Bloomberg TV: the Fed and Horse Buggy Repair Manuals


Wednesday, July 26, 2017 // Written by Enzio von Pfeil
All central banks are trying to move forward by squinting into their rear-view mirrors. Market implications.

  1. Fed preview: decision due the next day. No change expected but what are your thoughts on the Fed movements this year? Latest speech from Yellen seems not so hawkish on a rate hike. What about the balance sheet?.     
    • Yellen turning out to be a fence-sitter, just like Theresa May-Be
    • The Fed is basing it decision-making by driving with a rear-view mirror
    • The Fed is trying to repair a Tesla with a horse buggy manual

 

  1. Other central banks: ECB exit on QE? BOJ not keen to follow normalization?     
    • The ECB and BoJ are equally at fault, driving with rear-view mirrors/repairing Teslas with horse buggy manuals
    • Contrary to America’s cyclical recovery, Europe’s welfare museum and Japan’s ossified labour markets are stuck in securlar decline. This means that even if there is a cyclical upturn, it will be “deeply shallow”

 

  1. Views on the Asian markets and economies in 2H; what are your top investment themes?
    • The key one has to be to start buying in to China.  Economic Time® improving, esp. ahead of the 19th Party Congress.
    • This means that HK is a buy, too: we are the water skier off the back of the Chinese speed boat!

 

  1. Any contrarian view?     
    • My  big contrarian view has to be that the Fed risks policy overshoot: given its anachronistic lens through which it view the economy, it very much risks raising real rates too much in the States. These very well could choke-off America’s brittle “clicks instead of bricks” consumer recovery.
    • Markets will sense this imminent slowdown and crash 4Q17-1Q18.
  1. Anything you wish to flag for discussion?    
    • The key to America has to be her  brittle consumer recovery.
    • Consumption is important in that it accounts for about ¾ of any economy’s growth.
    • But “clicks are replacing bricks”: online shoppers already account for 10% of consumption and are attacking the well being of physical dept. stores and thus of shopping malls . 
    • This means that the traditional multiplier effects of private consumption are waning, removing yet another plank to US growth….

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