Archive for October, 2016

Inflation looming

Posted: October 31, 2016 in Uncategorized

The US bond yields are rising.

Saudi and China are dumping US Treasuries at record pace (part of the yield back up story as the more sale the higher the yield).

China is dropping them to stimulate recovery and protect the Yuan (now Chinese Treasury holding are at 2012 level) and Saudi to finance its two wars (Syria and Yemen).

This conspire to accelerate inflation as all the banks (also in Australia) gets their liquidity from the US (so they have to pay more…so they will increase the interest rates charged).

Now also the Chinese prices at factory gates are increasing and China has been the big deflation exporter in the world for decades now.

The inflation shock can come faster and harder than expected.

Since in Victoria, Australia, it is the week that stop the nation (horse racing Melbourne Cup)…let’s talk about dark horse scenarios for the US election

The market favorite scenario we know is a Clinton win and current/similar situation in Congress. Mildly positive, but substantially already in the numbers.

The other classic scenario is a Trump win and current/similar situation in Congress. Negative for the market, but substantially known and mitigated by the fact that at the end Trump is a Republican and will have to follow the party. temporary market loss of 5% to 10% – probably mitigated by the fact could decide not to raise interest rates

The dark horse scenarios which the market is not prepared to is

Clinton sweeps to election and the entire Congress goes Democrats. Democrats had to do many concession to Sanders ( so they went more left in their policy) and the market will sell off brutally.

Clinton or Trump win – but the win is challenged in court by the other and the US government goes practically into paralysis (or a variant of this…Clinton wins and then the FBI really needs to impeach her due to the email contents.

No wonder that institutions are increasing cash!


The inflation data released, while low overall, picked up in the last Wednesday report with stronger “consumer lead” inflation (clothes, housing and an incredible +19% quarter on quarter for fruits and vegetables), while transport and “imported items” inflation is down.

While the RBA will maintain an easing bias…there is no rush to cut as the big risk in the RBA mind (deflation) eased off.

This tells you a few things

If you feel like the real inflation is higher….you are right. You buy much more “fruit and veggies” stuff than big item ticket like cars and TV.

As inflation boost the Australian yields (Government Treasuries) more foreign money get parked in Australia and the AUD will remain stronger for a while.


Yesterday around the world was quite a lame day, but in Australia the stock market took a hit.

The issue is that the inflation data practically wiped out the bets for next week potential rate cut. Technically speaking the chances went from 15% to 6%.

Moreover it signals the potential end of the easing cycle and rate rising cycles are much more difficult for shares.

My personal take is that at this point rate cut do very little apart inflating the already inflated real estate market.

If there are issues next year (most likely) we will likely see Australian Quantitative Easing.  

Ps. The 5400 support has been broken, next one 5200.

Market: dead calm

Posted: October 25, 2016 in Uncategorized

Like the ocean all the market went dead calm and institutions increased cash across the board as everyone learnt the “Brexit lesson”. Market is kind of trapped in a range to wait and see the US solutions…too many variables to make a sensate decision. 

But even from far above is dead calm. The ASX 200 was at these levels 3 years ago. A lot of risk for collecting just dividends, if you are index tracking.

The Presidential debate yesterday showed that Clinton is unfit for command.

She exposed that it takes 4 minutes for the US President to launch a nuclear strike and consult 10 person.

This is a precious information for any enemy of the US.   

Now for all her fear of Putin the Russians could station a Yasen Class nuclear strategic submarine at less than 4 minutes strike distance from Washington. 

Very smart indeed for an experienced officer. I do prefer an inexperienced one!

South China Seas and Philippines

Posted: October 21, 2016 in Uncategorized

Yesterday Philippines announced the pivot to China and Russia.

In the new Cold War this is a terrible hit for the US, Australia and NATO.

Philippines strategically was one of the most important allies for the US and kind of the base for its superiority in the South China Seas.

Even if PM Duterte does not follow up and goes just in neutral…ot is a massive blow.

The new Cold War is shaping up as developed world versus emerging countries