In a normal world when economic data are poor and getting poorer, governments are running out of policy options if they are even effective with twin deficits, central banks are faced with unemployment and banks with poor balance sheets and little credit expansion, companies are faced with little growth prospects, declining profit margins and lack of innovation and ideas to deploy their shareholders’ equity ….. the stock markets should be lower, the currency should be under pressure, and rate curves should flattened between the 2-10 years but steepened between the 10-30 years … ceteris paribas.
But we are not in a normal world since 2008. In a world where you get a series of QE either from the same country (Fed in the U.S. http://youtu.be/PTUY16CkS-k and ECB in Europe to a large degree) or in a tit-for-tat move by BOJ in Japan since November 2012 …. everything turns on its head. Bad news on any economic, political or financial front becomes good news in that the odds of QE as another nuclear weapon to be unleashed by a Central Bank rises!
On the back of such expectations across Europe, U.S. and Australia … we have seen rapid gains in their stock markets in the past 1-month outperforming those in Asia / Emerging markets where these countries cannot cut rates (as inflation is already rampant).
Asianmacro is light on risk at the moment and retreating to his cave as it is too high in levels to be long risks comfortably going into summer; but might be pre-matured too to be short risks as well!
Happy summer holidays in advance to everybody as I will be heading out to Europe soon to catch some nice action over there and also to suss out what is happening on the ground. Something bad always happen over summer, for those who think that this time is different, oh well …. (*P.S. Watching those ”I Know What You Did Last Summer!” movies might provide some inspiration).
*Asianmacro is a beach bum managing his own wealth. Besides deciding what to have for lunch (or hitting the gym sometimes), he is mostly found listening to loud music while trading and investing for himself. While every care has been taken in preparing the information in and/or materials, such information and materials are provided “as is” without warranty of any kind, either express or implied. In particular, no warranty regarding accuracy or fitness for a purpose is given in connection with such information and materials. The opinions expressed do not constitute investment advice and independent advice should be sought where appropriate. In no event will Asianmacro be liable to you for any direct or indirect or any other damages of any kind arising from or in connection with your reliance on any information in and/or materials attached herewith. Asianmacro may already have or intend to have a trading or investment position in the financial instruments or products referred to in this communication. This is not intended as an offer or solicitation for the purchase or sale of any financial instrument and Asianmacro may also have interests different from or adverse to your interests.