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Strategies & Market Trends : 2026 TeoTwawKi ... 2032 Darkest Interregnum -- Ignore unavailable to you. Want to Upgrade?

To: Secret_Agent_Man who wrote (66906)	10/7/2010 8:37:34 PM
From: TobagoJack	1 Recommendation Respond to of 217680

just in in-tray, per GREED n fear · The continuing rally in risk assets, be it equities or commodities, makes it clear that investors are increasingly discounting a second wave of quantitative easing in America. Expectations for the policy’s implementation are increasingly focused on the next two-day FOMC meeting on 2-3 November. In a further discounting signal, the Treasury bond market has also resumed rallying in recent weeks. · The anticipation of “QE2” has been further encouraged by the usual cacophony of speeches by Fed governors. New York Fed President William Dudley said last Friday that further action is warranted now unless the economy improves significantly for both employment and inflation (i.e. the data does not have to get worse). · If the anticipated imminence of quanto easing has helped the S&P500 break above the 1150 level this week, the investment conclusion for investors is to remain heavily overweight Asian and emerging market domestic demand stocks which will be the main beneficiaries in US dollar terms of the resumption of such policies. · Investors should understand that there are major risks associated with QE2. It will raise the stakes, both politically and economically, most particularly if the policy does not work. Markets will also be very disappointed if the Fed does not take action in November having given so many signals to the contrary. But for the Fed to interpret a rising stock market now as a reason not to act would be risky. · GREED & fear’s view remains that quanto easing will continue not to work, which is also one of the themes of the new Asia Maxima (Ready Steady Go!, 4Q10). But another of the themes is the collateral damage that is likely to be caused by the pursuit of quanto easing in America. That is why GREED & fear believes that America will end up being worse than Japan, not better. · There is to GREED & fear a huge risk that the US could actually turn out to be a case of “Japan-heavy”, not “Japan-lite”. This is because US policymakers are likely to fight the deflationary trend so much more aggressively than their Japanese counterparts. This creates the risk, if not likelihood, of severe collateral damage should their policies backfire. · An ever more aggressive, albeit ultimately failing, policy response in America has the potential to turn an extended, albeit ultimately positive, deleveraging cycle into something altogether more destructive. This is why ownership of gold bullion continues to be recommended by GREED & fear as an essential hedge for owners of capital globally to hedge this growing systemic risk. · The reason the Fed is gearing up for more quanto easing is, obviously, because the American economy is stalling, most particularly the housing market. A further reminder of the extraordinary mess that is the US housing market was the news this week that the foreclosure machinery is seizing up as lenders are increasingly being accused by defaulting borrowers of not processing foreclosures properly. · Incurable optimists are claiming this will be positive “shock therapy” for the US housing market. But it is in GREED & fear’s view likely to be the opposite of positive. Market clearing will be delayed amidst a wave of litigation and the housing market will become even more politicised than it is already. · The Bank of Japan’s capitulation to political pressures this week is not that significant, as is evident from the yen’s failure to sell off. The reason is that the foreign exchange market is only interested right now in discounting renewed quanto easing in America. Investors in Japan should continue to invest in companies geared to emerging markets, as GREED & fear has done in the Japanese thematic portfolio. · The Asia ex-Japan thematic portfolio again outperformed the regional index in the past quarter, rising by 21.3% in US dollar terms, compared with a 15.4% rise in the MSCI AC Asia ex-Japan Index. Since its inception eight years ago at the end of 3Q02, the portfolio has risen by an annualised 28.9%, compared with an annualised 15.1% increase in the MSCI AC Asia ex-Japan Index. · The Japanese thematic portfolio also outperformed the Topix in the past quarter, rising by 2.6% in yen terms compared with a 1.4% decline in the Topix. The portfolio is now down 13.3% in yen terms since inception on 17 March 2005, while the Topix has declined by 30.4% over the same period. · A small adjustment has been made to the Asia Pacific ex-Japan relative-return portfolio at the end of the past quarter. The weighting in China was reduced by one percentage point with the money added to Hong Kong. · The surge in foreign reserves in Indonesia shows the rising appreciation pressure on the rupiah. The issue of managing capital inflows into emerging markets is going to become an increasingly “hot” topic in Asia and emerging markets. But to GREED & fear the investment conclusion for now remains clear. Stay long domestic demand stocks, asset-reflation stocks and domestic currencies in Asia ex-Japan and emerging markets. Most importantly, any correction is a buying opportunity most particularly if triggered by external risk aversion. 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.