Overseas News | ASXnewbie.com - Part 3

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Category — Overseas News

Bernanke is Playing With Fire.

Dear member,

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.  

Employment Problem

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

The US Economy Butterfly Effect.

The US Economy Butterfly Effect

The Bernank has spoken. All hail the Bernank.

According to Ben Bernanke, Chairman of the US Federal Reserve, the US is doing swimmingly and he will be able to start lowering Quantitative Easing (QE) towards the end of the year.

The key news points that came out of the press conference, as reported onZeroHedge, were:

‘BERNANKE SAYS JOB GAINS, HOUSING INCREASED CONSUMER CONFIDENCE’

‘BERNANKE SAYS MONETARY POLICY WILL CONTINUE TO SUPPORT RECOVERY’

‘BERNANKE SAYS FOMC `MAY VARY’ PURCHASE PACE ON ECONOMIC DATA’

‘BERNANKE: FOMC MAY `MODERATE’ PACE OF PURCHASES LATER IN 2013?

‘BERNANKE SAYS FED MAY END PURCHASES AROUND MID-YEAR 2014?

‘BERNANKE SAYS FED WILL EASE QE PACE IF ECONOMY IMPROVES’

‘BERNANKE SAYS PURCHASE REDUCTION REPRESENTS FOMC CONSENSUS’

Credit markets reacted swiftly to the news and sold off aggressively. US 10 year Treasury rates increased by 16 or so basis points to a yield of 2.36%. That’s the highest level in over a year. Stocks plummeted, with the S+P 500 falling by 22 points or 1.4% to 1629. [Read more →]

June 21, 2013   Comments Off

Beware The Federal Reserve’s Deadly Game of Poker.

Beware The Federal Reserve’s Deadly Game of Poker

There are three rules that I live by: never get less than twelve hours sleep, never get involved with a woman with a tattoo of a dagger on her body, and never play cards with a guy who has the same first name as a city.

Solid advice there from ‘Coach Finstock’ in that highbrow movie classicTeenwolf.

But, sorry Coach, we must persist with ‘playing cards with a guy who has the same first name as a city’.

You see, for five years now, I’ve been playing cards against ‘Washington Ben’ – though you may know him as Ben Bernanke, the Chairman of the Federal Reserve. ‘Washington Ben’ has been king of the casino, running the whole show – and sometimes in our favour. Anyone in the markets has had no choice but to play him.

He’s made damn sure many years of ‘poker nights’ with the boys turned out as useful as my formal financial qualifications. Because bluffs, double bluffs, and forced tells regarding the Fed’s next move have the power to bulldoze fundamentals and turn all global markets on a dime.

And the bulldozer is at a crossroads. Never have I seen the markets more anxious than they are today, waiting, and furtively twitching, in readiness for 4.30am AEST on Thursday morning. [Read more →]

June 20, 2013   Comments Off

Is Bernanke Losing Control?

Dear member,

US Treasury yields are rising quickly. This could be an early sign the Federal Reserve is beginning to lose control of the most manipulated market in modern history - the US bond market.

Ben Bernanke is losing control of the bond market

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 →]

June 19, 2013   Comments Off

Bernankenstein’s Financial Monster.

Bernankenstein’s Financial Monster

Just when you think central bankers are as clueless as our Treasurer, they go and surprise you. The release of minutes from the latest US Federal Reserve Advisory Panel meeting was a bit of a revelation.

The Federal Reserve’s ‘mad scientists’ appear to realize they have created a financial monster. Call it Bernankenstein’s Monster if you like. Take this extract (bold emphasis is mine):

‘There is also concern about the possibility of a breakout of inflation, although current inflation risk is not considered unmanageable, and of an unsustainable bubble in equity and fixed-income markets given current prices.’

Concern about an ‘unsustainable bubble‘? Given the Federal Reserve’s previous track record of creating bubbles (housing rings a bell), all they can muster is ‘concern’. What about fear and alarm?

Here’s another bit of genius from the minutes: [Read more →]

June 8, 2013   Comments Off

Signs of Stress in the US Bond Markets.

Signs of Stress in the US Bond Markets

We’re starting to see some real signs of stress in the US bond markets.

Perhaps this is just some short term repositioning in case the US Federal Reserve actually follows through with its threats to lower the size of QE purchases.

Or insiders have been given word that it’s going to happen and they’re front running the crowd.

But one thing is certain. The US bond market and the spreads between US bonds and underlying corporate bonds are starting to widen. Volumes have exploded and there are some big moves… [Read more →]

June 7, 2013   Comments Off

Gambit in Japan Equals Market Blitz.

Gambit in Japan Equals Market Blitz

Zugzwang describes a dilemma when any move you make puts you in a weaker position. It’s a German word but the idea is taken from the game of chess.

In chess, there’s no random element. There are eight ranks and eight files with pieces that obey fixed laws. Not so in markets today, where central bank intervention is so heavy we doubt any one price is where it should be.

Investors probably feel a whole lotta zugzwang right now. If you can’t trust any price signals, which asset do you trust? Doesn’t any move feel like you’re opening up a weak flank?

This is especially true for the country that dominated discussion in our Albert Park headquarters this week: Japan.

So it’s the task of today’s Money Weekend is to explore what it means for Aussie investors…. [Read more →]

May 27, 2013   Comments Off

Buy Japanese Shares, Says Hedge Fund Guru.

Buy Japanese Shares, Says Hedge Fund Guru

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.

Bullish on The US and Japanese Shares…
US consumer stocks, the US dollar and Japanese shares.

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 →]

May 26, 2013   Comments Off

Why the Only Thing That Matters in the Markets is Japan.

Why the Only Thing That Matters in the Markets is Japan

If you want to understand the current price action in the markets you need to study Japan.

Everything that’s happening at the moment is a function of the huge monetary stimulus recently unleashed by the Bank of Japan (BOJ).

I’ve known it was important to understand, and I’ve followed proceedings closely. But it’s now becoming clear that most of the moves we’re seeing in markets world-wide can be explained by the enormous money printing by the BOJ.

Therefore, we can only decipher the road forward by analysing the Japanese currency and bond markets…

Imagine you’re a fund manager and the Bank of Japan and the Prime Minister of Japan tell you they have an explicit policy to print a huge amount of currency to incite inflation and lower the currency.

You borrow in that currency at incredibly low rates. You then invest offshore and receive much higher interest rates. You do this safe in the knowledge that the currency you’re borrowing in will most likely be weaker by the time you have to repay the loan.

That trade would have to be the ultimate ‘no brainer’. You can leverage that trade many times over. But this isn’t theory. This is reality. I can assure you this is what every man and his dog is doing at the moment. [Read more →]

May 24, 2013   Comments Off

‘Abenomics’ Cannot Master the Immutable Laws of Money.

‘Abenomics’ Cannot Master the Immutable Laws of Money

The Japanese Topix Index is up more than 40% this year (and nearly 71% since July 2012) thanks in large part to Prime Minister Shinzo Abe’s unlimited stimulus initiative known euphemistically as ‘Abenomics‘.

The argument behind this spending is a classic one, at least in economic terms: stimulate the economy to produce higher inflation, weaken the currency and aid the exporters.

But like US Fed Chairman Ben Bernanke’s spending and Draghi’s spending in Europe, it’s ultimately going to fail.

Sure the short-term effects are great…a wildly enthusiastic stock market that’s trading at the highest levels seen in 4.5 years, a relaxation of risk and fresh strength in export focused companies that are showing stronger results on a devalued Yen. No question, I’ll take a bull market any day. [Read more →]

May 15, 2013   Comments Off