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|Posted on April 10, 2013 at 11:11 AM|
Omigosh - I just read my last 2 blog posts (end-Dec & end-Jan), and two things struck me ... How lazy I've been with my updates, and How it seems that things have panned out as predicted ... Nah, it must be a fluke !
(I am as sceptical of myself, as I am of others) !!
So we got the Waves of Weakness in JPY (against both USD & AUD), we got the Italian Job (Election) wobbling the markets for a bit, and starting the EUR downdraft (which then continued with the Cyprus issue - not Greek as i'd thought, but close enough), we got the Asians catching the JPY flame of weakness (esp. KRW, as depicted earlier), and we even got the INR weakening move, and we even got the MYR strengthening move even into an uncertain election in Malaysia ! Its like one of those, "Is this for Real" videos (of people performing bizarre acrobatics), that my kid watches on YouTube ......
Question is, where to from here. Well, for me, its onward to Nepal next week on an Himalayan Trek - but what path will the markets take ??
I'd thought that JPY will weaken into most of 2013, and now with Kuroda's emphatic Benning move (named after that now famous Helicopter Economist !), can only wonder how the Japanese Insurers (let alone the proverbial Mrs Watanabe), will be able to get hold of any JGBs, as they will all get stuffed (next 2 years supply) into the bottomless BOJ balance sheet (the Benning copycat theory of economic revival - well once upon a time Sony et al, did well by being a copycat, so why not now the BOJ); and just as the USTs shrugged off any 'inflation concerns' on Ben's wizardry, so too have the JGBs cast away any worries of reaching the BOJ 2% inflation target anytime in the foreseeable horizon, and rallied their pants off. And this will, for sure, for sure, result in all those in Japan, that need any assets to go seeking them in other markets (AUD Bonds, USTs, other Credits, even Offshore Equities), and this will be done by selling any JPY in the cash account - and so the Waves of JPY Weakness will continue.
And this will, force the hands of some of the Asians - notably KRW & TWD into a weakening theme for the next few months. Added to this is the madman in North Korea trying to get some ransom money, and will cause waves of jitters at various times. I'd stay short JPY, KRW, TWD and yes, of course, INR - I just cannot see any reason for INR to strengthen as of now (neutral to short then, i'd say), even more so, after the potential prime-ministerial inheritor (well, in India, its a family inheritance scheme , this PM business), pointed out lotsa problems with India in his very recent speech last week, but said he had no answers - honest or clueless .. whatever your or my opinion on that, its not a healthy sign; and much as Chid (Finance Minister) may try, he will not be able to generate the revenues he claimed he would (by selling Telecom Bandwidth & State Assets via IPOs). The only place I'd square up is Short USD/Long MYR trade. Stay Neutral there. My thinking about SGD last couple of weeks is that the MAS is watching all these global monetary antics and a slowing economy (given the change in stance on population growth due to domestic backlash), has now put in place measures -property, as well as car coe related, which are huge drivers of domestic inflation numbers, and this will result in the inflation numbers cooling off in the next few months, and will give the MAS scope to change its a stance, from a strengthening to a weaker SGD bias - however, its not gonna happen in the policy meet this week .. more likely, mid-year, so i'd get in when the market buys SGD next week, to fade/counter that move after a few days. I was surprised at the China Trade numbers today, but probably is a Chinese New Year holiday induced effect, so would not read much into it, but as before, not massively bullish CNY as I was last year.
The thing is, I am getting even more sceptical of these liquidity hypnotized Equity Markets, so will go completely neutral now (as the thoughts have not changed from earlier, sell before May, sell Today) - will not go short - just go neutral, cause there will be hiccups ahead. Will 19/May turn out to be an important date, as I thought in Jan - maybe not. So wherefrom the hiccup ?
And so, as the JPY approaches 100 (while the weakening trend will be in place for most of 2013), i'd reduce my position now in half, and wait for better levels, as they may come, come May. And where will these hiccups originate - somewhere in Europe - Italians inability to form a government, Portugal, Slovenia , Greece, summer run-up to the German elections (Sep/13) ... not sure. North Korea doing something stupid, unlikely, but may be in may, they will. In any case, am going on a trek, so don't wish to bear much Equity Load. So where to park ??
As before, best place to be , even now, for now & the next few months, is short duration (3 to 5 years), high yield bonds in Asia - credit quality is not deteriorating & with some IG/HY mix on leveraged basis, one can sleep comfortably, knowing fully well, that Benning Move is catching on (much like the Harlem Shake !) & the Waves of Liquidity are growing fierce, and the Waves of Yen Weakness, are slushing our shores !