Emerging South

 The currency exchange markets are entering in one of their most volatile periode ever known in history.  We had meetings with our bankers last week and the premium you pay for a Non Deliverable Option (NDO) for 3, 6 and 12 months are at record highs.  Foir the EUR/BRL you will pay a 15,95% premium for an NDO !  Imagine what you can do in such a market when you have brains...The spread for strikes in a non delivereable zero-cost tunnel is also aburdly wide.

Personally I have very bit questions about the absurd low intrest policies of the Fed, ECb and BoE.  Everyone with some brains in his/her head knows that will be facing super inflation in 2, 3 years from here.  Why would any person/company then take the risk during this short period of Quantitative Easing to take investment risks when your risk will pay off, inflation will hit full force again.  Willem Buiter wrote an excellent piece on this in the Financial Times this weekend.  This is why we will be heading for a lost decade of stagnation, whatever the central banks will do (and they are now at the end of their story with these bottom rates).

Which is why 2009 will offer a very strong real estate opportunity; at least in countries with a housing deficit (read: not Flanders).  2009 will allow you to buy in at deflationary prices; you can develop at artificially low construction prices (steel, cement,... have all plumetted in price) and real estate is the best insurance for the inflation storm ahead.  But at all cost: don't apply this theory in Western Europe. 

As Carlo Resta wrote in his excellent article on RGE on the future roles of central banks:
"To perform their fundamental function of establishing financial stability, Central Banks will have to recur to a new kind of active presence. “Perimeter of Regulation” was the past. In the post crisis world, and in the transition period as well, Monetary Authorities will have to be out in the marketplace to properly interpret their role in a new global order. They will engage in new functions, to effectively gain key information with important market players and engaging them in a process of cooperation and exchange, restoring confidence, financial markets soundness and achieving global governance.

The new world will seal a radical change that is taking place in the evolution of the global economy and of the political order. The emerging economies will play a crescent role and a bipolar era will open to a multi-polar one. To properly solve the equation of balance and growth in the future, the variables to be solved will be a multiple to include the growing economies. Central Banks are now challenged in a different way and new targeted exchanges, key information gathering and global coordination are necessary. The first G-20 summit on Financial Markets and the World Economy that took place last month in Washington is a confirmation of the need for a new Central Banks presence. That the world authorities had a sense of fear and they showed up with a strong response is a positive thing. The world has changed and so the role of Monetary Authority. The near and long term challenges are really of difficult and unprecedented nature. Yet, in an ever interconnected world each of us has an interest that the unbalances be resolved."

If only Belgian politicians would have a clue of the real nature of the challenges ahead.