Unless the US Federal Reserve starts implementing fundamental policies soon, the world faces a real currency war that may reverse globalisation & wreak economic chaos on us all.
By now, it’s an old story: Central banks are engaged in “currency wars” competitively devaluing their own currencies to steal global trade from their neighbours – at least, if you believe the mainstream media, which makes a living selling fear and anxiety in a time of difficult global transition. For years, I’ve argued against such a juvenile assessment, which is an affront to the painful economic lessons of the 20th century. But recent actions by the US Federal Reserve make currency war an ever increasing threat to global economic stability. Here is why. Continue reading
Europeans seem to view Brits as an irascible nuisance. Proud but pragmatic individuals ready to do whatever it takes to get their own way, and doggedly resistant to the common interest. Perhaps even a modern-day Trojan horse within the EU for the purpose of destroying it. For their part Brits see Europeans as obsessed with imposing their definition of common interest, unwilling to accept dissent or disagreement. Both sides are probably wrong, the European view of Britain certainly is.
The UK population today is less proud of its colonial history than of its 20th century actions, where it sacrificed its global dominance to twice save Europe from utter catastrophe. The UK is far more affectionate toward Europe than Continue reading
Once again, the time has come and Fed Chair Janet Yellen will be subjecting herself to the role of political football for a marathon session of naive and pointless questions. On the off-chance that few US parliamentarians might want to actually add value, this year I have just one question I’d like to hear the answer to: Continue reading
Well, the year has had a lively kick off. An ugly one for investors. In fact, the worst in history, from what I hear and see. These bouts of market chaos remind me of the media commentators talking about how policies have benefitted wealthier investing classes disproportionately. Where is that chat now? When markets go up, it’s the rich that gain. When they go down, I guess it’s those pension funds that lose out.
But, where are we going? Why? Is there a light in the tunnel? Yes. Continue reading
What keeps you awake at night?
Black swans, my finance-teaching friend is fond of saying, don’t exist. I entirely agree. Hollywood’s latest offering, “The Big Short” does a healthy job of disproving the theory of Nassim Taleb, which surged to notoriety as a result of being published in the midst of the worst financial crisis for generations.
Taleb is a smart chap, and a great contributor to financial theory. I am a great fan of his stance that there is no such thing as skill in the world of finance, just luck. Each year, out of many managers, a small group will get it right, among them a smaller group will get it right year-after-year. This doesn’t infer skill or talent. It infers a run of good luck, that may or may not hold out. The world is simply way too complicated for anyone to effectively analyse all the relevant parameters to predict the future consistently.
At any time, Taleb argues, there is any number of unforecastable events that might derail an otherwise sound investment thesis. In essence this is true. But in reality, the market brings together a broad plethora of opinions: one man’s black swan is another man’s profit driver. As the Big Short proved. So, this post is not about black swans. It is a more humble summary of what keeps me awake as we start 2016. Financial markets have just reported their worst start to the year on record, so there is obviously plenty to worry about, and as always, much of it is interlinked. Let’s dive in! Continue reading
“There should be plenty of high fives going around the Federal Reserve Building this afternoon.” CNBC’s Jim Carey (Cramer) was pretty pleased as the market ended the day at highs, despite experiencing the first rate hike since 2006, and the first start to a hiking cycle since 2004.
Jim always has an opinion to hand, and last night was no exception. Indeed there was a sense of relief among investors after a nervous session saw FX and equity markets ponder for an hour or so before settling into comfortable bullish patterns. That said, it was likely too early for high-fiving and I would hope the Federal Reserve still has its champagne on ice, Continue reading
Most of the world now accepts that the FOMC will hike rates at its next meeting. And many seem to have moved the discussion onto the path of rate hikes more than the timing of that first hike. This is a good thing.
But the market is still broadly divided over the potential impact of a hike. Far be it for me to argue with Jeffrey Gundlach, who yesterday said that rate hikes would cause real carnage in the high yield bond market, but: Continue reading
The commentary I read strongly expects Draghi to lead expectations on increased QE today. Core inflation is reasonably stable, and economic dynamics are still improving. I remember when ECB QE started, and there was a huge debate about whether or not they would find enough bonds to buy. I can’t get my head around this expectation for more QE. I can’t believe the Bundesbank is going to sanction it.
Then again I didn’t expect Draghi to even hint at it before, and he seemed to. If he does then he’s surely expecting the euro needs help against a Fed that won’t hike. But the Euro’s been resilient, and I wonder what it has priced-in. Usually I have an idea, but since the Fed blundered last month, it’s hard to know.
The same debate also exists about Japan, where the expectation is for QE to ratchet up again this month, even whilst the BoJ is actively talking up its positive impact on the economy…
I was recently asked what keeps me awake at night, from an investment standpoint. The question is pertinent, because there are so many major issues evolving at the current time. It doesn’t surprise me that corporate investment is low, and macro numbers struggle to find top gear, because there are so many causes of concern. (And thus, I would suggest, the solution is not so-called People’s QE, which has failed spectacularly in every instance, but a concerted global effort to resolve these overhanging concerns.) The below list is not in any particular order. Continue reading
The Fed has kept the veil of uncertainty over markets and I guess we’ll all pay the price.
I find pundits’ arguments that the FOMC can ignore global conditions to be inane. However, yesterday’s decision was nuts. At least I thought they would make an effort “package” a no-hike decision more convincingly. Continue reading