Gold: Jaime Carrasco comments on BNN.ca
I don’t understand the lack of concern to a rising U.S. dollar, especially when its rise is a net result of an escalation of the Quantitative Easing policies in Japan, and its consequences are so negative to the global economy, U.S. exports and the bond side of the economy. This is the warning Alan Greenspan recently gave at the Council on Foreign Relations on October 29, 2014 when he pointed out that the problem is the “entitlements.” A rise in the currency is the last thing a debtor Central Bank wants as it loses control of its ability to control the low interest rate environment. As the currency rises in value, so does the nominal value of the debts denominated in that currency. This disables the ability to control market interest rates. In this environment, a 5 percent rise in the value of the U.S. dollars is no different to a 5 percent increase in interest rates. This is deflation, and not the inflation the Central Bank had been wishing for to devalue the debts. I believe this is the reason QE will soon have to re-start, because only the inflation generated by QE can offset these deflationary forces. Greenspan is correct when he said that QE failed, as the U.S. current rate of growth is much lower than the “takeoff velocity” growth needed to pay back the debts, and what little growth there is will soon get hit by a rising dollar. We must not overlook the negative repercussions of Japan’s recent currency devaluation, since it’s a beautiful example of how a country can export its deflation to other countries. I’m afraid that this trend will only accelerate the need for countries to devalue their own currencies through QE, including the U.S. I see too many investors rushing into investments with complete disregard for the rapid economic and geopolitical changes occurring around us. We have had a low interest rate environment since 2008, wars in the Middle East, issues in Ukraine affecting our relationship with the world's largest energy supplier, global geopolitical and economic changes that are reshaping global trade, Western economies with debt levels that will never be paid back, just to name a few. What my practice offers is access to Scotiabank’s global investing capabilities for diversification, and the ability to setup equity and income portfolios that act as a hedge against the effects of these changes, by generating higher yields for income earners, global diversification, and insurance for a worst case economic scenario. It’s important to understand how these factors are inter-connected and the possible effects they will have in the markets. This however, is a discussion which is best had in a one-on-one meeting to review how these changes will affect you and in order to assess how to position your own financial affairs. As a last note I would like to point out that Swiss financial regulators have announced that they have discovered that UBS had made a “clear attempt” to manipulate precious metals benchmarks. My views are best followed through my LinkedIn page at ca.linkedin.com/in/carrasco1/, and off course I am always open for a phone chat or one on one meeting and can be reached at 416-814-3260. Opinions expressed are solely my own and do not express the views or opinions of my employer Scotiabank. |
