On a typical "risk on" day around the globe, stocks are bought, Treasurys are sold and gold and silver soar. Then a "risk off" day follows and the opposite happens.
Frankly, I am fed up with the yo-yo mentality the global traders have been suffering for the past few months. The fear trade (afraid of the shadows of a default in Europe) has wrecked havoc and created nothing but heartaches and trader fatigue with nothing to show as a result.
Here is what has changed in the past week:
• China has published its Q4 results and has slowed but is showing signs of how it is controlling its economy. All the fear of a hard landing is looking unfounded as of now. That can change in the future. But as of now, the series of rate hikes it imposed last year has brought about the desired effect of cooling down the economy and made it somewhat manageable.
• India has now gotten two months of data which show that its inflation seems to be under control. The fear of runaway inflation hadn't only plagued the currency but also the local stock markets. The Reserve Bank of India has woken up to the fact that it had to take steps to arrest the slide. While I may believe they were late to the show, at least they are there now and we have a gradual turnaround in progress there.
• With the second meeting of the ECB under his belt, Mario Draghi, the new president of the ECB, has begun to show his true colors. He is turning out to be a mini Ben Bernanke. The ECB was known to be a disciplined central bank that wouldn't pander to the desires of stock markets and make the individual participants walk the plank rather than kick the can down the road, or print and inflate their way out of trouble. Draghi has indicated that he will do whatever is necessary to "rescue" Europe. So we are assured of the printing presses cranking up in Europe soon.
• With a very high monthly deficit in the United States for last month ($49 billion), the economy stalling at best, and companies warning about the future as earnings season rolls on, we can start assuming that the Federal Reserve must be oiling the presses again for another round of QE sooner rather than later. Being an election year, Fed officials must be thinking, "We cannot see the United States go through another bone crushing dip."
So with the confluence of two pieces of bad news (ECB and Feds) we also have two pieces of promising news.
India and China are showing signs of growing again. And if Europe and United States don't drag it down, we will see more robust growth in Asia again.
My monies are flowing to Asia. I hope yours are too.
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