It was nice to be away, playing some golf and visiting with friends. And now it’s back to work. (Confession: I was engrossed in reading for part of my days.) There two key issues before us: BREXIT and this weekend’s G-20. (Side note: I did a radio interview yesterday with Anthony Crudele on #FuturesRadio. Anthony did a great job and we covered a lot of ground. Listen to the piece and it will rehash much of what my blog readers have been reading during the past six years.) Here is my take on the G-20 meeting and it is interesting how the British elites are trying to co-opt part of the G-20 meeting to get support for the British Prime Minister David Cameron and his bumbling sidekick George Osborne.
First: There has been written about the G-20 meeting into a new PLAZA ACCORD as there seems to be an effort to stage some kind of global currency readjustment. THIS IS NONSENSE OF THE FIRST ORDER. What currency would allow itself to be the object of a massive appreciation and why would there be granting an okay for others to DEPRECIATE their currency? IT WILL NOT HAPPEN. This G-20 meeting communique will stress the need for fiscal stimulus on a global basis. Germany and China will be under subtle attack for not doing enough to generate domestic consumption to rebalance their massive current account surpluses. Larry Summers has been on the global punditry circuit for two years, pushing for the developed world economies to pump up fiscal spending on massive infrastructure projects. With interest rates so low Summers maintains that governments are irresponsible in not investing massive amounts for the future.T his is Larry Summers time to shine “again” as GLOBAL CENTRAL BANKS’ credibility has fallen to NIXON LEVEL numbers.
This G-20 meeting is about FISCAL STIMULUS and if my forecast is correct that is the basis behind the recent rally in some commodities, and especially the equity markets. Stock investors need some new sign of hope as the power of monetary policy to elevate financial markets is losing its influence. As I see it, there are three indicators. SPOO/BOND ratio levels going back to March of 2011 for support at around the 1122 level because if fiscal austerity is cast adrift equities OUGHT TO RALLY AND BONDS SHOULD BE SOLD, a similar to the response to QE1. The second trade should see the 2/10 yield curve steepen as the longer-dated debt sovereign debt instruments should suffer while the fiscal spigots are fully opened. Third, the stocks of FLUOR and ABB should gain because they are publicly traded firms of large engineering and construction companies.
I will be looking for FLUOR to close above the 200-day moving average to receive some confirmation. The fact that this is an election year and Paul Ryan is the Speaker of the House, the U.S. may actually be able to find some reasonable spending programs so the Fed is not the only game in town. Of course I know that there is no world government to enact a Summers-type program but the concept will provide some support for a market starving for any positive action on economic stimulus. Be patient and watch for the keys I have put forward for confirmation.
The BREXIT issue: PM Cameron and Chancellor of the Exchequer Osborne are looking for the G-20 to put a statement in the communique against BREXIT and the need for Britain to remain in the EU. This is a sad plea from the Cameron government and reflects how desperate they are to defeat the NO to EU crowd. Yes, Mayor Boris Johnson dented the hopes of Cameron but again I maintain that BREXIT is a sideshow without significance except for the Davos crowd. Once the Brits exercise the referendum tool, this is the question for the EU: What nation will be next to invoke the use of the referendum, whether Cameron wins or loses? MY FORECAST IS THAT MERKEL’S GERMANY WILL BE FORCED TO DIRECTLY CONSULT THE GERMAN VOTERS. Then the problems really begin.