Real assets – that is all that matters!
Written By Tshepo Magagane
US hits USD40trn debt level.
The world cannot turn off the money printing press – simply cannot; otherwise the whole thing falls apart.
You need to be in REAL ASSETS.
This thesis we had post GFC:
The aim of QE2 is supposedly to boost the economy by lowering the cost of capital and propping up asset prices. Note the cynicism which the likes of Gross (a Ponzi scheme), Tudor, Scwarzman and Grantham have poured on the so-called magic portion. Maybe it is just that ingredient which is missing that cannot be got at (RMB/USD!). In any event, the thinking goes, lower long term rates will increase borrowing and spend. Also will debase the QE2 currency against non QE2 currencies (do not be long the USD!). Debasing a QE2 currency will cause an exodus to the likes of gold, commodities and non QE2 currencies.
Short-term:
Assuming QE2 occurs and in size (the mere mention of it by the FED has seen US equities go up 10+ per cent and Ten Year Treasury yields drop 30+ basis points), one would assume global equity markets continue their rally as amongst other things, as LEX put it the other day, “lowering discount rates from say, 8 to 7 per cent in a simple dividend growth model for the S&P 500 almost doubles its “fair value”. The joker in the pack for all the above continues to be Western Europe (especially Greece, Ireland, Portugal et al), but realistically, one does not see a short term problem in this space.
Medium-term:
The emperor has no clothes (i.e. the US$). Sterling is in drift. The Euro is a gamble (odds not in your favour).The Swiss Franc is restricted size wise. RMB restricted regulation wise. Hence “corporate/asset” purchases and/or gold, silver, commodity “bets” (note Agnelli talks of an implicit US$ hedge in his Vale “2nd largest mining company” model) in a weak dollar situation (in so far as no global financial structural crisis must be a good bet). Maybe overlaid with some select European government hedges (2-5 years forwards via CDS or the like).
PS: Bessent is like he is trying to even undermine the entire admin😂
[
The Treasury secretary said there was a “very good chance” the deficit had peaked and said new tariff income and vice-president JD Vance’s planned fraud crackdown would help bolster government revenues.
“Without a shift to fiscal consolidation — higher taxes, [a] slower pace of government spending or outright declines in government spending as happened in the 1990s — the buybacks will prove to be only temporary,” said Joe Brusuelas, chief economist at professional services firm RSM US.
Analysts at MUFG said there was a sense that the unscheduled announcement by the Treasury was “lacking a strategic plan”.
“The danger now following this announcement . . . is that it proves counter-productive and leads to reduced appetite for either holding US assets or reduced appetite for exposure to the US dollar or both,” they said.
Juckes added that this would “either force the US to tighten fiscal policy, accept higher borrowing costs or let the dollar weaken. No prizes for guessing which solution the market now sees as most likely.”
]
