Well, neither has worked. We have a contraction in lending and little, if any, slimming of government.
Investors do appear to be reacting sensibly to corporate news announcements and recently I have I refocused my attention on equity markets that continue to scale new heights.
In fact, most of the significant risers this calendar year have been driven by their own news flow rather than in response to political announcements. This is an important and very positive step for markets. It is worth remembering that this ascending path began in July last year, following comments by ECB President, Mario Draghi that the ECB would do whatever it takes to protect the euro zone from collapse.
It is therefore essential for us to remain up to speed with the thought processes from the policy makers and not let our guard down.
If we have reached the point where fundamentals will drive markets for the foreseeable future, it does pose the question, should we fundamentally alter our investment strategy?
A move to focus away from sentiment driven markets, swinging between risk on or risk off, would imply that investors believe that the worst is behind us and that we may well see recovery in the not too distant future. My thoughts are that this does indeed force us to take a different approach.
As I keep suggesting, the market does appear to be capable of absorbing certain negative items of news such as an Italian election, nuclear testing in North Korea and weakening of UK’s credit rating.
For me the biggest risks, in no particular order, are a cessation of fiscal stimulus in the USA, severe currency weakness and a rising issue with the French bond market. Each of these has the capacity to take us back to square one.
In the meantime I hope that other governments are watching the example being set by the Americans and more recently the Japanese.
The US, which has been instrumental in helping markets to find some renewed confidence, has found itself at a similar point to where the Japanese were in 1997.
Just as Japan seemed to be showing signs of recovery, the Hashimoto government decided to tighten fiscal policy in a bid to repay debt.
These steps ultimately destroyed any chance of recovery and have played a significant part in Japan’s so called ‘lost years’.
The US is now similarly positioned with debate ongoing regarding the fiscal cliff. As I have argued a number of times before, monetary policy alone will not cure the current malaise.
We also need fiscal stimulus and structural reforms, and a relaxation of any will result in relapse. Only when recovery is definitely re-established can policy makers take their foot off the pedal.
In regards to taking a different approach, growth will be sought and a premium paid. We must however distinguish between growth in earnings, which has been delivered by many companies in recent years, but often due to relentless cost cutting, and genuine growth in turnover, which is what I mean in this case.
If it is possible to find ‘unique assets’, these too will be essential. Genus is a good example, though there are many others.
These points can combine if we find structurally strong areas such as online gaming, IT security or new payment technologies.
Another change of greater significance, would involve taking a more positive attitude towards companies with debt.
This would be especially so if inflation were to make a comeback, the ideal in such a world would be a stock with fixed rate debt, assets, some structural protection and some growth – pub companies!
I am sure there are a host of other places to invest in such an inflationary environment – water stocks, house builders, PFI assets, companies with a negative cash cycle, niche operators and so on.
FE Alpha Manager Leigh Himsworth's CF Eden UK Opportunities was launched in September 2011 and has made 31.29 per cent since then, marginally outperforming its IMA UK All Companies sector average.
Performance of fund versus sector since launch
Source: FE Analytics
He used to run mid-cap portfolios for Royal London and Franklin Templeton, and UK-focused funds for Gartmore.