1950 – 1965: FFR, 10UST, 30UST, slow ascent to combat nominal inflation that accompanies a growing economy as one globalized world. 1966 -1981: FFR, 10UST, 30UST, fast ascent against fiat currency generated inflation with unpegging of gold in 1971, leading to money pouring into oil and gold assets before their onset into national debt that yields. 1982 – 1999: FFR, 10UST, 30UST, fast descent to stimulate economic sluggishness and post-inflation recovery into growths (70s version of QE first appearing), causing stocks to inflate and bond prices to rise, with inflation tamed along the way. 2000-2013: FFR, 10UST, 30UST, bottoming descent against tech-bubble led secular bear, leading money into bonds, gold, PIMCO using carry trades. Low yields also propelled property market boom and hence subprime bust in 2008. With yields close to Japan’s deflationary lows, funds cannot hide doing low yields or partake in bond price bubble, hence gold fell being psychological, inflation targets sprang up, balance sheet enlargement through OMO/government lending led outflows into equities, with their first-stop currency being the dollar as US recovered first fastest by the sheer boldness of the FED, followed by Europe’s blend of austerity and high auction yields to bring carry trades to push up its recovery, but with Europe still beating Asia’s conservative monetary policy in priming low inflation instead of weaponising currency wars to supply into a recovering US and a struggling Europe. The US bootstrapped its broads in equity capital by excess USD and yet can expand USD value in sluggish Europe and an expensive Asia. China softlanded with low western demand and was determined not to let its GDP slide below 7%, resulting in following the US in slicing interest rates. Abenomics paved history for Japan to become apparent heir to an eastern US in Asia, but nevertheless BoJ will never be as powerful as the FED. The dollar has respect even if its value is depreciated through fiat printing but the yen has none. The yuan has shown its face in HK and Singapore, but there is no FED equivalent in China. The US will still remain number 1 with new-found resource of shale. The Great Rotation will take funds from bonds, psychological gold, UST in the flow of a stronger USD and shift from small caps to large-cash flagship businesses of the US to produce for a 7-billion populated world. With Europe assets priced higher by USD carry trades into its national debt, Asia will start to “have meat to bite”, again being the last in her stocks to flourish behind the broads. 2014- 2030: Every dollar invested in the US will return to more than a dollar invested in Asia’s emerging again, and if the secular bulls of the 50s and the 80-90s have returned 400% in inflated-adjusted return, FFR, 10UST, 30UST, will start to behave looking like the 50s all over again, but with gold killed by crude and shale.
Posted on: Tue, 13 Aug 2013 16:41:40 +0000
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