Are Global Market Convulsions America's Fault?
Global sell-off reflects America’s worsening Economic Time:
1. In mid July investors finally accepted that The Economic Clock™ for America is worsening.
2. Will last until at least November
3. Asset management problem has morphed into a liability management issue
4. Will keep infecting Asia as funds have to sell Asian assets to cover redemptions
End of the world?
1. The sell off lays to rest the nonsense that Asia etc. has de-coupled from America. If anything, economies are now even more locked at the hip: witness the (tiny) exposure of China’s banks to America’s sub-prime loans and thus to its “Countrywide Financial Corpse”. Besides, America’s stock market cap of USD 16 trillion still dwarfs that of Europe’s and Japan’s combined, and is 8x larger than China’s!
2. In addition, so much of the liability management problem stemmed from rather greedy German banks
3. But, non-US markets gradually are creating choice for the investor
4. Thus, our guess is that once things settle, people will recognize that The Economic Time™ in America is going from bad to worse, while that in China/Hong Kong/Korea and India remains very good.
Currency convulsions
1. The idea of borrowing cheaply and investing in higher yielding assets has gone up in smoke – as it always does.
2. Thus, people who borrowed yen have to repay their yen debts – by buying yen. So I could see it reaching 105/dollar by end November.
3. Meanwhile, with US interest rates higher than the Euro’s, expect the dollar to strengthen against the Euro.
4. Thus: go long the yen and short the Euro
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