Well, no-one can say the markets this year have been boring. Indeed, we are certainly living in interesting times. I cannot think of any time like this one where we have lived in, as Joanne Baynham of MitonOptimal describes, “Such as enormous liquidity experiment orchestrated via central bankers.”
In the first half of this year there have been very few trends that investors could feel happy investing in. You know things are rough when Man Investments, which is now the world’s largest publicly listed specialist provider of hedge funds and alternative investment solutions manager, is struggling. Yes, there is the weak US Dollar and profits can be made in USD asset plays from such things as oil, mining, Hong Kong physical real estate, etc. But, as we can see what happened recently with the commodity market, all of this kind of thing can unwind incredibly quickly.
In May, John Taylor, who is the founder of the world’s largest currency hedge fund, went on Bloomberg and said, “This is the end of the nice slow moving risk rally that has lulled us pleasantly to sleep since the first half of 2009. This warning is worthy of a brass band and bright lights as the other side of this low volatility rally will most likely be a scary descent that will have a very negative impact on markets. Our statistical models say we are about at the end of the road for risk.”
There we have it, basically what Taylor is saying is that, over the last few weeks, the spikes and then collapses in oil, silver and gold is giving a good indication that this is the end of the bull market.
However, this is not the only problem. Commodities are just one of the asset classes. There are others as well and none of them are providing a smooth ride at the moment. This is especially true of currencies. Many people are struggling with money at the moment and what its true value really is as well as the real cost. Gavekal pointed out in a research paper that potential investors are not comfortable with QE2 and the possibility of QE3 as it can be seen governments have forgotten the basics and have messed around with the “weights and measures” of the western financial system. What no-one knows is what the outcome of this will be.
When it comes down to it, money has two prices:
1) A domestic price based on interest rates;
2) An international price based on exchange rates.
In the western world, which is predominantly capitalist, the real value of money comes about when different currencies can compete with each other freely – irrelevant of the economic or political systems. However, times have changed. This is no longer the case. Today, we have three economic powerhouses where the currency of each is not being allowed to be priced correctly. In all three cases the governments and central banks of America, China and Eurozone are manipulating the situation to suit their own needs and stuff anyone else.
This means that those who want to invest in currencies do not have a level playing field in which to judge what the best strategy would be. However, many economists believe that this will not last. If you are in currencies then use a base currency and operate round that. As for the safest currency at the moment – you will not go far wrong with the Singapore Dollar.
The above data and research was compiled from sources believed to be reliable. However, neither MBMG International Ltd nor its officers can accept any liability for any errors or omissions in the above article nor bear any responsibility for any losses achieved as a result of any actions taken or not taken as a consequence of reading the above article. For more information please contact Graham Macdonald on [email protected]
