“1.40. The Mouse That Roared.

*** Wry comedy. A tiny country faces bankruptcy.”

-       Film listing in The Radio Times, Sunday 10 January 2009.

Whatever the dynamics of markets or current events, we tend to view the world through a prism of discrete annual cycles. So, simplistically, if 2008 was the year of crisis; and 2009 was the year of policy-driven recovery, what will 2010 bring for investors ?

Political uncertainty, for one, in the UK and elsewhere. The Labour administration shambles wearily on, unloved by much of the electorate and with the leadership unrespected if not discredited by its own senior figures. The government finances are sufficiently wrecked that the next election will be a poll that nobody sane would want to win. The threat of a hung parliament hangs over the year like a Damocles sword, but it may be that fears for a new government with no outright majority are overdone; an uneasy coalition recognising the gravity of the UK’s fiscal situation could still be a better outcome than another Labour administration in complete denial about the scale of the debt burden and the draconian spending cuts required.

Another grave problem surrounds the timing for the anticipated withdrawal of quantitative easing by the Bank of England – and others. Central bank Gilt purchases may be the last dike separating a flood of new issuance from the disinterested private sector vacuum awaiting it. And this is a problem with international dimensions. Having supposedly saved the markets and banking system through extraordinary levels of stimulus and monetary intervention, western governments now face the unenviable task of reversing it.


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