This past week the markets rose considerably on rumor, after rumor, after rumor. It seems investors are dying of thirst for anything that might kick the “European banking/sovereign debt crisis can” down the road further. It is very hard to imagine that any gains in the market are not going to be very short-term in nature. The following quote from Former Prime Minister of England, Gordon Brown, who just so happens to be the former Chancellor of the Exchequer (read: Secretary of the Treasury) is very telling of exactly what is going down in Europe:
“It has morphed into a sovereign debt crisis, and is more serious than 2008 because governments then could intervene to sort of “out” banks. Now both banks and governments have problems.”
The problems in Europe are not going to go away with money printing or the like. The can has been kicked to a dead end road, and very soon there are going to be some very significant events.
This coming week Fed Chairman Ben Bernanke is going to shed some light on the Feds plans to stimulate further or not. By the looks of things they are already stimulating. Bernanke could kick off another run in stocks with short-term good news for the market, or he could dash the market. It is a coin toss here as to what will happen and how the market perceives it. The elephant in the room that could trump the Fed Chairman is Europe. Proceed with caution…
You don’t have to be a parent to recall a time when a child has declared, “Mine!” about an object they want. When multiple children are involved, the object at hand has little chance of surviving in-tact very long. In the last few weeks I have read or heard numerous reports of more and more nations watching “their stuff.” Here are a few examples:
- The Japanese multiple interventions into their currency by selling the Yen in order to weaken the Yen to preserve their exporting.
- The Swiss National Bank recently intervening in their currency to slow its appreciation again to preserve their domestic companies exporting ability.
- The United States clearly is looking after itself with its massive amount of money creation that is forcing foreign countries to increase their money supplies to their own detriment. This is not to say the constant devaluation of the US dollar.
- Last but no least, according to Singapore’s former foreign minister, George Yeo Yong-Boon, “China is not going to consume to save the world. It will act in its own enlightened self interest.” To validate this idea was the Chinese premier, Wen Jiabo, who said earlier this week that his country will shift from an export-led growth to greater internal demand under its new five-year plan, but this is unlikely to be fast enough to satisfy the rest of the world.
Then we have the piece de resistance from China. Here is a clip from a blog post from the famed Ambrose Evans-Pritchard of the UK newspaper the Telegraph:
A key rate setter-for China’s central bank let slip – or was it a slip? – that Beijing aims to run down its portfolio of US debt as soon as safely possible.
“The incremental parts of our foreign reserve holdings should be invested in physical assets,” said Li Daokui at the World Economic Forum in the very rainy city of Dalian – former Port Arthur from Russian colonial days.
“We would like to buy stakes in Boeing, Intel, and Apple, and maybe we should invest in these types of companies in a proactive way.”
“Once the US Treasury market stabilizes we can liquidate more of our holdings of Treasuries,” he said.
To my knowledge, this is the first time that a top adviser to China’s central bank has uttered the word “liquidate”. Until now the policy has been to diversify slowly by investing the fresh $200bn accumulated each quarter into other currencies and assets – chiefly AAA euro debt from Germany, France and the hard core.
So, you can see that watching kids fighting to keep theirs is much like what we are seeing unfolding globally. Problem is that, just as with kids, this will not end well.
Do you have an investment strategy that seeks to protect your portfolio against volatile economic conditions? Call me to schedule a free review of your current investment portfolio – 913.693.7918.
John P. Chladek, MBA, CFP® is the President of Chladek Wealth Management, LLC, a fee-only financial planning and investment management firm specializing in helping families and couples who are not yet retired realize their financial goals. For more information, visit https://www.chladekwealth.com.