: I don’t believe that it will lead to a genuine, sustainable economic recovery, but that it will contribute to the global Bubblecovery or bubble-driven recovery. There are already signs of new housing bubbles in Ireland and Spain, as well as many European sovereign bonds. In the end, I still believe that another even worse Eurozone debt crisis is ahead.
Last one. A lot of economists (and I) have underlined the role of expectations of economic actors. We are currently listening a lot of speeches, reports, forward guidance, even (concerning ECB) discretionary policies. Do you think that, " the lake " of information asymmetry can disturb policy's effects?
J.C: Right now, I believe that most people are being fooled by the central banks into believing that we have a genuine economic recovery, so that may be considered a form of information asymmetry. Many people and companies are making business decisions based on these “false signals” because they still believe that central banks have the best interest of citizens in mind, even though they don’t.
You can find Jesse Colombo → on Twitter: @TheBubbleBubble,
→ on his website: http://www.thebubblebubble.com/
→ on Wikipedia: http://en.wikipedia.org/wiki/Jesse_Colombo