you can see that the understanding actually is that all should be poor so that team usa can be rich
such is the true state of the world
the journey to teotwawki shall be very interesting
may well be biblical
in the mean time, just in in-tray, per GREED n fear
· The near term prospect for stocks clearly hinges on whether the Fed positively surprises risk seekers at its 2-3 November FOMC meeting. This will in part depend on market action in the interim, most particularly foreign exchange market action. GREED & fear’s guess is that the risk is that the Fed announcement disappoints by being at least somewhat incremental in nature.
· The practical conclusion for investors is that it now makes sense to start to take some tactical profits, or at least put a hedge on long-term equity positions. The more commodity prices surge as a consequence of QE discounting, the bigger the threat that trend poses to the profit margins of companies in the West.
· Still GREED & fear would stress that any correction in Asia on the back of weakness in Wall Street is just a bull market correction since the very fact of a correction in equities will only increase the likelihood of a more aggressive form of QE given the Fed’s desire is to raise asset prices.
· GREED & fear views the timing of this week’s impressively surprising rate hike in China as more political than economic. Sure, inflation has picked up and Beijing wants to signal concern. Still in the Chinese command economy interest rates are much less a tool of monetary tightening than loan quotas.
· With Washington becoming ever more vocal about the need for renminbi revaluation, China has clearly decided to make the argument two ways. So with QE2 seemingly on the immediate horizon, expect China to become ever more openly critical about the next wave of quanto. America will be accused, legitimately, of threatening to destabilise Asian economies and of failing to address its structural problems.
· The irony is that the latest Chinese interest rate hike could be bullish for the local stock market if it is perceived as the end of China’s current tightening cycle. As for the reason why the A-share market surged in the past two weeks, GREED & fear’s guess here is that the psychology may have changed among those with capital to deploy.
· GREED & fear’s view is that the H share policy stocks will tend to follow their A share counterparts with a lag. Relative-return investors are advised to have a reasonable overweight in China to reduce the risk of a catch-up trade in the MSCI China Index this quarter.
· GREED & fear will add a further 2ppts to the China overweight by shaving the overweights in India and Indonesia by 1ppt each. But GREED & fear is not going to make a major overweight bet on China since the view here is that this would only be justified in the context of a full-scale easing which is clearly not happening.
· The potential for a further rally in the China policy stocks is clearly a consequence of the schizophrenic nature of the Chinese market where the seemingly policy constrained SOEs have been trading at significant discounts to the perceived high growth private sector stocks. Still the view here is that long-term outperformance will be achieved by owning the right private sector stocks.
· GREED & fear would admit that more actions are coming sooner or later by Asian policymakers to try and discourage capital inflows and the like if the trend remains against the US dollar. Still GREED & fear thinks it is way too premature to worry about capital controls and the like in the real sense of that term. Rather incremental moves will only be made after the further gains in currencies and asset values.
· Such a policy context will not end the Asian bull story. Rather it will only slow down and thereby extend the path to an asset bubble. GREED & fear’s view is that it is way too premature to worry about an asset bubble in Asia.
· True, Asian policymakers can crush asset bubble risk by raising interest rates aggressively and letting their currencies float. But it is unlikely in the extreme that Asian markets will be hit by such proactive tightening. In a world where US interest rates remain at zero, all sell-offs in Asian and emerging markets are buying opportunities. While asset prices in Asia are, in due course, going to become really expensive.
· Singapore’s proposed property measures this week are another example of the pressures facing Asian governments. It remains the case that emerging ASEAN markets remain the least likely to come up with measures to control assets prices. GREED & fear’s view is that Thailand is the Asian market least likely to implement such controls.
· There are still not the necessary sticks to force fiscal compliance in Euroland which means such compliance will not happen. GREED & fear continues to believe that the sovereign debt exposure of European banks to PIGS debt remains a systemic risk that has the potential to cause a renewed liquidity panic and resulting unwind of dollar funded risk trades.
· Recent weeks have seen the emergence of a new systemic risk concern the US mortgage foreclosure crisis. This can only further postpone any hope of a US housing recovery though foreclosures will clearly decline in the short term.
Please consider the environment before printing this email.
The content of this communication is subject to CLSA Legal and Regulatory Notices
These can be viewed at clsa.com or sent to you upon request. |
