Monday, February 27, 2017

Markets going up is not always a bullish signal

Well we are very overbought, but I'd like to put things into perspective. Whereas Trump has said he will make America great again. So far this year numerous markets have done very well, Mexico, Brazil. In Asia we have many markets up 10 percent and more. So I think the question of Asset Allocators ... the big question for 2017 is what will perform relatively well - Emerging Markets, Europe or US. I think if you look at the valuations of the US and all the super bulls, they may be right and the market continues to go up. The market also continued to go up between December 1999 and March 2000 and gave back five years of advance. 

So when the market goes up doesn't make me particularly bullish when the valuations are out of sync.

Sell off will be like an Avalanche

As the market goes down it will trigger selling and then it will be an avalanche. 
You don't know what the catalyst will be. But nobody knows the reason why the market peaked out in March 2000, nobody knows why the Japanese market peaked out in December 1989 and so forth. We just don't know but something usually pushes markets down when they are very overbought and when sentiment is very bullish.

Wednesday, February 22, 2017

China focused Asian countries

It is a Chinese-centric Asia nowadays. The exports of Taiwan, South Korea, to China are much more important than to the U.S. All the Asian countries for them, exports to China are the key, tourists from China are the key.

When you see Mr. Trump lambasting the exporting countries of Asia, calling China – he hasn't declared it officially a currency manipulator and so forth, what is the reaction of the leadership in Beijing ?

Everybody in Asia and around the world, including Mexico and the Europeans will say, 'the U.S. is no longer a reliable trading partner and no longer a reliable ally. We have to look after ourselves'. So the Chinese are pushing essentially domestic-led growth.

Monday, February 20, 2017

Could we be near the market top ?

I like the US markets in a sense that for the first time since the bull markets began in March 2009. There is a euphoric move. In other words we are leading to a top somewhere here. 

The shorting pit is dangerous because we don't know how far Central Banks are still going to print money. If you print money and you have large deficits that lead to higher government debt. 

Under Mr Obama US debt almost doubled to now $20 Trillion Dollars. Then stocks can go up and economic conditions can worsen. So the shorting game, I think you have to be short very specific names that have deteriorating conditions.

But I think the way to play it is to own emerging markets. Everyone makes a huge hoopla about US markets going up, Hong Kong is up 9 percent, Singapore is up 9 percent.... Mexico is up 6 percent.... Brazil, Argentina is up almost 20 percent. So actually Trump policies have been good for foreign markets.

Monday, February 13, 2017

US and US corporate sector benefited most from globalization over the last 20 years

Many markets in Asia are up 8 to 9 percent. In Asia almost every market has outperformed the US.

Watch the full video here

Thursday, February 9, 2017

Money printing will not be easy to stop

The most attractive sector in commodities is probably agricultural commodities -soybean, rubber, sugar, etc .- their prices may still go higher. 

The precious metals are also attractive for a simple reason that the policies that the central banks have embarked upon, mainly money printing, will be very difficult to terminate.

Wednesday, February 8, 2017

Fed and interest rate hikes

Since the end of last year, the US dollar has been weakening and I suppose that the policies of the US would rather welcome a weak dollar than a strong dollar. It is not my view that it would help the US in the long run but that of the policy maker's.Going forward, dollar assets are not the most desirable assets.

The Fed may increase interest rates at some point, but they will probably leave real rates negative for a long time. We have had many American property prices already declining and also rents declining, which essentially would rather indicate weakness in the economy than strength. Whenever the next recession comes, the Federal Reserve in my view will liquify the system with some sort of quantitative easing.They may not call it QE, but the impact will be the same.

Monday, February 6, 2017

Bull market in USA is ageing

It is difficult to tell what the policies of Trump eventually will be because he is a very great talker, but I am not so sure that the implementation will be as he has promised during his campaign. Despite what he may do, the US economic expansion will be eight years old by June and the stock market bull run will be eight years old by March. We are dealing with an ageing bull market and an ageing economy that is likely to weaken rather than strengthen. Whether his policies will actually translate into strong growth is questionable. The US economy will weaken and the 4% growth target he has is completely unrealistic.

Wednesday, February 1, 2017

Implications of protectionist policies in the long term

Has The Trump Presidency begun in the worst possible way for all those who believe in Free Markets?

According to University of Chicago Booth School of Business Professor Luigi Zingales, “it is clear that the Trump industrial policy will be pro-business, not pro-market. It may seem to be a nuance, but there is a fundamental difference. A pro-business policy favors existing companies at the expense of future generations. A pro-market policy favors conditions that allow all businesses to thrive without any favoritism. A pro-business policy defends domestic enterprises with favorable rates and treatment. A pro-market policy opens the domestic market to international competition because doing so would not only benefit consumers, but would also benefit the companies themselves in the long term, which will have to learn to be competitive on the market, rather than prosper thanks to protection and state aid.

Paradoxically, a pro-business policy ends up damaging not only the economy, but also, in the long-run, those companies that it had originally benefited.”
Zingales concludes that, “The Trump presidency has begun in the worst possible way for all those who, like me, still believe in the market.”

Young Invincibles is a national organization, representing the interests of 18 to 34 year-olds, which makes sure that their perspective is heard wherever decisions about their collective future are being made. Young Invincibles (YI) recently published a study entitled Financial Health of Young America: Measuring Generational Declines between Baby Boomers & Millennials, which makes very interesting reading.

According to YI, “Baby Boomers were much more financially secure than Millennials when they were the same age. Boomers earned higher incomes, amassed greater assets, were more likely to own homes, and had greater net wealth when they were young adults than today’s young people.”

It will be interesting to see whether the protectionist policies of Trump will improve the financial conditions of the millennials or, as I believe, hurt them even more because from now on the millennials will not only have to live with lower incomes, less wealth, and inflated asset markets, which they cannot afford, but also with rising consumer prices.