The Emperor Truly Has No Clothes
By Tshepo Magagane
When QE started post GFC, the below was our overriding thesis at the HF – note the emphasis on real assets such as Commodities; it is even more urgent now, the USD is being debased (the US is like an EM country that has been taken over by a military dictator – all bets are off – even the Treasury secretary is attacking the Fed – an ex HF manager – there are no adults in the room): Commodities such as Copper / Gold are going to provide a hedge against this (even before you start talking about Industrialisation, Electrification)
[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).
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.]
