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It was Burns & Mitchell (1946) who tried to measure the economic cycles. Today there are four broad classifications of business cycles as follows:

• Kitchin cycle (3 – 5 years) – The rate at which businesses build up their inventories
• Juglar cycle (7 – 11 years) – Related to Investment flows into Capital such as factories and other capital means of production
• Kuznets cycle (15 – 25 years) – Period between booms in corporate or governmental spending on large scale Infrastructure projects, such as rail, roads, etc.
• Kondratiev wave / cycle (45 – 60 years) – The ‘super-cycle’ referring to the phases of capitalism.  Crises such as the Great Depression and the current Financial & Sovereign Debt driven contraction.

But the Information Age has undermined these cycles? Or only undermined our understanding of these cycles?  That is the key distinction we need to draw.

Are there any longer-term term cycles, which are beginning to contract with advances in Technology.

The Dark Ages (lets say from the collapse of the Roman Empire) until the enlightenment lasted around 1,000 years.  The Enlightenment (approximately 1650s) through to the First Industrial Revolution (from mid 1700’s to mid 1800s) lasted around 200 years.  The Second Industrial Revolution (driven by electricity from around mid 1800s) lasted another 100 years.

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The Third Industrial Revolution, or rather the Digital Revolution is the COMPUTER or DIGITAL AGE.

However, interesting this brief synopsis of economic history is, the actual relevant issue is recognising the length of the TRANSITION period between these ‘Leapfrog’ Technological advances.

We are not very good (yet) at recognising, never mind managing these tectonic shifts in the economic landscape.

Is this were we found ourselves today?

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theMarketSoul ©2012 

Related articles

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• Robert Allen: The British Industrial Revolution in Global Perspective (delong.typepad.com)
• The jobless digital revolution (japantimes.co.jp)

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Digging a bit deeper today, we would like to compare those charts to cliff edges. We trust that the sentiment of the article is that we perceive Central Banks across the globe fretting about the ‘New Money’ we were referring to.  With general economic confidence waning and the outlook for a sustainable long-term solution to sovereign over (indulgence) spending fading, the landscape is looking very bleak at moment.

New money will have to be printed (Quantitative Easing or QE) if investors in the capital markets cannot be found to bear the burden of purchasing new Bond and Treasury issues.

Image via Wikipedia

Some headlines over the few weeks alluded to Bond auctions in Portugal, Italy and Spain being well supported (see related article at the bottom of this post), but these were not major refunding and roll-over exercises.  Greece is continuing to be a welcome distraction for politicians and Central Bankers in both taking investor’s eye off the bigger problems coming along the line in Q2 2012 and in winning time to hopefully come up with a credible longer-term plan to reduce debt levels and then return to growth.

Auction Calendars

Let’s take a look at some of the crucial Sovereign Debt auctions coming up in the next few months:

The link below provides a time table schedule issued by the US Treasury for T-Bills, T-Notes, T-Bonds and TIPS, for at least the next six months.

US T-Bill Auctions schedule

To get the equivalent Eurozone calendar is not so easy. (Partly because each individual country issues Bonds, as there is no Central Eurozone issuer of Bonds, but at least a central purchaser, namely the ECB – European Central Bank)

Image via Wikipedia

We are currently investigating sources of information for Eurozone Sovereign Debt Bond auctions and will return to this theme in very near future.

theMarketSoul ©2012

Related articles

• Italian Debt Auction Sends Yields Tumbling: What Investors Need to Know (fool.com)
• Investors eye European bond auctions (bbc.co.uk)
• Successful debt auctions give boost to Spain and Italy (independent.co.uk)
• Italy borrowing rates drop again in bond auction (newsok.com)
• Italy sells more bonds as Greece struggles with debt (ctv.ca)
• Italian Debt Auction Sends Yields Tumbling: What Investors Need to Know (dailyfinance.com)
• Stock Market To Cast Confidence Vote On Eurozone Monday After Disastrous German Debt Auction (jhaines6.wordpress.com)
• Italy’s borrowing costs tumble after debt auction (guardian.co.uk)
• S&P cuts French rating to AA, hurting eurozone confidence (ctv.ca)
• Eurozone faces tough hurdles early in 2012 (sfgate.com)
• EU Faces Debt Hurdles Early in 2012 (abcnews.go.com)
• The road ahead for the struggling eurozone economy (oregonlive.com)
• Eurozone faces tough hurdles early in 2012 (seattletimes.nwsource.com)
• The eurozone’s borrowing costs may stay lethally high (bbc.co.uk)
• Buba’s Jens Weidmann Voted Against ECB’s Decision To Undermine The Sovereign Bond Market (zerohedge.com)
• Eurozone will pivot on Italy in 2012 (cbc.ca)
• Eurozone faces tough hurdles early in 2012 (ctv.ca)
• Stock Market Plunges On German Debt Concerns (huffingtonpost.com)

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Today’s brief analysis of US Treasury Yield curves and the Debt profiles of both the USA and Italy highlights the enduring question in the title of this post.

The first graphic highlights one important issue.  We chose 2 August 2011 versus 17 February 2012 as key dates to compare the US Treasury Yield curve.  If we cast our minds back to 2 August 2012 two key facts emerge:

1. This was the D-Day of the US Debt Ceiling vote
2. The US still had a Triple A credit rating

The key take-away from the Yield Curve comparison is that even with a ratings downgrade, the US is actually able to borrow new capital at a lower rate of interest 6 months on.

However, to pour a bit of realism into the analysis, we highlight two interesting Debt profile graphics below.

The first one is the USA Treasury Maturity curve (admittedly 6 months out of date), highlighting when the current debt will need to be redeemed or rolled over.  The second is the Italian Bond Maturity curve.  You will notice just how similar the USA and Italy Debt Maturity profiles are.

From this comparison, the critical question currently for us is:

Where will all the new money come from to roll over the debt maturing during the next 3 – 12 months?  QE is one option, but investors still need to be convinced that their capital is safe and relatively risk-free.  It is the Risk-free equation (or investor risk appetites) that needs to be explored in more detail.

theMarketSoul ©2012

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• Raymond James Weekly Bond Market Commentary (learnbonds.com)
• The Fed’s Undistinguished Macro Discussions Circa Jan 2006 (wallstreetpit.com)
• S&P on Italy: Borrowing is Going to Be Tough for a While (blogs.wsj.com)
• Not Making Sense Of The Economy (lezgetreal.com)
• The Italian Yield Curve Vs The Euro Basis Swap (zerohedge.com)
• Bond Report: Treasurys stay down after 10-year auction (marketwatch.com)
• Bill Gross Exposes “The New Paranormal” In Which “The Financial Markets And Global Economies Are At Great Risk” (zerohedge.com)
• Are western central banks having an existential crisis? (ftalphaville.ft.com)
• Vickers: Italy’s Debt Looks More Sustainable (businessweek.com)
• PIMCO’s Bill Gross’ New Bet On Treasuries: Roll Down The Yield Curve (forbes.com)

Doing business anywhere, anytime is never easy!

That is a stark commercial reality, that most business people will accept as a given.  But how? now? does is work in a climate of AUSTERITY???

(Apologies for the blatant confusion and poetic licence taken in the previous sentence).

Public and private sectors mostly have an uneasy symbiotic relationship with each other.  If the public sector cannot deliver a solution, they have to procure it from a private provider and a private provider (generally, but not always) rub their hands with glee, as it is relatively speaking ‘easy money’ provided you meet and exceed certain framework thresholds.

All nice and cosy, when we are in a growth cycle of the economy; yet ever so tricky when those Framework Procurement Agreements come up for tender during the down slope side of the cycle…

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It is odd how the ‘staccato’ relationship between private and public sectors work at different periods during the business cycle.  And this is exactly where the public sector, with an astute “commercial hat” on, can take advantage of it’s perceived negotiating strength during the down cycle agreement drafting / tendering process.

Yet, do they take advantage of this? 

Our view is that any Public Sector Procurement Framework Agreement with private sector providers will always be a FLOOR, thereby setting the minimum expectations and requirements, without ever really driving proper continuous INNOVATION and COMPETITIVE DYNAMICS to ensure players with ‘skin in the game’ continue to understand and manage their businesses with the proper risk attitude (never mind risk appetite).  Rather than act as a (“floor price”) barrier to entry, they should act as ceiling, or rather more ‘bluish sky’ REACH or STRETCH agreements, setting the rules of the game, but not acting as the default pricing mechanism , meaning that the private sector provider must continue to be innovative, rather than wait and ‘cream-off’ the best bits whilst seeing out the agreement time period until the next time anyone bothers to ‘tamper with the height’ of the limbo bar…

Our summary take away from this article:

The Public Sector Procurement Framework Agreement therefore should act as an incentive to compete and have fair access, but never as the default pricing mechanism.

Community and Public Sector Union Pledge Signing 20th August 2010 (Photo credit: Senator Kate Lundy)

theMarketSoul ©2012

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• Unemployment likely to worsen as private sector resorts to redundancies (guardian.co.uk)
• UK | Public sector workers ‘would sacrifice pensions for private sector security’ (skillsinfo.wordpress.com)
• IMF’s Lagarde: Equilibrium between private and public sector in Greek debt negotiation is a “concerning question” (forexlive.com)
• Pension gap increases between private and public sector (moneyexpert.com)

Reblogged from theMarketSoul ©1999 – 2012:

Risk has as one of its essential elements TRUST as a foundation. Trust on the other hand has many other factors that interplay and interact on it. Markets are created when there are needs that are not immediately met from you local environment and therefore scarcity exists.  Market participants step in to fill this ‘needs’ void. As for any subset of Risk, either Operational, Market, Liquidity, Interest, etc. a big part of the assessment process it not just about looking inward and assessing the risk …

Some thoughts on Risk Management we uttered in mid 2010 and the ‘anti-growth’ bias too much RISK Management can create, if not applied in a more measured and consistent way…Let us not stifle INNOVATION & Growth any longer, but focus on VALUE creation

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It cannot purely be a difference of political ideology between the leaders and individual nations of European that has lead us to the brink of the Euro abyss.  But, yet maybe the way the debate and challenges facing Europe are being framed, has a great part to play in it.

Europe always seemed to be a halfway house between cultures, trade, ideologies, beliefs and norms.  And the fact that the Euro single currency zone was stitched together based on these ‘halfway house’ ideas should therefore not have been a surprise.

How long does it take to build a vision?  Or rather, why did Europe take so long to get to the chasm, build a rickety Monetary Union bridge, without firming up the foundations that holds together the infrastructure once the traffic crossing that bridge started increasing in volume?

If there is something Trade theory should have taught us, it must be that once opportunity (to trade and create wealth) is established, the trickle would eventually turn to a steady stream and the steady stream to an eventual throng.  Yet not one European leader or institution foresaw this?  Takes us full circle to the original question, namely: “How long does it take to build a VISION?”

Image by kevindean via Flickr

The truth might lie somewhere in the nature, establishment and deep rooted psyches of the Europeans themselves.  Europe might be the collective noun; yet staunch nation state individualism (the communities we all hunker after) is the actual bedrock and foundation of the people who live in Europe.  Unlike the USA, with a common language, full monetary and federal fiscal union, Europe is and will always remain a loosely led together community (but not a collective) of nation states and peoples.

Fairness, freedom, equality and openness, some of the most fundamental tenets of a market and community to function properly, are not necessarily on the agendas when ideological political, rather than economic (for the greater good), issues are considered by both politicians, technocrats and bureaucrats in the institutions and fabric at the heart of a (dis)United Europe.

Therefore, until and unless we can prize Europeans from there deeply held ‘national interest’ debates and frames of reference, in terms of establishing a common and united front; we feel that there is no hope of sustainably solving the Euro-zone sovereign debt and monetary union problems.

A possible mechanism might have to be the establishment of a ‘fourth branch’ of governance, outside the Executive, Legislature and Judiciary, being an outside force or rather an Adjudicator comprised of non dominant  European member countries and quite possibly with an Advisory Board consisting of non Europeans themselves, to allow for the establishment of a fair, free and an open implementation of the Legislature’s policy decisions, hence and overseer of the Executive, but an equal to the Judiciary, with a final veto by the citizenry of Europe themselves, as a balancing mechanism, should a stalemate ever arise.

The enabling driver of such an European Adjudicator must surely be the Digital Economy with its various platforms and reach extending now and in the future across the ‘Net’ that is European integration.

theMarketSoul ©2012

Related articles

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• “Euro Zone Crisis is Germany’s Fault” (twistedeconotwist.wordpress.com)
• Euro zone jobless hits highest level since birth of euro – Reuters (reuters.com)

The themes of this article are:

• Taxation
• Collaboration

The USA

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The only great point of interest was the State of the Union address by President Barack Obama.  Again as a liberal statist the theme of taxation and MORE taxation to come down the road for the ‘more’ well-off in society raised its ugly [spectre] head again.

Europe

Image by President of the European Council via Flickr

Oh dear! Let us think very hard about something positive to reflect on this month during the kick-off to 2012…

Enough said.  Unfortunately the Eurozone crises (yes, several on different fronts) are still dragging on.

We see yet again how difficult it is to undo a few decades worth of the nation state experiments in Europe and bring everyone together under the guide of collaboration, but with no formal overall governance framework in place.  The Eurozone crisis, as well as being one of sovereign over indulgence, is also one of a twisted underground power struggle between the European traditional heavy weights.

But, alas, it is all politics in the end and with Standard and Poor and Fitch getting on the downgrade bandwagon during the month, angering politically challenged politicians like Monsieur Sarkozy (French presidential elections coming up in April and May 2012 [two rounds scheduled, if necessary]).

The Middle East

Image by barnoid via Flickr

One matter of interest raised during a panel discussion on the BBC programme DateLine London on 28/01/2012 regarding the tension in the Straits of Hormuz, by Adbel Bari Atwan, is the fact that the entire Iranian issue around nuclear armament is a ‘manufactured’ threat by the USA and Europe. True, with Pakistan, India, Israel, China and Russia being nuclear enabled nations in the region, what difference will one more nation make to this perilous equation?  Perception seems to be everything, both in the discourse and actions taken in reshaping the Geo-political order of the post ‘Arabian spring’ Middle East.

Please, just keep collaborating in OPEC; pumping the Black Gold and thus keeping prices lower and stable, for the sake of a stable Global Economy!

theMarketSoul ©2012

Related articles

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• Brussels takes control of taxation and spending in eurozone countries (telegraph.co.uk)
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• Middle East Presidential Advisor To Four Presidents Bruce Riedel: Iran Is Not an Existential Threat to Israel or the United States! (politicalvelcraft.org)
• What Eurozone Crisis? (ritholtz.com)
• Report: US to Send “Mothership” to Middle East – Voice of America (blog) (blogs.voanews.com)
• Eurozone crisis: ratings agency downgrades nine countries (newstatesman.com)

It is with a little amusement that we scanned through the Economic headlines today, following Standard & Poor’s decision to finally downgrade France’s and other Eurozone nation’s Sovereign Debt rating.  France lost its prestigious triple A (AAA) grade to AA+.

Sarkozy and French anger?  Indeed!

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But the problem is timing as far as Mr Sarkozy is concerned.  This is a Presidential election year in France, so this comes as a slight humiliation to Mr Sarkozy.  And so it should be! He should be shamed out of office! Therefore, hopefully S&P’s decision will  help the voters and tax payers of France sit up and realise that incompetent leadership and decision making in the Eurozone economies now urgently needs to be ‘punished’.

Thank you S&P, for taking this action, because the actions (or rather inaction) of the Eurozone bureaucracy and leadership so far in addressing the root causes of the multiple crises, is continuing to drag the global recovery off course.

Decisions to circumvent exiting (inadequate) European Institutional frameworks and pulling the wool over European Citizens eyes over the inadequate administrative burdens the bureaucrats have imposed on its Citizenry must finally come to an end.

Image by slolee via Flickr

Hopefully, we’ll see some slightly more competent new faces in the Eurozone leadership pool and summit photo call line ups very soon… Innovation in Europe might have to start with a new set of leaders?

Image via Wikipedia

theMarketSoul ©2012

Related articles

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• It’s Official: S&p Announces Mass Downgrade of Eurozone Countries (tarpon.wordpress.com)
• France to pursue reforms after downgrade (thehindu.com)
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• Credit rating slashed, France promises reforms (csmonitor.com)

We decided to summarise our learning from 2011 into two brief thoughts:

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1. The pains and strains of the economic sovereign debt melt-down in 2011, should stand us in good stead to deal with even more debt and sovereign strain in 2012, as More and Bigger Europe continue to miss the point; this being that more bureaucracy and more government and regulation will not get the INNOVATION engine started again to Recapitalise Europe!
   

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2. Translational differences will matter.  The CLOUD is a huge business and business model transformation opportunity.  IT ‘Geekery’ and language could scupper this potential opportunity and we need to develop more ‘CLOUD TRANSLATION’ services so that a broader community and eco-system can get involved in an aspect of “INNOVATION ignition” in 2012.

Image by Bill Strong via Flickr

All the best and good luck in 2012.

theMarketSoul ©2011

Related articles

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• Europe sovereign debt crisis: A lot of bad ideas, a few good ones. (livinginpp.wordpress.com)
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• Aaron Hing: In a debt-swamped world investment caution is key (nzherald.co.nz)

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Therefore, as we become more contemplative during this time, let’s reflect on our Core Values, both personal and organisational, and identify the gaps or misalignment between these two key areas of our daily existence.

Then start listing or rather prioritise these gaps and only focus on the one of two of the most feasibly achievable misaligned Core Values and develop a plan or incorporate it into your New Year’s resolutions.

If the gap requires coaching or input from people or personal development providers, do something as soon as possible to diarise or follow-up.

Image by m-c via Flickr

Look at utilising some common reminder tools we have available; pen and paper, notes or your mobile device, calendar reminders, or even new Cloud services and Apps, etc. in order to assist your “Oh Yes!” reminder moments later, should now not be the right or appropriate time or place to do something about the Core Value alignment activities you need to take.

Image by rorowe8 via Flickr

…Turning 2012 into Positive Opportunity…

theMarketSoul ©2011

Innovation

Our article on ‘Recapitalising Europe’ kicked off the discussion around Innovation. It appears that the leaders of Europe (a summary of Angela Merckel defending the Brittish position – see this link) have cottoned on to Innovation as a driver of value, because as the Today programme on Radio 4 reported on Wednesday 14 December 2011; the Czech president stated today, as the details of the agreement slowly start to trickle out, the agreement 26 ‘insider’ European countries signed up to early on Friday morning (minus Brittain), is ‘nothing but a blank sheet of paper’.

Image by Alex Osterwalder via Flickr

Fantastic we say, this is exactly where innovation can begin; not building crooked structures on the existing legacy of half baked institutional solutions, however, starting with fresh new ideas. Something European leaders will find an unfamiliar exercise.

Fear, Uncertainty and Doubt (a great big FUDge).

It is amazing to observe some of the conversations by pundits, stakeholders and other interested parties on the supposed damage this veto has done to Britains standing in Europe. And our brief analysis on this is that the commentators are mostly all adding to the FUDge factor of sowing fear, uncertainty and doubt in the minds of the general public, in order to NOT address the fundamental issues, but rather play the old politically and ideologically motivated games of CONFUSING the argument.

Caveat (beware) the public, the answers are more complex and interwoven than the fuzzy analysis and explanations offered to us at the moment…

Image by palestrina55 via Flickr

Finally

It is worth remembering that the crisis or rather series of crises over the Euro is not over yet.  The work has merely begun to try to save the common currency.  The fall out and potential consequences is discussed in an article by Bruce Crumley in “As the Crisis Refuses to Calm, Scenarios of Euro Collapse Appear”

Read more: http://globalspin.blogs.time.com/2011/12/13/as-the-crisis-refuses-to-calm-scenarios-of-euro-collapse-appear/#ixzz1gaJfc1QN

theMarketSoul ©2011

Related articles

• Recapitalising Europe (themarketsoul.com)
• More and Bigger Europe…Is that what we really want? (themarketsoul.com)
• More and Bigger Europe – Part 2 – It is MORE… (themarketsoul.com)
• East Europe balks at helping indebted richer West (seattlepi.com)

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We pick up from the introductory article by expanding on the issue of MORE Europe, which we did not cover in enough depth.

More Europe

It is without a shadow of doubt that belonging to an enlarged common market has huge beneficial advantages to all its participants.

However, the question of the Cost / Benefit analysis dynamics is never really explored in more detail. Perhaps it is easier to focus on just one or the other of the two interlinked dynamics, but for it to be a balanced appraisal; we need to focus on the interactions of both COST and BENEFITS.

And when the leaders of Europe cannot tell anymore what the difference is between a COST and a BENEFIT of being in a single currency Eurozone, then what chance do the rest of us have? Is our COST the misplaced belief that leaders will make decisions in our best interest that will BENEFIT us in the long run?

But if the COST is the lesson of Moral Hazard, why have they not learnt yet that working towards an orderly default is better than raiding the futures of millions of current and future taxpayers in Europe. The COST of an uncompetitive and stagnating Europe (which has been brewing and developing for a few decades now), is that we have lost the ‘child like’ curiosity of inventing and innovating our why towards sustainable economic development and growth.

Rather than embrace the opportunity to learn from the younger cultural of the Eastern European and Baltic States integration onto Europe, we are in danger of smothering their youthful exuberance with a bureaucratic Welfare State super-state, with a healthy dose of Welfare and Debt dependency for decades to come.

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No-one is saying that the transition will be painless, but it seems that most leaders in Europe have forgotten to keep an eye on both the COST and BENEFIT dynamics. Except for the brave decision made by David Cameron on Friday morning.

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Veto the madness and risk what some call isolation, but we here at theMarketSoul call the grasp for our economic sanity.

We can still be part of a common market and then there is still a Common Wealth to leverage, should both the EU and the USA decide to marginalise Britain on the international stage, as some commentators are fearing.

Maybe a true third balancing force and alliance will help us move out of the doldrums of the CRISES of 2008 – 2011 (and quite possibly beyond).

theMarketSoul ©2011

Related articles

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• Robert Reich: The Remarkable Political Stupidity of the Street (huffingtonpost.com)
• The Remarkable Political Stupidity of the Street (robertreich.org)
• Lessons From Europe (krugman.blogs.nytimes.com)

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Yes, it will be more bureaucracy and bigger financial problems down the line…

We pick up our analysis this week in the dusky glint of the aftermath of the (latest) EU Leader summit to put together a rescue package for the Euro.

More bureaucracy?

The inspiration for this comes for the ‘people pulling the wagon versus the people in the wagon’ analogy utilised by Dan Mitchell of International Liberty.

In an article we wrote earlier this year we very clearly called for INNOVATION as an engine of growth in Europe, yet all the politicians and bureaucrats can deliver are bigger EU institutions, hence, more and more people piling into the wagon!  Aren’t some of us getting not just tired of pulling the wagon, but frustrated and exhausted too.   Are these not some of the ingredients necessary to breed and incubate extremism?

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Bigger financial problems?

In another of our earlier articles we mentioned the dangers of Moral Hazard.  By not addressing the fundamental problems of big bureaucracy (we are in danger of starting a circular argument here), debt accumulation, regulatory stifling, the ‘EFFICIENCY’ drive will permanently drive INNOVATION (and hence future growth) out of Europe.  Let’s face it, if it was not for the expansion of the EU towards the vigour of the Eastern and Baltic states, there would be no growth and opportunity and Europe would not be an attractive place to do business.

Europe’s maturity (and risk averse cultural norms) are now so engrained and an anchor and drag on innovation that attracting Foreign Direct Investment (FDI) (and purchasers of sovereign debt) will come more and more of a challenge in future.

The brave thing to do, in our opinion, was to stand up for a fragmented Europe, as David Cameron was prepared to do, because to be lead blindly down the alley, just to be beaten and bruised by the rest of Europe, would not only be folly, but a disaster for Britain.

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Only time will tell, but the Eurozone and sovereign debt crisis has dominated the headlines for long enough, and will continue to do so for some time to come…

theMarketSoul ©2011

Related articles

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• No IMF aid for eurozone: Canada (business.financialpost.com)
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• WAIT! Is Europe About To Do ‘The Single Worst Thing It Can Do’? (businessinsider.com)
• Canada urges EU to carry own debt, refuses to help IMF plea (vancouversun.com)

Adding further value to our conversation on The Market eQuation we introduce the concept of the:

RISKed RETURN on MARKET (RdROM) today on 11.11.11.

RISKed RETURN on MARKET adds a counter balance to the Efficient Market Hypothesis and Rational Market Theory, Black Scholes and CAPM, amongst others.

More detail to follow in due course…

theMarketSoul ©2011