Category Archives: Market outlook

When to buy gold in 2015/2016: Gold is a way to avoid the market crash in the near future

In early 2015, the gold price remained approximately $1150-1250, but as the Chinese economy slowed down, the price finally fell below $1100 in July.

As the Fed was going to rise the interest rate, the bear market itself was predicted by some investors. When the rate rises, the higher yield makes the dollar more attractive, and as a consequence, the gold price, traded in USD, decreases.

However, now we have another influential factor: the slowdown of the Chinese economy, which became more serious than before. So in this article, we contemplate on the two factors that affect the gold price and explain why gold is still a way to avoid the upcoming market crash in a few years.

Continue reading When to buy gold in 2015/2016: Gold is a way to avoid the market crash in the near future

Fed rate hikes will reverse portfolio rebalancing and end QE bubbles

The investors are trying to be prepared for the Fed’s raising the interest rate in late 2015 and 2016, worried about how much it could affect the markets, but they seem to have forgotten what has been supported the markets for several years.

Have we already overcome the termination of the Feds’ QE? The answer is no. Although the interest rates are kept relatively low, and the US stocks remain near the all-time high, the markets are just supported by QEs by Bank of Japan and European Central Bank.

The portfolios of the investors of all kinds have been distorted by the QEs. According to the paper by the Fed, due to the QE the owners of Treasury securities and MBS shifted their funds into riskier assets. For example, the households sold Treasury bonds and MBS to the Fed and bought riskier assets such as corporate bonds, commercial paper and municipal debt and bonds.

Continue reading Fed rate hikes will reverse portfolio rebalancing and end QE bubbles

How long will oil price remain cheap?: 5 ways to trade on crude oil

Thinking to write about the recent fall of oil price, I found an article on Reuters with a similar opinion to mine:

Therefore, leaving the detailed analysis to the article, I’d like to summarize the major arguments and explain how to trade on the financial markets according to the cheap oil.

As the article describes, it’s much easier to predict how long oil will remain cheap than to say how low it will fall. As long as Saudi Arabia is serious about destroying the shale oil industry in the US, it won’t decrease its oil production till it succeeds. Thus, we can expect that oil prices will remain low until many shale oil firms in the US stop producing or go bankrupt. Continue reading How long will oil price remain cheap?: 5 ways to trade on crude oil

The consumption tax rise can’t be compensated by monetary easing or public investment

The government of Japan published the 3Q GDP on 17th, confirming that Japan had got into a recession. The Japanese media reported as if it was struggle of Abenomics against the deflation, but the real cause of the recession is the consumption tax rise in Apr. What is worse is that the bad effect of the tax rise can neither be wiped away by the monetary policy nor by the public investment that Abenomics has been engaged in, and thus another strategy is required. We firstly review the contents of the GDP:

Screen Shot 2014-11-24 at 06.39.03 Continue reading The consumption tax rise can’t be compensated by monetary easing or public investment

Reviewing the euro, the German government bond and property companies

The ECB (European Central Bank) is expected to have a Governing Council meeting at 1:45pm CET, which has been keenly watched by investors since Mario Draghi, the governor of the ECB, mentioned the possibility of financial easing in this meeting. Continue reading Reviewing the euro, the German government bond and property companies

The EU election results will lead the euro zone to a genuine growth

In the EU elections from 22nd to 25th, the anti-EU parties, like Front National in France, enjoyed their victory as the European citizens couldn’t stand with the fiscal austerity that had been imposed to them. Recognising the results, the German prime minister Angela Merkel mentioned the necessity of accepting the needs for more dovish fiscal policies. This is the first step of the true economic growth of the euro zone, which the market has been longing for. Continue reading The EU election results will lead the euro zone to a genuine growth

In a short term, the euro is dumped too much

Since Mario Draghi, the governor of the ECB, mentioned the possibility of financial easing next month, EUR/USD has been dropped from 1.40 to now around 1.36, although it could be too much to fall. Continue reading In a short term, the euro is dumped too much

How much can the euro fall down if ECB starts the QE?

After Mario Draghi, the governor of European Central Bank (ECB), mentioned the possibility of financial easing started in the next meeting of the central bank, the speculation occurred also in the currency market following the European real estate stocks that had been already boosted for months. (See the article on Gecina.) EUR/USD is now traded at 1.37, falling down by more than 1%.

The news currently mostly tells about the negative interest rate, not the quantitative easing, but if the other methods couldn’t hinder the inflation rate from diminishing, the ECB would have no option but the QE. Therefore, in this article we estimate the due rate of EUR/USD after the QE. Continue reading How much can the euro fall down if ECB starts the QE?

Outlook of USD/JPY by the monetary base difference

japan-us-monetary-base-ratio

This is the graph of USD/JPY and the ratio of the two countries’ monetary bases since 1990. For a decade since 1995, the amount of the issued yen per a dollar had been around 100 with the exchange rate  being around ¥115, but then the Fed moved to financial easing according to the crisis in 2008. As a result, the ratio went down to around 50, which has still been the range until now as both of the central banks have been engaged in quantitative easing.

It is assumed that the monetary base ratio will resume to be 70-75 when the Fed totally stops the easing and the Bank of Japan finishes the QE of 2 years. The last time we observed that range of the ratio was from Oct to Nov in 2008, when the exchange rate was around ¥98.

To estimate the current due exchange rate from this, we need to consider that the foreign exchange market usually precedes the monetary base, and that in late 2008, the market was in a hurry to reflect the quantitative easing that would be held afterwards. We also need to note that according to the data by the IMF, the real economic growth of the US between 2008 and 2014 is estimated to be 9.2% whereas that of Japan is assumed to be merely 2.8%. Considering these, the current range of the exchange rate, ¥100-105 can be said to be quite appropriate, and due to the Japan’s trade deficit, which hasn’t decreased even with the weak yen, would lead the rate to be ¥105-110 in a middle or long-term.

In a short term, investors should be careful of the enormous short positions on the yen, which have been piled since late 2012, although the situation wouldn’t help the speculators demoralise the market, as few factors are seen to change the investors’ long-term view, and the additional QE is still possible if the inflation rate doesn’t increase. The investors would need to move in the Japanese stock market considering this moderate future of the currency market. After a fuss, with the speculators discouraged, the cheap and expensive stocks will just come to the due price, without causing any dominant trend in the Nikkei index.