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November 21 2014

Commentary by David Fuller

Draghi Ramps Up Stimulus Pledge on Weak Inflation Outlook

Here is the opening of this informative article from Bloomberg:

Mario Draghi strengthened his stimulus pledge for the euro area by saying the European Central Bank can’t hold back in its fight to revive the economy.

“We will do what we must to raise inflation and inflation expectations as fast as possible, as our price-stability mandate requires,” the ECB president said at a conference in Frankfurt today. Some inflation expectations “have been declining to levels that I would deem excessively low,” he said.

With the next policy meeting less than two weeks away and the region remaining close to economic stagnation, Draghi may need to step up efforts to convince investors he’s serious about reigniting growth and inflation. The euro fell and bond yields dropped on speculation the central bank is closer to buying government debt in a full-scale quantitative-easing program.

“Draghi is sending a clear signal that more stimulus is coming,” said Lena Komileva, chief economist at G Plus Economics Ltd. in London. “If the ECB’s current measures prove underwhelming and inflation expectations fail to recover, the ECB will act to expand QE.”

The euro was down 0.9 percent at $1.2428 at 4:07 p.m. Frankfurt time. The Stoxx Europe 600 Index climbed 2 percent. The yield on Spanish 10-year government debt fell 7 basis points to 2.03 percent, approaching the record low reached last month.

The ECB is trying to boost the size of its balance sheet to early-2012 levels, signaling an increase of as much as 1 trillion euros ($1.24 trillion), to help revive the euro-area economy. Gross domestic product expanded just 0.2 percent last quarter and inflation is running at 0.4 percent, well below the ECB’s goal of just under 2 percent.

David Fuller's view

The rest of this article is also well worth reading.  Mario Draghi, who I have often described as a very smart and diplomatically astute central banker, has proved that he can also be tough when necessary.  In introducing a form of QE, he has had to face down strong opposition from the ECB’s Governing Council member Klaas Knot (appropriately named) and Bundesbank President Jen Weidmann, who can currently be seen in every other CNBC commercial, snarling at Lawrence Summers for saying that Europe’s policies were not working.

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November 21 2014

Commentary by David Fuller

China PBOC Cuts Interest Rates for First Time Since 2012

Here is the opening of this topical report from Bloomberg:

China cut benchmark interest rates for the first time since July 2012 as leaders step up support for the world’s second-largest economy, sending global shares, oil and metals prices higher.

The one-year lending rate was reduced by 0.4 percentage point to 5.6 percent, while the one-year deposit rate was lowered by 0.25 percentage point to 2.75 percent, effective tomorrow, the People’s Bank of China said on itswebsite today.

The reduction puts China on the side of the European Central Bank and Bank of Japan in deploying fresh stimulus and contrasts with the Federal Reserve, which has stopped its quantitative easing program. Until today, the PBOC had focused on selective monetary easing and liquidity injections as China heads for its slowest full-year growth since 1990.

“Targeted relaxation wasn’t strong enough to boost the real economy so now they realized they have to relax policy overall,” said Xu Gao, chief economist with Everbright Securities Co. in Beijing, who formerly worked for the World Bank. “The economic reason for the rate cut is very strong.”

The cut in deposit rates was accompanied by a further step in the nation’s liberalization of interest rates. The cap on what banks can pay customers on their deposits was raised to 120 percent of the benchmark from 110 percent. That would leave savers with unchanged returns at banks that raise rates to the new ceiling from the former cap.

That may help banks retain deposits amid competition from shadow banks and so-called wealth management products while protecting savers’ returns and squeezing bank profits.

David Fuller's view

Is China the greatest risk or the biggest hope, in terms of global economic stability?  

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November 21 2014

Commentary by David Fuller

My personal portfolio

A new investment position opened

David Fuller's view

I had some dividend cash in my Self Invested Pension Plan (SIPP), which I wanted to invest in a corporate Autonomy, which was competitively valued, offered a reasonable dividend, and was in the high-end retail sector, benefitting from the world’s wealthier citizens including the upper middle classes. 

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November 21 2014

Commentary by David Fuller

Gold, Silver Rise to Three-Week Highs on China Interest-Rate Cut

Gold and silver futures rose to three-week highs after China cut benchmark interest rates to support economic growth, boosting demand for precious metals as a store of value. Palladium jumped the most in 14 months.

The rate reduction was the first since July 2012 as the Asian nation heads toward its slowest full-year expansion in almost a quarter century. Russia added to gold reserves in October, bringing holdings to the highest in at least two decades, International Monetary Fund data showed.

The metal has climbed 6 percent after touching a four-year low on Nov. 7 amid increased demand for coins and jewelry, combined with signs that nations are boosting reserves. Central banks may raise purchases by as much as 22 percent in 2014, the World Gold Council estimates.

“People will buy gold as a hedge, since it is clear that China wants to stimulate growth,” Miguel Perez-Santalla, a sales and marketing manager at Heraeus Metals New York LLC, said in a telephone interview. “Also, we are seeing a rise in physical demand.”

David Fuller's view

It has been a torrid time for gold and silver since mid-July and there was certainly some capitulation selling in late September and early July.

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November 21 2014

Commentary by Eoin Treacy

Email of the day on the outlook for 2015

Hi David & Eoin, I wanted to get FTM thoughts and opinion on where the best investment returns could be had over the next 12 months and what would be the key things to watch for? Thanks for an excellent service 

Eoin Treacy's view

Thank you for your kind words and your question. This is a topic we cover almost daily in the written commentary and the audio but it is a good time to summarise our views. 

Let’s ruminate for a moment though on the timing of your question. Generally speaking, the last six weeks of the year is given over to thinking about the possibility of a Santa Claus rally and people don’t generally look at the outlook for the next year until the last week of December or the first week of January. It made headlines during the week that Goldman Sachs had released its prognostication for the coming year, which may have prompted your email. However I believe it is worth considering that the stock market is a discounting mechanism and as a bull market progresses we tend to want to discount cash-flows from increasingly further into the future. It is a measure of how strong the market has been over the last month that investors are already planning for next year. Five consecutive weeks to the upside suggest some consolidation is increasingly likely.

 

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November 21 2014

Commentary by Eoin Treacy

Email of the day on US listed robotics companies

Any U.S. traded ways to invest in these service robotic application companies? Which industries are the ripest insofar as labor displacement? The national call for a minimum wage seems an added tailwind.

Eoin Treacy's view

Thank you for these questions which may be of interest to other subscribers. The disruptive power of technological innovation is hard to predict but we can be assured that there will be some major winners and losers.

If you look at the teamsters website, the self-professed strongest union in America, it is not difficult to see how they will oppose any threat to their working conditions and what an incentive this creates for companies to completely displace them. To this end Amazon has already introduced a robotic retrieval system in its warehouses and we can anticipate this will be ubiquitous before long. 

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November 21 2014

Commentary by Eoin Treacy

Ibovespa, Real Surge on Speculation Levy to Be New Finance Chief

This article by Denyse Godoy and Filipe Pacheco for Bloomberg may be of interest to subscribers. Here is a section: 

Levy, who is head of Bradesco Asset Management Ltd., was treasury secretary from 2003 to 2006 under President Dilma Rousseff’s predecessor, Luiz Inacio Lula da Silva. He will replace Guido Mantega, Brazil’s longest-serving finance minister, Folha de S.Paulo newspaper reported in its online edition. The president’s press office said Rousseff won’t announce cabinet changes today.
“Levy is investors’ favorite name for the finance ministry because he is very close to the markets,” Jason Vieira, an economist at consulting firm MoneYou, said in a telephone interview from Sao Paulo.  “He is also known as a good manager for what he did at the Treasury.”

 

Eoin Treacy's view

Dilma Rousseff acknowledged the failure of her last administration in her acceptance speech but the market will need to see evidence of real change before giving Brazil the benefit of the doubt once more. Appointing a finance minister who understands the market is a positive development. 

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