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Global Market Outlook June 2013
Global Market Outlook June 2013
June 2013
Scrapbooking
In the investment world, its usually wise to buy low and sell high. Yet,
feverish, money making enthusiasm often results in many buying high
and then never selling until it is too late. This is a human trait, and
like it or not it will always exist in the money world. In the eyes of
many, all was very good in the investment world. Buy stocks, more
stocks and then even more stocks and youll be fine.
On June 19, 2013 this all changed.
Youll recall it was just a few weeks back when we published The
Bouncing Ball which reiterated our view that all financial markets are
significantly affected by the money printing ways of our central
banks. On June 19, 2013 Ben Bernanke announced that later this year
the Federal Reserve would very likely begin to print less money than
what they are printing today, in effect resulting in many investors
refusing to catch the bouncing ball. Early estimates have the money
printing being reduced from $85 billion/month to $65 billion/month.
This pronouncement was enough to send all financial markets into a
tizzy with everything declining, except for the US Dollar. Investors
must understand that this is a game changer. Whether the Federal
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June 2013
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Reserve actually carries through with this plan is open to debate. One
consideration has to be the fact that this tapering of the money
printing scheme is dependent upon employment, growth and
inflation all moving inline with the Feds projections. Now,
considering the Federal Reserve completely missed the Tech Bubble,
then missed again on the Housing Bubble, and as shown in Chart 1
are usually too optimistic with their economic projections, there is a
very big chance the mighty US recovery may not exactly pan out the
way they are projecting.
Source: advisorperspective.com
page). Before all of this nonsense money printing started, the Federal
Reserves Balance on August 8, 2007 was only $869 billion. We must
remember, that stopping money printing is only the first step the
second step is even more onerous and involves reducing the balance
sheet back to a more normal level. To provide further clarification to
this pretty important point the Fed will have to siphon $3.1
TRILLION out of the system.
Now considering financial markets had a conniption over less money
being printed, what will happen should the Federal Reserve actually
try a return to normalcy?
Should the Fed continue on this path to monetary enlightenment, its
going to become a bit messy out there. Considering this fact,
combined with our view that the Feds economic projections are too
optimistic, and the likelihood of Janet Yellen becoming the next
Chairperson, theres a pretty good chance we may actually see even
more money printing not less.
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Elite
In fact, its come to the point where investors in this stock market
might want to consider DAILY dollar-cost-averaging instead of the
usual MONTHLY investment strategy encouraged by investment
gurus. Better still, this volatility isnt restricted to just the stock
market. Japanese interest rates and its currency are also experiencing
sumo-like volatility which is reverberating around the world.
Back in December 2012, we forecast that Japan would likely become
the biggest story in financial markets for 2013. As investors begin to
prepare for a tapering of the American money printing scheme, they
need to appreciate that while the US Federal Reserve will always be
the kingpin of the money world, the Bank of Japan and its governor,
Haruhiko Kuroda, are quickly becoming the headline makers and
pretty nice scrapbooking material too for that matter.
If the Americans truly are on the road to ending their money printing
program, investors everywhere will be looking to Japan for their daily
fix. The Yen is sure to decline, while Japanese stocks should benefit
from not only hedged strategies, but also from private capital fleeing
the Japanese bond market. However, our sense is that this easy to
see strategy wont play out as simple as it should. Rather, the strain
on Japanese bonds and their fiscal situation really has the potential
to keep all Japanese bank and insurance risk managers awake
throughout the night followed by uncomfortable executive meetings
in the morning.
Be prepared for more headlines from the land of the rising sun.
Protests in Turkey
For a number of years now, Turkey has been championed by the west
as a model for democracy in the Muslim world. Inching ever closer
towards joining elite global groups such as the European Union as
well as playing host to NATOs missile defense shield has certainly
elevated their status in the eyes of Washington and Brussels.
However, suddenly a not so elite wave has enveloped the country and
pushed it into crisis. We are told the crisis originally started as a small
protest against knocking down a few trees in Istanbul's Gezi Park. A
few days later, the world is watching as millions marched, occupied
and protested against Prime Minister Erdogan across 77 cities. Not
one to back down, Erdogan told the protesters to go home and
generously offered water cannons, tear gas and rubber bullets as
incentives for these people to find their way.
Meanwhile over in Brazil, the world was stunned to hear of another
spontaneous protest involving over a million people that easily made
it into our scrapbook. Brazil is heralded as one of the pillars of
emerging markets. Its enormous commodity base and China-like
growth rate has made it a darling for BRIC (Brazil, Russia, India, China)
lovers everywhere. Yet, once you look underneath the shine of the
upcoming 2014 Soccer World Cup and the 2016 Summer
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Hollande is in control
Europe. On the periphery, lets not forget we have Lebanon to the
south west and then Israel right after. To say tensions are running
high is no exaggeration.
While it is known that Russia is supplying Assad with military
equipment, now it appears that America & Europe are on the verge
of supplying the rebels with equipment as well. To make matters
even more fragile, Iran has now committed to sending 4,000 troops
to help Assad. And to complicate things even further, if possible, all
the rebels are not even from Syria - many have traveled from other
countries to help fight the war against Assad. The reason for this
complication is that many of these fighters are allegedly Al Qaeda.
Yes, America could once again be arming Al Qaeda.
From a geopolitical perspective, Syria has rapidly escalated into a
serious situation. The worlds power brokers all have a seat and a
stake at this table. Naturally this isnt the first time, nor will it be the
last time, the worlds super powers butt heads. However, should new
crises develop in the region, or old ones redevelop, the potential for a
long summer of increased market volatility increases.
While no one knows what will happen next, should it escalate further,
were confident crude oil is going a lot higher.
Source: BBC.co.uk
Whew thats good news. For a while there we thought that maybe
the Euro crisis was still lingering. Depending upon your view, it was
either a very short or very long 13 months ago when Francois
Hollande became the newest President of France. His policies of
more spending, more government jobs and more retirement for
everyone certainly was the catalyst for him winning more votes. Yet,
here we are today and everyones favourite socialist leader is quickly
becoming the punch line of Europes economic joke.
For starters, proclaiming the worst is over for Europe is so February.
Everyone now knows the latest and coolest slang is an accelerating
recovery. Yet, everywhere we look in Europe we see few signs of
these better times. France specifically is showing no signs of
recovery. Often paired with Germany as the economic anchor of the
Euro-zone, France was viewed as Europes counter balance to
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However, until that time investors must understand that things have
suddenly and very quickly changed. The comforting idea of buying
dividend stocks and high yielding bonds and taking long afternoon
naps has clearly become somewhat uncomfortable.
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