Editor's letter: Peaks, troughs and Alka-Seltzers

So, as 2011 draws to a close. And as it does, I look back over my start at TFR. Since I began in August I have been racking my brains looking for metaphors to describe a volatile market characterised by uncertainty and unpredictability. In September I encountered a careering moose and probably got away with it.

Peaks, troughs and Alka-Seltzers

So, as 2011 draws to a close. And as it does, I look back over my start at TFR. Since I began in August I have been racking my brains looking for metaphors to describe a volatile market characterised by uncertainty and unpredictability. In September I encountered a careering moose and probably got away with it.

But now let me simply refer you to the article by Rollo Tomasi, who sits in the pantheon of commodity gurus and who gives a commodity-by-commodity summary on page 23 of what happened this year. Events have been heady and troughy enough to send you tottering towards the medicine cabinet and your private Alka-Seltzer hoard.

The prospect of a euro-meltdown has already cast a distinct winter chill on the appetite of European banks for new LC business. For example, BHP Billiton’s CEO Marius Koppers helpfully observed – from the security of the mining giant’s US-dollar denominated trade exposures –: “We really started seeing the European conditions impacting, for example, trade finance, availability of LCs (letters of credit) and so on.”

But the real worry is the ‘balancing’ effect of Asian economic growth as Western economies look as if they have run their course. As Chinese growth continues to slow we worry once again about “Asian decoupling” and we fear that if China slows further it will add to global gloom and woes. See the Asia supplement accompanying this issue. Is the new landscape less about commodity fundamentals (supply and demand) and more about macroeconomics and politics?

Former UK chancellor Norman Lamont touched on this at the recent Newton Investment Management (part of BNY Mellon) annual update. Just before I caught up with him at lunch he said, “I always believed the euro would not work”, explaining that single interest rates for a continent with different economies was fatally flawed.

“I always thought the euro would break up but I gave it a timescale of 20 to 25 years as that historically how long most currency unions have lasted”, he predicted.  However, it was his point that the euro was born out of political determination to “anchor German firmly in Europe and to see there could never again be a war between France and Germany”, which underlined its fragility. A week, as we know, is a long time in politics.

News out as I write is that 23 trade associations have written to the BIS to lobby for a different treatment for trade finance under Basel III. Surely they need to re-examine the Basel regime? Debt mountains are high, countries are in trouble and trade is the only way out. Let’s hope that action is taken to soothe the burden of regulation, to stabilise markets, and the cure our indigestion arising from excessive volatility – if it isn’t your hoard of Alka-Seltzers may run out…and we will all be left with an even bigger headache.