Start of the New Year and new decade prompts us, once again, to move away from mundane things and take a bird fly over the entire investment domain. Our recent trip to the US showed, once again, that most Americans live in the "greenhouse reality”, and, despite certain "light” unemployment worries among those who still get their paychecks, buzzword "Tea Party” is being pronounced by the mass media way more often than words "crisis” or "QE2”. Most Americans surely owe at least naming their pets after Ben Bernanke for this astonishingly cozy and almost worriless way of living. While wholesale prices demonstrate sustainable hike globally, retail prices in the US remain firmly under control – largely thanks to the microscopic credit rates.
Apparently, there are certain symbolic things, such as abundance of available food and social comfort (minorities, handicapped and otherwise deprived), that the US Government would never sacrifice under circumstances of even the heaviest severity. As a result, the more signs of looming worldwide inflation appear (ECB on Thursday hinted at possible change of his fiscal policy priorities, once inflation in the Eurozone gets unchained, while Friday’s German CPI surprised by hefty 1% hike in December, proving ECB meant business) the more pressure the Fed would face to sponsor low retail prices on top of his nowadays noble preoccupation of sponsoring low Treasury yields. It may sound as a joke, but the superpower status of the US Fed allows it to (at least temporarily) keep inflation under control by actually pumping more money into economy. Food prices in the US will stay subdued as long as low credit rate factor outweighs the factor of globally rising commodities. Additionally, US dollar will see little pressure as long as instability of the European debt markets persists, making the euro look relatively unattractive. We bet that even incase ECB dares to hike the key rate ahead of Fed going forward, dollar bulls would still thrive by escalating the PIGS debt factor in the mass media. Only concerted accord of China and Japan to the rescue of the shaky eurodebt market, along with bold tightening moves of ECB will finally unsettle the safe haven fans. That said, the greatest economic equation of the 2011 maybe evaluation of likelihood that the Chinese with their immense currency reserves strike a deal with ECB vowing to support the troubled European debt market in exchange of the latter promising the Celestial Empire to ease its pressure to strengthen yuan. In our opinion, such a Deal of the Year looks all but unlikely, especially since the China’s authorities recently repeatedly outlined their desire to live in a "bireserve currencies” world.
Looking locally, traditional Russian post-New Year inflation came out with a fat escort this time. Unlike in the previous years, retail food prices spiked simultaneously with well-anticipated transport tariffs and utilities, producing a sledge hammer effect on domestic consumers. It doesn’t take to conduct long surveys to notice nearly ubiquitous abandonment of non-essential products by the shoppers. Household incomes will be spent largely on food, energy and transport this year. This means our sector priorities will mostly cover retail, food processing, energy (particularly, coal bearing in mind aftermaths of the Australian floods), metals and, maybe, telecoms (short of cellular providers struggling to shrug off the roaming rate swindler stigma assigned to them by the Russia’s antimonopoly watchdog recently) at expense of general chemicals, petrochemicals, cement, construction and the likes where we anticipate noticeable evaporation of domestic sales margins this year.