Monday, January 30, 2017

US travel ban issued by Trump will affect US Dollars and US Stocks negatively in the long term

As we go into 2017 the consensus is interest rates will go up, you want to be long US stocks and overweight US Dollars. But I think, but its also about the travel ban and protectionism.... But protectionism, I guarantee you, is not going to be good for the U.S. That for sure not.

The US has a trade and current account deficit today. That is not an issue today. The world has a huge supply of US Dollar floating around. Sometimes the global liquidity gets tighter but in general the US Dollar position and assets in the US depend on one factor - confidence of foreigners investing in USA. What if I'm a foreigner and I see a travel ban. So the private citizens, they see a travel ban on Muslims. Anyone with any brains will think what if tomorrow there is a travel ban on the Chinese and I own a property in the US or I own assets in the US and I can't access assets in the US. So I think this travel ban, psychologically, will have a very negative impact in the long run on the U.S. dollar and U.S. assets.

Number two, protectionism, I just came back from Mexico, the price level is now unbelievably low. So a lot of countries  Turkey, Mexico but even in Asia because of the depreciation of the currency against the US Dollar, they have become quite reasonable in price.

Tuesday, January 24, 2017

Rising rates could jeopardize the stock market rally

This year some markets have vastly outperformed the US, such as Brazil, Russia, Kazakhstan, Thailand, Indonesia, Pakistan and so forth......

Monday, January 23, 2017

Market Sentiment - Extreme optimism on stocks and pessimism on Bonds

If you look at the valuation of stocks, they’re high. If you look at the valuation of the U.S. dollar, it is high.

There is a lot of liquidity in the world and I believe that whatever you think, the liquidity will move into precious metals and precious metal stocks in the next three to six months. So I would be long gold shares, silver shares, platinum shares and their underlying. I also think the sentiment is much too optimistic about stocks and far too pessimistic in bonds. I would buy as a trade Treasury Bonds in the US.

Wednesday, January 11, 2017

US Stock markets and Reversion to the mean

I would like to say that when the market embarked on bull market in 1991, interest rates say on treasuries were still around 8-9% and we had a big correction in 1987 whereby the valuations of stocks in 1990 were not particularly high. Valuations of US stocks today are very high.

Also in the 1980's, do not forget the US market had significantly under-performed emerging economies in particularly Japan. The Japanese markets was the story of the 1980's. By early 1990's, the market in the US was relatively inexpensive compared to stock markets overseas but this is not the case at the present time.

If you look at that figures or charts that go back 30 years. the US market has never been this expensive compared to other markets in the world then it is now and I believe whether you are contrarian or not, eventually there is a reversion to the mean.

I believe the stock market in the US will either go down more than emerging markets because we are in a global bear market or emerging economies stock markets will go up more than the US if the super bulls are right. But we have very strong headwinds.

One of the headwinds is obviously if the economy strengthens a lot, I think that consumer price inflationary pressures will come up and that interest rates will go up. Once the 10 years yield goes to around 3%, the stock market will notice and those stocks will face this headwind of rising interest rates.

Secondly, do not forget if the US dollar is strong, it means that foreign earnings of American companies are translated into dollars in the US and so the earnings of multinationals will suffer. Also, if the US dollar is very strong , it is a symptom that global liquidity is tightening and when the dollar is very strong, usually stocks do not perform particularly well.

Monday, January 9, 2017

Three investment views for 2017

I have essentially three views. First off all, the US economy is like a supertanker or a sailboat. It is not easy to turn it around and come back to where you have been in terms of prosperity. In general, Mr Trump’s policies will fail to lift economic growth rates significantly.

US stocks, compared to emerging markets or European companies or Japanese stocks, are significantly ahead of themselves. In 2017, emerging markets will outperform the US or by going up substantially more than the US. So I would essentially avoid the US and rather invest in emerging economies....

The second view I have is that recently investors have been obsessed with growth in the United States and with interest rates going up because the Fed has said that they would essentially increase the Fed fund rates three times this year but in the US, the treasury bond market is grossly oversold and for the next three months, we can have a rebound in US treasuries. Short-term and long term interest rates in the US are going to ease again in the next three months. You could get the 5% to 10% upside move in US treasuries.

The third view I have is the whole world seems to think that the only way the US dollar can go is upward. I doubt this is to be the case. First of all, if you have a strong dollar, the trade deficit in the US and the current account deficit are likely to weaken as well as the economy. So, within the next three to six months or even already now, the US dollar has become rather vulnerable against foreign currencies. I would rather be short on the US dollar in 2017 than go long.

If I look at the sentiment of investors towards precious metals, it is actually puzzling because gold is up against the US dollar and gold shares were up on an average of 60 to 80% in 2016. But despite this performance, investors are very bearish about gold and gold shares. I would accumulate or recommend to accumulate precious metals stocks and the physical in 2017.

Tuesday, January 3, 2017

Various factors drive asset market prices

Robert Hutchins who in 1929, at the age of 30, was named president of the University of Chicago thought that, “My idea of education is to unsettle the minds of the young and inflame their intellects.”

Hutchins’ idea that education should unsettle the mind and inflame the intellect – in essence arise the students’ curiosity – is spot on.

I believe that economists and investors should be curious about everything because even though they may regard some issues to be irrelevant for their investment decisions, factors such as geography, history, tradition, religion, history, psychology, law, social structures, etc. may have an impact on the economy and on asset markets. 

Similarly, Robert Skidelsky, Professor Emeritus of Political Economy at Warwick University and a fellow of the British Academy in history and economics writes:

“What unites the great economists ….. is a broad education and outlook. This gives them access to many different ways of understanding the economy. The giants of earlier generations knew a lot of things besides economics. Keynes graduated in mathematics, but was steeped in the classics (and studied economics for less than a year before starting to teach it). Schumpeter got his PhD in law; Hayek’s were in law and political science, and he also studied philosophy, psychology, and brain anatomy.

Today’s professional economists, by contrast, have studied almost nothing but economics. They don’t even read the classics of their own discipline. Economic history comes, if at all, from data sets. Philosophy, which could teach them about the limits of the economic method, is a closed book. Mathematics, demanding and seductive, has monopolized their mental horizons. The economists are the idiots savants of our time”