Suffering from crisis fatigue as summer simmers

Given the palpable sense of ennui that led up to Ben Bernanke's underwhelming Jackson Hole spiel on Friday afternoon, you can forgive the investment world for remaining in uneasy stasis.

After all, it's summer in the northern hemisphere and there isn't a soul out there who isn't suffering from crisis fatigue. Daily volumes on the New York Stock Exchange are something like 40% off their peak and 20% lower than more normal August patterns.

Nobody really expected the Fed chief to announce a new round of bond-buying, mainly because the markets haven't collapsed since the last cash injection and most players can at least still feel a lingering sense of desperate hope.

It was an open secret that quantitative easing was intended to buoy asset prices and so induce the "wealth effect" - giving investors the illusion that their fortunes weren't based on a flimsy set of paper promises.

The resulting kick of confidence would fuel a renewed spate of bank lending, corporate expansion, and consumer spending. Not everybody agrees that this is what has happened - indeed, there are many who think the current mood of lassitude is very dangerous, when the slightest bad news could set off an almighty bout of profit-taking and a proper market crash.

It goes without saying that South Africans have to take a keen interest in America's fate. These days the correlation between developing-world stocks, bonds, currencies and commodities, and benchmark US indices, is tighter than ever. When the US hiccups, we feel the whiplash.

Two of the biggest worries facing the US (apart from unemployment, which is a global time bomb) concern debt - specifically that held by municipalities and students. Both issues have pertinence for us in South Africa.

Municipal debt (and in plenty of cases, especially in California, rank insolvency) was first red-flagged by US analyst Meredith Whitney. She was quoted extensively by Michael Lewis in Boomerang (if you don't feel like buying the book, you can read the essays for free on Vanity Fair's website).

When municipal finances go bad, not so much through berserk spending but drained by civil-service entitlements and under-funded liabilities like pension funds, it doesn't take long to infect state and even federal purses. Much like the old Smokin' Joe Frazier truism, "kill the body and the head will die", the US is rotting from the bottom up.

The second nagging horror comes in the form of an exponential rise in the cost of college (university) education. Assuming graduates even get jobs, they will spend at least 10 years of their working life under a shadow of debt.

This, say the prophets of doom, bodes very ill for future consumption - and any guts for risk-taking at all - from the generation that will already have to hump along under the collective debts of the retiring baby-boomers.

In the short term, one can understand why financial markets are in the doldrums. Frankly, they're just plain exhausted. And jaded as they are, they know that when the vacation's over there's likely to be more misery to come.

The wonderful website watkykjy.co.za has a word for this kind of situation: vaktap.