That was the cry this morning as the Macro Cowboy donned his spurs, saddled his horse and blazed a trail through the Global Markets Forum. And while markets may be bemoaning the sorry state of the euro zone economy and pricing in European Central Bank sovereign bond purchases as an almost done deal, the Cowboy is feeling altogether more optimistic.
”It’s a great opportunityto buy risk right now. I think Europe is on better track than it’s given credit for: much of the so called ‘deflation’ is of the good – energy prices, etc – rather than the destructive type, and it and Japan are set to benefit from their weaker currencies,” he said. “The growth scare is exactly that. The U.S. economy is the one to watch for the bigger picture, it will pull the others up rather than the other way around and the rest will see more robust numbers coming through by early next year at the latest.”
Data released earlier did show German analyst and investor sentiment rose in November for the first time in almost a year, but the President of German think tank ZEW, which compiled the survey, cautioned that the environment remained fragile. ECB President Mario Draghi said on Monday that the central bank stood ready to do more if its current stimulus measures were not enough to accelerate the euro zone recovery and, while to committing to nothing, said that buying government bonds was one option available.
”I’m not a fan of the government bond idea,” the Cowboy said. “It gives them the desired liquidity injection but nothing else with yields already so low….there’s much better bang for the buck with corporate bonds – most likely through an indirect Fed TALF-like programme to get around moral-hazard concerns,” he added, referring to a Federal Reserve programme to encourage consumer credit lending during the financial crisis.
Breakingviews’ economics editor Edward Hadas also stopped by, ostensibly to talk about how changing demographics and an aging population in Japan were creating a severe case of ‘fragile demand syndrome’, but he drew some parallels with the euro zone that suggest the ECB’s attempts at flooding markets with liquidity may not be enough.
”Immigration has reduced the demographic pressure (in the west). But when birth rates are low and populations are ageing, relatively small shocks have disproportionate effects. The rigidities are extra-rigid and the flexibilities are in short supply,” Edward said. “I would say that we should focus on jobs, rather than GDP. The problem in Europe is not slow growth, it is too many people who want jobs but don’t have them.”
And that, as Mr Draghi keeps trying to point out, is the responsibility of the euro zone’s governments, not the central bank.
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