The Day of the G20 Jackal

The global recovery is still painfully slow. Low growth means we need (further) stimulus. The low interest-rate environment creates easy money (for those who are connected). Easy money supports asset prices and encourages risk taking. Take risks and asset prices increase. Increased asset prices create growth...

Stop!

Growth, as we all know, stems from job creation, not from well-connected central-bank players pushing liquidity around in ever-decreasing circles. And that makes for a pretty depressing picture if we look at banking system, where the commercial banks are lending to two groups: the well connected and the Fed.

It is no wonder the 50% rally has its detractors (the loudest, admittedly, those left standing at the station, ticket in hand, as the train whizzed by on the north-bound track). This one really has been feast or famine.

For those looking for credit to grow the economy, it is tough going, and with shoes still to drop in the credit-card and commercial property arenas, things are not looking at all good, as confirmed by the statements emerging from the G20/IMF meeting in Scotland over the weekend. Increased liquidity and rising asset prices off low growth created the last bubble. And it should not go unnoticed that global business cycles are taking far less time to travel from trough to peak to trough again.

So, the investor sits back and gets a slightly uneasy feeling about where it will all end and for how long they should front-run the Fed and G20 central bankers.

Rising asset prices create bubbles if not backed by fundamental top-line growth. Asset bubbles require tighter monetary policy. Tighter monetary policies hamper fundamental growth. So, make hay while the sun shines, because the rising tide that floats all boats can sometimes go out a lot quicker than it came in.

Just as well nobody mentioned the U.S. administration's "strong-dollar policy" at the weekend. Who is standing behind that little chestnut now? A weak dollar will help the U.S. recovery, but at considerable cost to established overseas economies, who will have to battle against the demons of higher commodity prices that have nothing to do with supply and demand.

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Marco Hague is one of the founders and principals of The London Forex Broadsheet (commonly known as TheLFB), a global forex trader portal with headquarters in the U.S. Hague began his career with the Bank of England dealing with foreign exchange control, and he has been trading for the last three decades. He has been involved with institutional risk asset ratio analysis and the implementation and maintenance of institutional trade desks globally.