Fundamental Analysis 2011 final six months
Other issues that may come into play during the second half of 2011 and beyond can be found in discussions on the subject of wealth transference; we have had several conversations in which sources claim that despite protestations
from society’s elite,
the top one percent of the globally wealthy have seen their combined and collective global net worth increase from around 10% in 1980 to around 25% in 2011.
Given the muddied waters and backdrop discussed here, without being seen as harbingers of doom we do realistically
see the current optimism expressed via ‘risk-on’ FX
in check, could lead to some further or even escalated social unrest, as already seen in Europe on the back of imposition of austerity measures. There’s only so much people will stand for.
FX
rates as expressed by forward interest rate differentials may indicate that rates are high now as a payoff for the likely future and lower valuation of the currency. Until now the carry trade has largely been a case of having one’s cake and eating it but as with the theory on gold, the days of easy money in what is a very tight and still vulnerable global economy are surely over.
We do not think the Fed will enter QE3 and we do think the ECB will not embark on a hiking cycle despite its (outdated) mandate to blindly maintain price stability at the expense of everything else. If correct the Dollar will strengthen against the Euro anyway, even before any accounting for damage that will surely be wreaked upon the European states once bondholders of nations like Greece, who as a nation are struggling having lost ability to devalue their currency, take the seemingly inevitable haircuts.
World Wealth Levels - Source: Credit Suisse Global Wealth Databook
This figure is astonishing given the general rise in population, borderline and abject poverty in some countries and stubbornness of widespread unemployment.
Tere is a latent danger of a tipping point approaching that at best will hopefully see a leveling of the playing field and redistribution of this wealth to significantly assist
the majority of the world’s population and at worst if not kept
trades such as long AUD, long NZD and even long EUR as having huge potential to be misguided, Te RBA is out of touch with its audience and the NZD seems grossly overpriced at best, importantly the markets seem comfortable sitting long despite both currencies being around 60% or better above their 2008 lows.
If this theory were true we would expect a return to more traditional FX valuations where high interest
A good example of why the Euro is overvalued besides the current potential domino effect of default combined with Eastern European states rolling back plans to join is to also look at where the Greek Drachma entered the Euro in 2002 in terms of US Dollars and where those rates would be today if Greece leſt the union at that same rate:
Te Euro replaced the Drachma in 2002 at 340.75 to the Euro, or around 365.62 to the USD (conversion 1EUR=0.932 USD).
FX TRADER MAGAZINE July - September 2011 11
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