Well before we heading off….. the triple witching in the US and the Fed announcement (same expiry date for options, future contracts and index options) conspire to give a target for end of year around 1,850 for the SP500 and 5,500 for the battered ASX.
This rally will probably end (or better we will have to reconvene and analyse) in March with SP500 at 1,900 and the ASX around 5,600.
Merry Christmas and happy holidays!
Since the era of Mao Zedong, China has adhered to the Zhou Dynasty military strategist Sun Tzu’s counsel: “subdue the enemy without any battle” by exploiting its weaknesses and camouflaging offense as defense. “All warfare,” Sun famously said, “is based on deception.”
The first, long forgotten, act had been the 1950’s encroachment in the Himalayas
Until 2006, China behaved as a good neighborhood. Then it started asserting claims on the Arunachal Pradesh (Indian territory, pretty remote and resource rich)
Last year, 2012, China effectively took control of the Scarborough Shoal, an area of the South China Sea that is also claimed by the Philippines and Taiwan. Philippines has now to accept a de facto conquest or go to war.
Now all attention is on the Senkaku Island for Japan (Diaoyu Island for China) and the Air Defence Zone. Again China is aiming at a “de facto” conquest.
Again in 2013 (bet you did not hear about this) China started ratcheting up pressure on India – on 15 April a Chinese platoon invaded (YES!) the Arunachal Pradesh erecting a camp 20 kilometers inside Indian territory – retrieved only after three weeks of talks. Since then the LAC (Line of Actual Control….a defensive line between the 2 countries) is actually seeing a gradual build up of military deployment.
Just in the last month:
Tension with Vietnam are also rising in the South China Sea with the US approving a USD33 million package to the Vietnamese Navy.
South Korea just extended its Air Defence Zone to overlap the Chinese one and a US Battle Cruiser, USS Cowpens, almost collided with a Chinese navy vessel.
China has also started a series of dams to deviate river flows to increase pressure on the neighbors.
This seem to be a steady pattern for China – a full diplomacy intervention is needed before something will happen for real.
And considering that the region holds 50% of trades and 70% of electronic hardware, even a limited conflict would have huge repercussions.
Finally the tapering has commenced and the market rallied!
Why first of all it is just USD 10bn a month …and what is more just 5bn of Treasuries (the other is mortgage securities), than they said they will anyway keep tapering/low interest until 2015 at least and the taper was already in (weakness since Nov). Plus there is consistent talks that they are studying how to effectively push banks to give to the economy the money (the free money given to the banks now are re-deposited by the FED) and they cannot risk to upset the bond market. As usual it would take some days (and the press release) for the market to digest the info.
The QE Bull market is dead, long live the Bull Market!
Some extract from the speech – transcript – I just bold the important bits.
“We have emphasized that these numbers are thresholds not triggers, meaning that crossing the threshold would not lead automatically to an increase in the federal funds rate but would indicate only that it was appropriate for the committee to consider whether the broader economic outlook justified such an increase. With many FOMC participants now projecting that the 6.5-percent unemployment threshold will be reached by the end of 2014, the committee decided to provide additional information about how it expects its policies to evolve after the threshold is crossed.”
If incoming information supports the committee’s expectation of further progress toward its objectives, the committee is likely to reduce the pace of monthly purchases in further measured steps in future meetings. However, the process will be deliberate and data-dependent. Asset purchases are not on a preset course.”
“If we are making progress in terms of inflation and continued job gains….I imagine we will continue to do probably at each meeting a measured reduction. That would take us to late in the year, certainly not by the middle of the year. If the economy slows for some reason or we are disappointed in the outcomes, we could skip a meeting or two. On the other side, if things really pick up and, of course, we could go a bit faster, but my expectation is for similar moderate steps going forward throughout most of 2014.”
“The recovery clearly remains far from complete with unemployment still elevated, with both underemployment and long-term unemployment still major concerns. We have also seen ongoing declines in the labor force participation, which likely reflects not only longer-term influences such as the aging of the population but also discouragement on the part of potential workers. Inflation has been running below the committee’s longer run objective of 2 percent. The committee recognizes that inflation persistently below its objective could pose risks to economic performance and is monitoring inflation developments carefully for evidence that inflation will move back towards its objective over time.”
The media went crazy on the fact that Google bought the 8 leading US companies that produce robots.
What it does tell you?
– the robot technology now is out of its infancy and ready to hit the mass market
-Google has exhausted the exponential growth in phone, tablet, Android devices. Yes there are still the wearable devices (such as Google glasses), but they already know (as they own 80% of the research data, that it is not a big market
– Robotic devices instead could be the solution for various issues from assistance to the aging population (or substitution of aging population in manufacturing) and personal assistant to warfare and space discovery.
Welcome to a new era
Japan’s cabinet has just approved a massive military spending boost for the next 5 years for acquiring, drones, stealth aircraft, amphibious vehicles.
It is the new weapon race in Asia and it has just started. Japan has the 5th largest military budget in the world, not bad for a pacifist country. Also, Japan has one of the most advanced robotical engineering industries in the world. Seeing that they cannot match China due to the limited amount of population…watch this space!
After the beautiful example of “KGB style” Syria operation (the one that put off the US striking Syria, sending a message to the ex USSR “colonies” to better be compliant with Russia – not US or the weakling democratic Europe), now Putin is turning its attention to Asia.
Asia it has a clear importance as it needs energy and it is growing. Already Putin is trying to sell energy to China…but it is also playing strategic opening up agreement with China’s natural enemies…old cold war allies (Vietnam), friendly or neutral countries (India and South Korea) and even old enemies (Japan)
The new US isolationism “first between equals” is creating a new world that, in the future, will be much more scary with a lot of medium powers competing for ever scarcer resources.
A message for the millions of anti-US pacifists: be careful what you wish for…you just might get it.
It almost feels that my post of the 6th December was Orwellian…after that Qantas downgrades, QBE downgrades, Holden exit Australia..soon will follow Toyota and 6 days of falls in the AU share market -practically the worst since November in the developed market.
It feels like a 1-2-3 from the old Mike Tyson.
Plus in the US the Fed is playing up with liquidity – I always told that this year the market is driven by liquidity and by someone who (Fed) which we do not really know the game.
At least the Australian politician will have to wake up!
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