The positive headlines are clear, the EU is finally on the road to recovery after years in the doldrums. This news follows the publication of the latest EU sentiment survey today, which shows optimism at its highest level since August 2007.
Source: EC/EU Click/tap to Enlarge
It’s so clear.
The good news is obvious. Look back and the last time sentiment was this high was August 2007 although it wasn’t then quite as high as early 2000, while at the beginning of 2011 it nearly reached a similar peak.
That looks really lovely…….well if you are suffering from severe myopia. Lets briefly look back at the chart’s story.
Yes back in early 2000 as the Tech Boom lunacy was starting to roll over into an epic Bear market and slowing global economy, sentiment peaked out before, well, falling rapidly.
August 2007 was just a month before Northern Rock, when the implications of the developing credit crunch suddenly became unavoidable, after which sentiment kinda plummeted. Before plummeting some more.
The peak of early 2011 followed the mad and highly instructive “reflationary” ramp post the announcement of and introduction of QE2 in 2010. As we have regularly pointed out this period witnessed inflation of all assets and commodities almost simultaneously, driving up cost price inflation, deflating real incomes globally and nearly tipped the world back into recession.
But, like today, the reappearance of inflation fooled the credulous (so the Central Bankers, Politicians, City bods and Wall Streeters…you know the overpaid numpties who got us here and haven’t been correct about, well, anything important macro economically for over a decade) into thinking recovery was here, to the point the ECB actually raised rates in 2011 just in time to see markets fall out of bed in August of that year.
Meanwhile as shares fell dramatically in 2011 as fresh crises erupted globally long term government interest rates fell sharply to levels where they have since remained nailed firmly to the floor to avoid further calamity.
And what has this low interest rate hangover from 2008 and 2011 done to the world?
Yep, that’s correct. It’s encouraged an even more insane debt build up than we had already experienced,as the latest figures from the the Institute of International Finance show clearly:
Source: IIF Click/Tap to Enlarge
All this for distinctly subpar growth and ever more risk linked to any rise in interest rates.
So let’s look back up at that first chart again.
Put simply EU sentiment peaks out just as each boom proves itself spent, or in the case of 2011 simply a mass delusion.
Additionally, as with all EU data, the figures are massively skewed by Germany, which is basically a third of the EU economy and is frankly has been having a pretty good time recently. Indeed drilling through the underlying survey data it was interesting to see that German sentiment continued to climb, while Italian had gone nowhere.
Nonetheless the happy clappy outlook was echoed by an upbeat(ish) sounding Mario Draghi earlier this week, which resulted in the Euro rallying strongly. As a result of this unnamed ECB officials poured cold water on the optimism, probably as the Germans screeched about how they like a weak euro for their export industry.
However Mario hasn’t been listening and continued to sound mildly optimistic, which has left the Euro looking really rather robust:
Source: Bloomberg Click/Tap to Enlarge
Now in reality Draghi’s optimism may actually be part of what appears to be a concentrated bubble deflation exercise by Central Banks who finally appear to have had a Damascian conversion to see the blindingly obvious consequences of their collective idiocy (more of which soon).
However bearing in mind the track record of the EU sentient indicator at calling tops this strength in the Euro may be exactly the last thing Europe needs right now.