Category — Overseas News
Bond yields across the world shot up last week after Fed Chairman Ben Bernanke discussed plans to ‘potentially’ discontinue or alter the Fed’s $85 billion monthly bond and mortgage buying program.
There are two critical factors about the entire issue of whether or not the Fed will or won’t - or should or shouldn’t - remove its stimulus that have been completely overlooked by the mass media:
1. The US economy hasn’t recovered yet.
2. Bernanke was as non-committal as ever, suggesting that bond purchases could actually increase if the US recovery doesn’t meet or exceed his projections.
Unemployment in the US still sits at a shockingly high 7.6% and inflation is at its lowest level in 53 years (just over 1%). Bernanke’s targets are 6.5% unemployment and 2-3% inflation. The US economy clearly has a long way to go before those targets are met. The US needs to create roughly 1.5 million jobs before it can get to 6.5% unemployment. [Read more →]
June 26, 2013 Comments Off
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In 2011 McKinsey & Co released data on the size of the stock and bond markets titled, Mapping Global Capital Markets 2011.
McKinsey & Co revealed that the global bond market is worth about $157 trillion while global stocks were valued at $54 trillion. Stocks are no doubt worth more than $54 trillion now, with the S&P 500 up more than 30% since the 2011 report, but so is the global bond market, which has been growing rapidly as debt has expanded on the back of record low interest rates.
We all know that the Fed sets interest rates in America (which influences the entire world), but to ensure Treasury yields stay low, Bernanke and crew are active in the open market, purchasing more than 80% of all issued Treasury debt. The Fed does this to facilitate the US Treasury and US government, which need low interest rates to service trillion dollar deficits. [Read more →]
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Hedge fund manager Hugh Hendry is back in the news with the release of his latest quarterly letter. Hendry made a name – and lots of money – for himself by making some high-profile, contrarian investment calls early in his career.
At the height of the Chinese bull market, when it seemed the only economy impervious to the financial crisis, he famously filmed videos of empty apartment blocks and shopping centres in the country to support his bearish view on the economy.
But now Hendry, who manages the Eclectica Asset Management hedge fund, is feeling a lot more optimistic.
When it comes to American consumer companies, Hendry likes those that make non-discretionary products – i.e., the stuff you pretty much can’t do without. The reason, says the 44-year-old Hendry, is that investors don’t have many other options.
‘Consider the plight of a conservative investor: concerned about the risks to the global economy and hence cyclical equities; fearful of financial repression in Treasuries; trapped (possibly unfairly) by the prejudice of the ten-year bear market in US dollars; scared that governments may have to haircut his savings account in the bank; and now terrified by the sudden price collapse in gold.’ [Read more →]
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