One certainty about life, in addition to Keynes' death and taxes, is that everything changes. And no more so than in the financial environment. For a while everybody was fixated by the problems surrounding the US, then Greece, then concern moved to the PIGS, oh, and let's not forget Europe's banks. In between, we've had to worry about China and whether its economy would crash-land or have a soft landing, as economists like to say.
After months of watching Europe repeatedly march towards the cliff face only to pull back at the last moment, it's now the fiscal cliff in the US that is the source of current uncertainty. Morgan Stanley's Joachim Fels has attracted some attention with his latest Sunday Start piece entitled What Next in the Global Economy.
He observes that China's economy appears to have stabilised. In addition to being the official view in Beijing, it also received some "bottom-up support" from the cautious optimism expressed by the 270 companies and 1,800 investors that turned up to Morgan Stanley's 11th Annual Asia Pacific Summit recently.
He says Europe "rightly or wrongly" is no longer seen as a systemic risk as a result of the European Central Bank's backstop. However, "… many investors have now turned to the US fiscal cliff as the next big thing that could get in the way", adding that the most likely scenario for that is "a patch with a promise followed by a plan".
Somewhat alarmingly, he says the economy may "have to go over the cliff first before the patch is put in place". This is the risk, he says, that equity markets have started to focus on in the last few days. While President Obama will shortly set about trying to hammer out a compromise, Fels says, "I won't be holding my breath."