Health and finance are areas of inquiry with increasingly interrelated terms. This is especially the case in the matter of monetary policy, where liquidity ‘injections’ and central bank ‘life support’, among other things, are in the common lexicon. But when it comes to quantitative easing (i.e. QE) in the US and Britain, or outright monetary transactions (i.e. OMT) in Europe, there are mounting concerns that the cure, as it were, is now worse than the disease.
Intervention, whether fiscal or monetary, usurps the laws of economics and prevents rational price discovery (something that struggles to happen most of the time as it is). Moreover, intervention on the scale that we’re seeing not only creates the incentives for mal-investment, mis-direction and financial bubbles that intervention is supposed to prevent in the first place, but it can become very, very addictive. Yet this has always been so. We live in a world run by politicians – both democratic and autocratic – not by businesses or markets. And in a world run by politicians, it is political interests, ranging from the domestic and electoral, to the geopolitical and strategic, that trump the laws, if ever they did exist, of economics.
For the time being, the politicians want markets and the underlying economy to recover in a critical year for the US, Europe and China. The politicians, in a world of 24-hour media attention, also want voters and consumers to keep going to the polling booths and the shopping malls. A credit crunch and recession, let alone outright deflation and a depression, is in nobody’s interest. But as much as this is the overarching case, not all policies work to plan and there are dissenters to the prevailing wisdom of extend-and-pretend, ranging from reformists in China, the Bundesbank in Germany to the so-called Tea Party (heaven forbid!) in America. As such it behoves us to remain invested in fundamentally healthy stocks and markets, while trading and fading – at the same time – the opium-addicted rallies that we’ll see continue.
This week we continue our series of profiles on out-of-fashion industrial stocks, offer a range of trades leveraging off the shift in Euro strength, caution on the risks of CBA PERLS, and examine the Perth property market and its exposure to commodity cycles. Technicals looks at the screaming “risk on” move. And much more.
Our up to date model portfolio performance is above. As you can see, the MacroIncome and MacroGrowth portfolios are weathering the volatility nicely and MacroTrades speaks for itself.
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