The merits of a slowdown

“Cheaper toys ‘are Christmas hits’ ”

-       BBC News website, 28 October 2009.

Stop all the clocks, wrote W.H. Auden once, and he had the right idea. One of the irritations of modern western society is an always-on consumption culture that lives not so much in the here-and-now but in the tomorrow-reported-as-yesterday. Or perhaps, in remembrance of George Orwell, we should allude to his definition of advertising: the rattling of a stick inside a swill bucket. Consumer time, in any case, now moves at an accelerated rate, especially when the forces of retailing, in ever more urgent pursuit of the almighty trading dollar, overcompensate for an economy debilitated by a banking bust. So we have to tolerate Christmas lights going up in Oxford Street before Halloween; newsreaders and politicians vying to be the first to wear their poppies with pride (Armistice Day, commemorated as it always has been, on November 11^th); and toys reported as Christmas hits before the end of October.

Markets are not immune to this sense of temporal acceleration; they have always tried to anticipate the future and price it in. But how much future, and what kind of future, is priced in now ? GMO’s Jeremy Grantham, who pretty much nailed the March equity lows, now reckons the US market is around 25% overpriced. Pimco’s Bill Gross reckons the six-month rally in risk assets (and not just equities, or bonds) “while still continuously supported by Fed and Treasury policymakers.. is likely at its pinnacle.” “Doesn’t it seem odd,” asks Grantham, “that we would be measurably overpriced once again, given that we face a seven-year future that almost everyone agrees will be tougher than normal ?” We can only shrug our shoulders and agree, drawing discrete attention to the new purveyors of moral hazard extraordinaire, namely the western governments that, acting through nominally independent central banks, have engineered interest rates down to zero, and are busily setting up government bond markets for a bust of biblical proportions once the market manipulation known as quantitative easing finally ends. Any individual investors currently being semi-officially ushered in to the stock market given the lack of credible alternatives by way of deposits or government bonds may have cause, in the fullness of time, to ask precisely whose wealth all this unprecedented monetary support has actually protected. Probably not their own, as we may yet see.

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