The World After Brexit

by Michael J. Howell27. June 2016 16:50

Is this Risk On or Risk Off? First, in financial and economic terms, this is not another 2008. Then the markets stopped working. Today, global markets are shocked, but not frozen. Second, the UK is financially stronger and more robust than it was in 2008. Third, the implications of Brexit are likely greater for the World outside of the UK, than for Britain itself. Should we buy or sell? Longer term equities possibly look a tad better because Brexit will shift policy focus towards more use of fiscal policy and away from the demerits of QE. Greater use of fiscal policies will ultimately worry bond markets. Geopolitics will come to the fore. All-in-all, gold looks increasingly attractive. The liquidity cycles have been telling us that 2016 is the year of gold and commodities. That view continues.

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A Third Major Bubble That Looks Set to Finally Burst

by Michael J. Howell7. June 2016 16:04

In 2007/08 World stock markets were pushed too close to the sun by the spiralling shadow banking markets. In 2011/12 gold and commodities, spurred by soaring Central Bank liquidity, followed. Now, driven by a scramble for ‘safe’ assets, it is the turn of government bond markets. Ironically, their term premia have been driven to such low extremes they now look more like risk assets than ‘safe’ ones. In this topsy-turvy World, investors have been buying bonds for capital gain and equities for yield. Treasuries look vulnerable to both domestic inflation shocks and global capital flow shocks.

 

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Could Xi Zap Bonds?

by Michael J. Howell25. May 2016 12:12

If a second hike in US policy rates this July now looks a certainty following a strong FOMC hint, the behaviour of the long-end of the bond markets seems more like a conundrum. In a textbook World, rising short-term rates should bearishly flatten the yield curve. Many investors seem so positioned. Up to now we have been big fans of bonds, but it is time to change. We do not disagree that yields should rise, but we suspect that rising yields may come alongside a steepening yield curve. In other words, the long-end of the market could sell-off. And China may hold the key.

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G4 Bond Risks

by Michael J. Howell18. March 2016 15:13

The US dollar is cracking under pressure from deteriorating fundamentals and maybe a subtle policy co-ordination following the last G20 Shanghai summit. Could this be Plaza2? The asset allocation implications are significant. We focus here on the potential volatility of G4 bond markets. If the links between Chinese capital outflows, surging G4 bonds and a strong US$ are true, then any reversal in flows will cause a further US dollar sell-off and crashing bond prices as investors flee these ‘safe’ assets. 

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Global View March 2016: Why Gold Bullion is Soaring

by Michael J. Howell7. March 2016 16:19

Gold is our high conviction trade for 2016. Think of the gold price as the antithesis of paper money. A strong gold price equates to weak paper money: this often means a falling US dollar, but not always. The last couple of years have seen gold reaching record levels measured in EM currencies, but still languishing against the US unit. However, the next 18 months may see an unambiguously strong gold price against all paper units. We expect it to test US$2,000/oz. by mid-2017. The reasons lie in the changing mix of Global Liquidity.

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Global View March 2016: Will A Lack of Borrowers End The US Dollar Boom?

by Michael J. Howell4. March 2016 15:18

Time to buy Gold?

A strong performance from gold bullion so far in 2016 hints that fundamentals may be finally turning against the US dollar. In fact, January saw the largest drop for three years in US private sector cash flow growth, and latest capital flow data appear to show a low in gross activity in late-2015. On top, some rebound in World Central Bank liquidity injections (i.e. QE) later in 2016 still seems likely in our view, given the weakness of wholesale market funding and the plain fact that, over the past year, both China’s PBoC and the US Fed have been unhelpfully tightening liquidity. Gold and (later) commodities are already our conviction investments for 2016. Moreover, flow data for the Aussie and Canadian dollars have coincidently turned positive. If our projections prove correct, expect a US$2,000/oz. gold price by mid-2017.

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Global View March 2016: The World’s Biggest Credit Bubble Meets the World’s Biggest Policy Error

by Michael J. Howell2. March 2016 13:47

The bear market in global risk assets is gathering pace. It follows in the wake of last year’s lurch downwards in Global Liquidity. Looking ahead, the two key issues are: (1) the collapse in China’s asset bubble, hastened by the PBoC’s tight policy response to the huge capital outflows, and (2) the latest Central Bank error of negative interest rates plus reverse repos. We reiterate our conviction that gold and US Treasuries will be 2016’s best asset choices.

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Global Liquidity Conditions (Liquidity) Emerging Markets, February 2016

by Michael J. Howell29. February 2016 14:57

The investment outlook remains challenging, with EM equities and forex markets likely to suffer heightened volatility. The low level of the broader GLI™ is consistent with future World economic weakness but it remains above the critical 30-level which has traditionally signalled World economic recession.

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Global Liquidity Conditions (Risk) Emerging Markets, February 2016

by Michael J. Howell29. February 2016 14:54

The Emerging Market component of our Global Risk Index fell to 74.5 in January 2016, its lowest level in two years and significantly below the recent peak of 91.4 a year ago. Not surprisingly, given recent events in markets, the single biggest contributor to lower overall risk was Exposure Risk which has plunged to 23.7.

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Global Liquidity Conditions Major Markets, February 2016

by Michael J. Howell29. February 2016 14:51

Weak liquidity points to volatile asset markets and future economic weakness. The US dollar bull market is likely to peak later in 2016. Gold looks an increasingly interesting alternative.

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