The current financial age

There have been a number of key descriptors of the current market. With the shifts and turns in the global financial markets, there have been an ever increasing number of names for this troubled period. 

We have called this the AGE OF UNCERTAINTY given the high volatility coupled with the growing unknowns about policy and economic data. We have also characterized this period as a COMMENTARY MARKET where the opinions of policy-makers or comments about policy initiatives have been the driver of market action. 

This period can also be called the AGE OF AUSTERITY based on the slow growth in developed countries. The gap between potential and actual output has not been closed since the start of this recovery. The developed markets seem to be in a state of lethargic behavior. 

We feel the key problem is the confusion between an environment focused on liquidity or solvency. If this is a liquidity problem, central banks can solve. If these are solvency problems, we are in for the long-term austerity environment.  If we have both, governments could be driven to a set of choices which are extremely dangerous. 

However, the largest problem for the period could be the descriptor of Reinhart and Sbrancia, the new AGE OF FINANCIAL REPRESSION. This age could be classified through the following three key environmental signals:

• Explicit or indirect caps or ceilings on interest rates
• Creation of adaptive domestic audience that facilitates credit to the government 
• Direct ownership of the banks

It is a financial repression age which will be the greatest market scare.