Radio Show Notes: Fischer, ECB, dollar, gold & Chinese markets
A random walk. We are very worried about Prof. Fischer resigning. Expect more ECB garble. The dollar remains soft whilst Euro-yields rise. Gold rises off the back of a soft dollar, and keep buying the Mainland and HK markets!
1. Stanley Fischer. That this erudite MIT scholar is leaving the Fed is deeply worrying: he is pro-strong bank regulation, which Trump wants to obliterate. So by elbowing Fischer out, Trump is setting the stage for an horrendous re-run of 2007/8.
1. 2. The European Central Bank (ECB) meets today: can we expect any fireworks? è No!
a. Weaker inflation. With the ever-strengthening Euro, inflation is going to be contained even more. That’s because Europeans need to spend less Euros per dollar, so down go import prices.
b. Policy implication. Europe’s Economic Time® is just find: there is an excess supply of money and an excess demand for goods. Thus, growth will remain strong for the next couple of quarters on a cyclical basis. With strong, non-flationary growth, the ECB can start to taper its bond purchases of €60 bn/ month.
c. Effects of less bond purchases. The key point is that if the Central Bank gets less bonds, it
i. Gives less money into the system, thereby fractionally reducing Europe’s excess supply of money, and
ii. Stops driving up the price of bonds, thereby lowering yields. Instead, expect Eurobond yields to rise marginaly.
iii. Investment implications
1. A stronger Euro. With Eurobond yields rising, expect the Euro to strengthen even
more, up from its current USD 1.19/€
to say USD 1.35/€
2. Stronger Euro stock markets. With foreign money pouring into Eurobonds, Europe’s excess supply of money rises even more, so there is even more spare cash around that can be parked into Europe’s sparkling stock market.
2. 3. Why does the dollar keep wilting? è Its insurance value has plunged
a. The “good old days”. In “the good old days” (BTW: when did these ever exist?), geopolitical military tension led to purchases of safe haven assets, namely the dollar, the Swiss Franc and gold
b. Paradigm-quake. That paradigm has changed: who is more dangerous – Kim Jong-Un or Donald Trump? They are both rambunctious bullies.
c. Adieu dollar safe haven. Rambunctious Don has gutted the insurance value of his mighty dollar – putting in to some doubt “In god we trust – but cash is better”
d. Investment implication. A weaker dollar means that non-dollar investors in US assets lose-out on the currency front. So you should be buying US assets that have strong overseas earnings…..
3. Whither gold? è Keep buying!
a. New paradigm. The more recent trade has been: a weaker dollar begets stronger gold prices, as non-dollar investors are having to buy less dollars per unit of gold.
b. Investment implication. Keep buying gold as a safe haven during the jousting of these two rambunctious bullies – Kaiser Kim Jong Un and Kaiser Don. As these school boy bullies will keep jousting on the geopolitical playground in order to deflect from their respective domestic messes, then expect gold to rise from its current $1,337 / ounce to about $1,600/ ounce on a one year view
5. 4 Do we keep buying the mainland’s and thus Hong Kong’s stock markets? è yes!
a. China’s good Economic Time®. China’s Economic Clock® has been ticking more cheerily for some months, indicating an
i. Excess supply of money and thus an
ii. Excess demand for goods (witness her voracious appetite for metals, for instance!)
b. The Hong Kong derivative. We are the water skier off the back of the Chinese speed boat. Where China goes, we go.
c. A promising party congress. The 19th party congress starts on Wednesday, 18th October. It will be a success because President Xi will announce his consolidated power base, meaning that leadership at the top will remain united in its vision and execution.
d. Investment implications.
i. Keep buying the mainland and Hong Kong markets, in particular tech and consumer cyclicals and infrastructure plays.
ii. Defence plays are important, given our rambunctious North Korean school boy bully, and also throw in some industrial metals e.g. copper.
DISCLAIMER: THIS BLOG DOES NOT PROVIDE INVESTMENT ADVICE
The information, including but not limited to, text, graphics, images and other material contained on this blog are for informational purposes only and do not necessarily reflect the views or Enzio von Pfeil. The purpose of this blog is to promote broader understanding, knowledge and awareness of various financial and economic topics. It is not intended to be a substitute for regulated professional investment advice. Always seek the advice of your a regulated investment advisor with any questions you may have regarding your specific investment needs or concerns.
Enzio von Pfeil does not recommend or endorse any strategies or ideas mentioned in this blog. Reliance on any information appearing in this blog is solely at your own risk.
IT IS IMPORTANT THAT YOU READ, UNDERSTAND, AND AGREE TO BE BOUND BY THESE TERMS WHEN VIEWING, READING OR OBSERVING ANY INFORMATION, DATA OR ANY OTHER FORM OF COMMUNICATION ON THIS BLOG:
Any information provided to you by us, including any promotional material such as photographs, written descriptions, any plans or models, any income estimates or projections (“Information”) have been provided to us by other sources and although we aim to perform due diligence on all information we provide to our Blog subscribers, the Information is provided for general purposes only, we cannot guarantee the accuracy of the Information and we do not make any representations, either express or implied, as to the accuracy as to the Information. We recommend that our Blog subscribers undertake their own due diligence in relation to the asset they are considering purchasing, including seeking independent legal and financial advice in relation to their own financial objectives and personal circumstances, prior to signing any agreement or contract with any third parties.
No representation or warranty is given as to the accuracy, likelihood of achievement or reasonableness of any figures, forecasts, prospects or returns (if any) contained in the message. Such figures, forecasts, prospects or returns are by their nature subject to significant uncertainties and contingencies. The assumptions and parameters used by www.enziovonpfeil.com (evp.com) are not the only ones that might reasonably have been selected and therefore evp.com does not guarantee the sequence, accuracy, completeness or timeliness of the information provided herein. None of evp.com, its members or any of their employees or directors shall be held liable, in any way, for any claims, mistakes, errors or otherwise arising out of or in connection with the content of any form of communication, documentation included in the Blog, via e-mail or any other form of communication.
You are reminded that the content is for personal use and general information only. Under no circumstances is the content intended for and hence the content should not be regarded as an offer or solicitation or recommendation to dispose/sell, an offer or solicitation or recommendation to subscribe in, nor an offer or solicitation or recommendation to buy/acquire and under no circumstances should the content be constituted as provision of any recommendation or investment advice on any securities, investment products, investment arrangements and any other form of investments or legal, tax or other professional advice and therefore should not be relied upon in that regard for making any decision. Unless specifically stated, neither the information nor any opinion contained herein constitutes as an advertisement, an invitation, a solicitation, a recommendation or advice to buy or sell any products, services, securities, futures, options, other financial instruments or provide any investment advice or service by evp.com.
Unless stated otherwise, any opinions or views expressed in this communication may not represent those of evp.com. Opinions or views expressed in this communication may differ from those of other departments or third parties, including any opinions or views expressed in any research issued by evp.com.
Any e-mail and any accompanying attachments are not encrypted and cannot be guaranteed to be secure, complete or error-free as electronic communications may be intercepted, corrupted, lost, destroyed, delayed or incomplete, and/or may contain viruses. EvP.com, therefore, does not accept any liability for any interception, corruption, loss, destruction, incompleteness, viruses, errors, omissions or delays in relation to this electronic communication. If verification is required please request a hard-copy version. Electronic communications carried within the evp.com system may be monitored. Any communication or message in email form or otherwise may contain confidential information. Any use, dissemination, distribution or reproduction of the relevant information outside the original recipients of any messages is strictly prohibited. If you receive a message by mistake, please notify the sender by reply email immediately and permanently delete the emails and its contents. Unless otherwise stated, any communication provided is solely for information purposes only.