Monday, December 5, 2016

December 2016 market commentary

I am assuming that all of you must feel a certain Trump election victory fatigue. Still, since so many of you asked me about Mr. Trump and his future policies I wanted to share with you an article by Edward Chancellor about the election, which reflects almost entirely my views on the topic. Chancellor refers repeatedly to the economist Mancur Olson, whose book The Rise and Decline of Nations, (published in 1982) I have read several times. Mr Chancellor is well-known for his economic-historical book Devil Take the Hindmost: A History of Financial Speculation (1999).

Chancellor concludes that, “at heart, Olson was an optimist: ‘it takes an enormous amount of stupid policies or bad or unstable institutions to prevent economic development.’ If - and that’s a big IF - Trump were to succeed in assaulting the ‘growth-retarding’ forces within American society, he could well end up surprising his legions of right-thinking critics.”

I am far less optimistic because as Noah Smith of Bloomberg writes, Even Trump Is a Keynesian. Furthermore, the stock bulls believe that stocks will move up while bonds will continue to weaken. However, higher interest rates would have a negative impact on the auto and housing sector, on commercial real estate, as well as on corporate earnings. Hence higher rates could more than offset any potential benefit of expansionary fiscal policies.

In other words, stock market bulls and bond bears may overlook the fact that higher interest rates seem to be incompatible with a strengthening highly leveraged US economy.

Wednesday, November 30, 2016

US Dollar is overbought and overvalued

The US market is not quite as strong as the indices would suggest because CNBC said the other day, 90 percent of the S&P gain since December 2014 came from Facebook, Google, Amazon, Netflix. There has been a lot of selling in the emerging economies stocks since 2011. This year most emerging economies have outperformed the US.

I think that in 2017 my recommendation would be to overweight emerging economies, and I would also overweight Europe, partly because I think that the sentiment about the U.S. dollar is far too optimistic. I think the dollar is terribly overbought and overvalued, so I wouldn't get into the U.S. dollar at this time.

Watch the video below for full interview

Monday, November 14, 2016

Under Trump, TPP is off the table

The obvious trade with a Trump victory is to own Russian and Kazakhstan assets — bonds and equities. That is the obvious trade for the simple reason that Mr. Trump has a more benign view of the world and respects the perspective of foreign leaders.

In the U.S. we have a fully priced stock market ... the large bargain you can find is in emerging markets in my opinion.

Monday, November 7, 2016

Evils of government are directly proportional to the tolerance of the people

Our friend Sydney Williams states that, “Across the globe, men and women have begun to stand up against elites who control government, unions, banks and large businesses. People have grown weary of the lies, the corruption and the self-dealing. Brexit in England was manifestation of this unrest, as was the Republican nomination of Donald Trump in the United States.” 

Peggy Noonan writes in the Wall Street Journal that, “Those in power see people at the bottom as aliens whose bizarre emotions they must try to manage” and that, “This is about distance, and detachment, and a kind of historic decoupling between the top and the bottom in the West that did not, in more moderate recent times, exist.”

For several years now, I have been reading my friend Jawad Mian’s Stray Reflections. This is not to say that I agree with everything he says, but over the years I enjoyed his views on markets (frequently very contrarian) and his thoughts on life. In The Forgotten Man, Jawad addresses the same concerns Williams and Noonan brought up, but from an economic and financial perspective. 

I wish all my readers a wonderful festive season. I also wish that my American readers vote wisely because as Plato observed that, “The price of apathy towards public affairs is to be ruled by evil men” and as Frank Kent opined that, “The evils of government are directly proportional to the tolerance of the people.”

Thursday, November 3, 2016

A recession in the West would not be such a bad thing

It's not politically correct to say it, but for the social system of the Western world and for capitalism a serious recession would be desirable, because the financial sector as a percentage of the economy is still too big.

In 1973 when I came to Asia everybody said that if the US sneezes, then Asia catches a cold, because all Asia's exports went to the US.