First quarter is winding down and after a great deal of volatility it is time to reflect on the markets. The SPOOS are virtually unchanged while the Nasdaq 100 is down 5%, the Nikkei is down 10% and the German Dax is down 8%. The global equity markets have been riding a wave of liquidity for a long while but with the aggressive QE programs from the ECB and BOJ the first quarter one would expect the German and Japanese stock markets to have been the star performers. Maybe more QE is losing its power to impact the markets? The DOLLAR INDEX is lower by 3.2%, which is also in contravention of conventional wisdom as QE is done to weaken one’s currency in an effort to aid the domestic economy. In examining the individual currencies the euro is +3%, Swiss franc +3%, yen +8%, Canadian dollar +5% and Aussie dollar +3%. Yes, the easing banks have seen their currencies strengthen against the DOLLAR.
The British pound has declined 2% versus the dollar and almost 7% versus the euro. The short-term effect of the political instability in the U.K. because the referendum is causing the POUND to weaken against its main trading partners as a BREXIT is deemed to be a major negative on the POUND. The idea of a Britain outside the structural regulations of the EU may prove to be more of a positive than some pundits think. For the moment the monetary fascists of the U.K. elite are peddling a vote to leave the EU as a major negative for all British assets. It’s a classic case of Yra’s first law: MONEY IS FASCIST FOR IT ALWAYS CRAVES STABILITY OVER DEMOCRACY. The MEXICAN PESO is virtually unchanged for the quarter as some investors are quietly creeping back to some of the emerging market nations as oil prices and other raw material prices stabilize or find some buying to push prices higher.
Gold as an alternative to the NIRP (negative interest rate policies) has rallied 13% in the first quarter as global investors and speculators have sought some haven outside the immediate control of the central banks. Gold’s rally is still tepid in relation to its previous 30 months of negative price action so the technical picture is still inconclusive on the bullish status of GOLD. Silver and copper have also had positive quarters with silver +10% and copper prices up 5% but overall a positive quarter for commodities while global money seeks other venues for a positive return.
On a side note, many media outlets reported March 16 Munich Re, the world’s largest reinsurer, was buying GOLD and moving to cash to counteract the punishing effects of NIRP. The world’s central banks have embarked on a policy path that is fraught with unintended and unforeseen consequences. The search for positive returns in a NIRP world will rip many previously correlated asset classes asunder and the algo-driven relationships will bring a massive bout of volatility as previous in sync world’s collide. We haven’t even discussed the witches’ brew of politics awaiting the next eight months.
***There was a March 22 Bloomberg article by Candice Zachariahs that piqued my interest, titled, “Aussie Jawboning In Spotlight as U.S. Expressed Concern.” It appears as if Governor Stevens fell afoul of central bank protocol when he deliberately acknowledged that the Australian dollar was overvalued due to the massive decline in commodity prices.U.S.Treasury and the Office of the U.S. Executive Director (OUSED) to the World Bank “… expressed concern over the authorities’ public statements on the desired direction of the exchange rate.” In July, Governor Stevens said “…the Australian dollar depreciation seems both likely and necessary.” It seems that the U.S. complaint put a stop to the RBA’s mentioning of an appropriate exchange rate level, but the signalling out of the RBA by U.S. “authorities” seems to be then hypocrisy for did these bureaucrats ever listen to the ramblings of all the central bank leaders around the world. Welcome to the second quarter.