The Globe: What Niall Ferguson thinks now
Here is The Globe’s second interview with Niall Ferguson. He shares some interesting thoughts about destabilisation – both monetary and socially, and the road ahead.
There’s nothing like a long-running equity rally, a return to something resembling normalcy in the credit world and fresh signs of economic recovery to lift the gloom of a dreary late November day.
Sure, there are still occasional rough waters. Take last week, when weaker than expected U.S. housing stats, a downbeat profit report, downgrades in tech land and yet another warning from an inflation-fearing central banker reminded jittery investors it’s not only free-spending governments that need a sound exit strategy. Tomorrow, we’ll undoubtedly hear that U.S. consumers are still suffering from a shortage of confidence, which tends to happen when jobless rates keep rising.
But for all of that, the optimists are looking for firming economic numbers, healthier corporate earnings and continuing evidence that risk will be properly rewarded in the months ahead.
“A strong tape, corporate [bond] yields still falling, sentiment not showing extreme optimism and low inflation are a pretty bullish signal,” veteran U.S. strategist Ned Davis told a bunch of investment advisers in Florida recently. “At this point in time we don’t have any evidence that the cyclical bull market is over.”
Far be it from me to rain on that parade. I’ll leave that task to one of the world’s best known and least cuddly of doom-and-gloom bears – Harvard University financial historian Niall Ferguson.
“ The stock market rally has been largely due to near-zero interest rates and a weaker dollar. In foreign currency terms there’s been no rally.”
“I don’t think it’s possible to infer from the stock market rally anything resembling a sustained recovery,” the peripatetic professor says in an e-mail exchange. He rightly notes that at least half (and probably much more) of the third-quarter U.S. economic growth of 3.5 per cent stemmed from one-off government measures and that the consumer remains tapped out.
“The stock market rally has been largely due to near-zero interest rates and a weaker dollar. In foreign currency terms there’s been no rally.”
It was last February, just two weeks before global stock markets began their remarkable eight-month ascent from the depths, when Prof. Ferguson famously told The Globe and Mail: “There will be blood, in the sense that a crisis of this magnitude is bound to increase political as well as economic [conflict]. It is bound to destabilize some countries. It will cause civil wars to break out that have been dormant. It will topple governments that were moderate and bring in governments that are extreme.”
Has the long market rally and the apparent success of unprecedented government interventions around the world caused him to change his grim prophecy?
“I wasn’t saying there would be blood in the streets of Toronto, remember. My first point was that the crisis would likely destabilize about a dozen relatively weak states and that this ‘axis of upheaval’ would become more violent.
“The other point I had in mind was that, after previous big financial crises, insecure governments have been tempted to rattle sabres for the sake of promoting their own domestic legitimacy. My prime suspect here is Russia, which, of all the big powers, stands to gain the most from geopolitical instability, since (for example) a major attack on Iranian nuclear installations would double the price of oil and greatly enrich the denizens of the Kremlin. The probability of such a war is currently being underestimated by many people.”
“ Over a five-year time frame, the [U.S.] dollar is likely to weaken some more, inflation is likely to pick up after another year or two of pretty low prices and long-term interest rates could move up sooner than that, in anticipation of a revival of inflation. Add, say, 50 to 150 basis points to the … 10-year treasury yield and the effect could be quite painful for the economy as a whole.”
Prof. Ferguson, whose most recent timely best-seller, The Ascent of Money, is now out in paperback, does some hedge-fund advising on these big global themes.
He claims no expertise as a market forecaster. But when coaxed, the historian in him comes out.
“The most we can say, drawing on what we know about past financial crises, is that over a five-year time frame, the [U.S.] dollar is likely to weaken some more, inflation is likely to pick up after another year or two of pretty low prices and long-term interest rates could move up sooner than that, in anticipation of a revival of inflation. Add, say, 50 to 150 basis points to the … 10-year treasury yield and the effect could be quite painful for the economy as a whole.”
He puts his money where his sentiments lie.
“I am out of U.S. stocks and currently have a modest cash pile,” he says. “The commodity and stock market rally since March looks to me to be coming to an end. I am genuinely not sure what happens next.
“Having narrowly avoided a Great Depression by using massive fiscal and monetary stimulus, we are now in uncharted waters.”
Popularity: 3% [?]
Niall Ferguson: Beforehand; my humblest apologies. I am neither an academic or expert on Economics (having only read two books; The End of Poverty and History of Economics from ancient times to present), but a non academic historian, I hope you accept my brutal honesty. You are either a fool or a liar. The social economic fiasco we face from the international bankster parasites on the true holistic production and consumption economy is a magnificently orchestrated affair including the 2.5 trillion unaccounted swash buckling highway robbery of the American public. Things are not going to get ultimately better, but worse. Either much worse further on unless the US government can foment more war or if the US public goes ballistic; as they appear to, causing the political and manipulated finance machine to fear them and thus fall somewhat in line with a touch of ethics. I´ll waist no more of my time going into pre-Jackall Island, banksters manifesto, behind the central banks, Swiss clearing houses, the elite financiers and history of insider trading and finance manipulation as you well know 80% of global wealth is controlled by a small group. A new economical philosophy and application is required. So in conclusion; aside from the occasional damn interesting short video analysis, I sign off with other people´s words whom are more likely to be taken seriously.
“One way or another we will have world government. The question is whether it will be by consent or by conquest.” – James Paul Warburg, co-author of the Federal Reserve act.
“I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation then deflation, the banks and corporations that will grow up around the banks will deprive the people of all property until their children wakeup homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people to whom it properly belongs.” -Thomas Jefferson.
“The powers of financial capitalism had a far-reaching plan, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole.” – Caroll Quigley. Author of Tragedy & Hope.
“We are on the verge of a global transformation. All we need is the right major crisis and the nations will accept the New World Order.” -David Rockefeller.
“When the IMF and the World Bank force a country to cut wages, lay off workers, produce for export instead of their own people, and sell off public property to cronies for less than its value, that’s called ‘economic reform’.”
“An economist is a man who states the obvious in terms of the incomprehensible.” – Alfred A. Knopf.
“The study of money, above all other fields in economics, is one in which complexity is used to disguise truth or to evade truth, not to reveal it. The process by which banks create money is so simple the mind is repelled. With something so important, a deeper mystery seems only decent.” – John Kenneth Galbraith.
“An economist is an expert who will know tomorrow why the things he predicted yesterday didn’t happen today.” – Laurence J. Peter.