Monday, January 11, 2010

Bill Gross - Let's get FISICAL

Bill Gross wrote a piece of provocative investment outlook this month. The main premises of his outlook:-

(1) If 2008 was the year of financial crisis and 2009 the year of healing via monetary and fiscal stimulus packages, then 2010 appears likely to be the year of “exit strategies,” during which investors should consider economic fundamentals and asset markets that will soon be priced in a world less dominated by the government sector. If, in 2009, PIMCO recommended shaking hands with the government, we now ponder “which” government, and caution that the days of carefree check writing leading to debt issuance without limit or interest rate consequences may be numbered for all countries.

(2) Additionally, if exit strategies proceed as planned, all U.S. and U.K. asset markets may suffer from the absence of the near $2 trillion of government checks written in 2009. It seems no coincidence that stocks, high yield bonds, and other risk assets have thrived since early March, just as this “juice” was being squeezed into financial markets. If so, then most “carry” trades in credit, duration, and currency space may be at risk in the first half of 2010 as the markets readjust to the absence of their “sugar daddy.” There’s no tellin’ where the money went? Not exactly, but it’s left a suspicious trail. Market returns may not be “so fine” in 2010.

I think most of the big picture guys will get it right on the direction in the long term but sometimes in the short term, the markets may not be behaving according to his hypothesis.

I just came back from S. Korea over the weekend. This news was on the front page but appeared just in a small section of the Star.

(the Star)SEOUL: South Korea’s central bank yesterday froze its key interest rate at a record low 2% for the 11th consecutive month, saying uncertainties remain in the recovery of Asia’s fourth largest economy.

South Korea’s Vice-Finance Minister Hur Kyung-wook took part in the central bank’s policy meeting yesterday, a first since 1999, sparking allegations the government intervened in the bank’s decision-making.

The problem is government intervention though they deny it!.

The Japanese minister made a mistake by opened his big mouth to weaken Japanese Yen. Though he retraced his statement but I think they are going to do it anyway.

Tokyo - Japan's new finance minister said on Friday that Tokyo would take action over the strong yen if needed, but added that in general markets should set currency levels.

"Basically, the market determines foreign exchange" rates, Naoto Kan said at a news conference.

As finance minister, however, it was his duty "to take action on foreign exchange when necessary," he added.

Kan's remarks came a day after he rattled markets with a call for a weaker yen, prompting a thinly veiled rebuke from Prime Minister Yukio Hatoyama, who warned him not to publicly comment on currency levels.

"The government basically should not discuss foreign exchange," Hatoyama told reporters. "Regarding foreign exchange, stability is desirable."

I think the governments around the world will continue to intervene, of which many of the people pointed out rightly - they are digging into a deeper hole as time goes by. The sign of the things go so badly that you can see people riot on the streets again. At that point, Bill's prophecy will come to pass.

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