What is the endgame for this autumn in financial markets?

Having just finished reading through the excellent ‘Endgame: the end of the debt supercycle and how it changes everything’ by John Mauldin and Jonathan Tepper it is interesting to immediately apply its conclusions to the outlook for this autumn.

A full review of this seminal work will appear in the next issue of ArabianMoney, the only independent investment newsletter published in the Middle East (subscribe here) and we will examine in depth the regional and national investment implications.

Brinkmanship

If you wanted to sum up the outlook for this autumn it has to be brinkmanship and crisis management. No political leader comes close to understanding what needs to be done, or perhaps they simply are too bogged down in daily crises to read Maudlin’s book.

He essentially concludes that a 60-year build up of debt imploded in the global financial crisis three years ago and has only been increased since then by government actions. For some nations there is a way out without another much bigger crisis, for others the debt levels are just too big.

The problem is that you cannot judge the exact timing of when it is impossible to kick this can down the road any longer. All you can do in assessing that can is examine the relative size of the problem in different countries and come to a conclusion about their relative vulnerability.

On this score Maudlin is surprisingly optimistic about the US so long as it gets to grips with tackling the problem soon. He offers less comfort for Japan ‘a bug in search of a windshield’, less surprisingly Greece and parts of Eastern Europe, and the most indebted of all is the United Kingdom. Even Australia has a house price inflation time-bomb about to undo its two decades without a recession.

Listening to the man himself in Vancouver late last month ArabianMoney knows he thinks Europe is the place to watch for the next stage in the crisis, with the US rather powerless on the sidelines.

Tough PIIGS

The bond market showdown with the PIIGS of southern Europe plus Ireland is the obvious denouement. But Mauldin reminds us of the situation in Eastern Europe where Austria is painfully exposed to another potential debt implosion.

You get the sense reading this book that we are tip-toeing through a minefield of potential debt implosions, some with the capacity to undermine the entire global financial system. Unfortunately that is the nature of the beast. You can delicately sidestep these issues for years and then quite suddenly they blow up in your face.

That makes it hard to predict the endgame for this autumn but it ought to make any investor very cautious. The September edition of the ArabianMoney will have a 3,000 word review of Endgame (subscibe here).