With ongoing problems in Europe and U.S. valuations looking stretched, well-known money manager Louis-Vincent Gave thinks Asia has the most going for it right now. Here are some excerpts of his recent interview.
Should the USD break out from its 2005 to present bearish trend, we should see some significant developments in inter-market relationships. For starters, the relative performance of U.S. stocks relative to the MSCI World Stock Index Excluding the U.S. shows a strong correlation to the USD Index.
Once breaking through its eight year declining trend from 1989 to 1997, the dollar rallied 50% until finally peaking with the tech bubble. Should the USD break out this time around, it is quite likely to have a strong bullish run going forward.
All the chatter from the Fed about interest rate levels, forward guidance, tapering, etc. is largely noise. In a consumption driven economy, wage growth is the accelerant of consumption growth, not rising equity and real estate prices through the illusory "wealth effect".
I subscribe to the tenet espoused by the late Professor Milton Friedman that inflation is a monetary phenomenon. When I speak of inflation, I include not only the behavior of prices of goods and services but also the behavior of the prices of assets.
A handful of readers wrote yesterday: “Corporate profits are rolling over!”, “Cris, it’s time to get the word out.” It appears the source of all the alarm was an article that recently appeared at Business Insider, “Wall Street Declares the Great Profit Margin Boom Is Finally Over.”
Mario Draghi came as close to the “full Monty” as he possibly could by cutting interest rates 10 basis points to a measly five basis points, and increasing the negative deposit facility rate to -20 basis points. In addition, he promised to begin buying about $400 billion worth of asset-backed securities in about a month.
Given the prior inflationary move seen earlier in the year, it is likely we should expect a moderation in economic momentum that has been building since Q1 of this year. Should growth moderate we are likely to see more economic releases surprise to the downside.
Financial stress rose significantly as the market peaked during the tech and housing bubbles. One popular measure of financial stress, the TED spread, however may no longer "work" at identifying market tops. For that, we must look at others. What are they saying?
Shadow banking is back in the news. First there are ongoing problems in China where bad loans outside of the traditional banking system are causing increasing financial strain. Then, here in the U.S., regulators are also becoming more concerned about the rising use of leveraged loans by non-bank intermediaries or things like peer-to-peer lending, where the largest such company in this space, Lending Club, just filed for an IPO.