Greetings everyone! We’re back after a weeklong break for the October holiday. For those who travelled we hope you had an enjoyable and safe trip, while for those who stayed put in Shanghai, we hope you too enjoyed the splendid week of weather! It’s always nice to be in Shanghai during a holiday as the city is more quiet, people more relaxed, and with the sunshine and blue skies that certainly was a treat. Unfortunately we lost both our softball games on Sunday but we’re still in the race to finish off a great season so time to dig deep and keep focused…
As my counterpart Bill Longstreet wrote in the last Money Matters two weeks ago “most of the world’s central banks are easing and interest rates are likely to stay artificially suppressed for years” and Bill was spot on as the US announced it would keep its rates likely unchanged until 2015. That’s a big statement for a central bank to make as although it encourages cheap borrowing for many years, it also tells us that the concerns about growth could last for some time. Adding in the concerns of economic slowdown in China and Europe, we find that most of the global markets are waiting for something to spark a progressive drive. Until then we’ll likely see a lot of the same sideways movement we’ve seen over the past week with assets being boosted by policy intervention rather than true economic growth!
We’ve had a few readers ask about monetary intervention and who controls these decisions from central banks? Are their actions directly
Monetaryrelated to the economy or are there other factors involved? These are great questions and depending on who you ask you’ll probably get some very different answers. The central bankers would almost certainly state that their decisions are independent of unrelated factors and purely based on economics. However looking back at history we’ll notice in the USA, the central bank has enforced monetary intervention or some kind of stimulus injections during the months of September or October in 10 of the last 15 presidential election terms! This means in the last 50+ years the US FED has intervened just months before the presidential elections 75% of the time.
This is making it a precarious time in the markets as policy intervention is fueling markets just enough to continue their upward trends, over shadowing the economic data of poor manufacturing and production numbers. We’re not saying that this upward trend won’t continue but we might be approaching a time where economic data will be too much for monetary intervention and make it difficult for the markets to continue rising. Most of the central banks realize this and are keeping their options open to maintain control of their monetary intervention, so we’ll have to see if they can continue to have the upper hand in this tug of war with economic data.
Production
Let’s not forget about Europe though. Despite keeping out of the headlines for some time they still have problems to face. The good news is they seem to be aware of most of the major issues and for the time being their banks are able to handle their current situation. The downside to this is it doesn’t help resolve the underlying problems of unemployment and weakening economies. This will continue to weigh on China as without Europe at previous trading levels, China will have to compensate by slowing down as their internal consumption rate (although climbing) can’t replace the void that Europe and other countries have left by reducing demand. This will leave industrial metals and commercial logistics in the tough spots they’ve been in for a while and will need to see demand pick up before these sectors will catch the rebound we’ve seen in biotech, consumer staples and healthcare.
Having a balanced portfolio is crucial at this time and in addition to equities investors will want to continue holding Gold for inflation protection as the US keeps with their QE3 and low rates. Longer term investors may look to seek future gains through commodities and Biotechenergy
but just be aware of the short term fluctuations these sectors will have as manufacturing and demand reports continue to be weak. Maintaining a well balanced portfolio will help with the current events going on and we’ll see how the latest round of QE is performing with US job data printing on Friday.
For our investors – remember to hold a balanced portfolio and talk with your advisor about any repositioning to take advantage of markets at this time. For more updates on the world financial news please visit our Weekly Global Economic Outlook.
Let’s hope the market uptrends and good weather can continue. Have a wonderful week!
Co-Head of Portfolio Management,
Darren Cox
Austen Morris Associates Wealth Management & Investment Team
www.austenmorris.com
