Another week in the markets, and I have to admit my big call from two weeks ago – that the Euro would weaken – has not yet gone according to plan. Why? Well, dash it, but it’s not my fault.. Its these pesky Europeans at the ECB and that chap Mr Draghi doing the wrong thing. They’ve done lots of tinkering with yields, negative deposit rates and given the banks oodles of money to invest… but it hasn’t caused the Euro to weaken. By Jove, it’s strengthened!
I really did expect better of them.
Surely if it’s obvious to an old badger like myself that Europe’s factories are shut because the Euro is too strong, then it must be equally obvious to the denizens of the European Central Bank? Apparently not – while the Italians want more cuts, the Germans are worried their economy might overheat. But I am going to stick with a long-term Euro Short on the basis Europe is going to learn from experience. As Winston Churchill didn’t say: “European Central Bankers can always be counted on to do the right thing – after exhausting all other possibilities..”
I should have worked out the Euro earlier. The biggest beneficiaries for the ECB cuts this week and free money will be the struggling Italian banks.. and Mr Draghi is an Italian. Doh! Europe is one big happy family.
Stocks
I’m much happier with my other badger call – buy Apple. Raise the bar to $670! That’s definitely still going the right way… upwards. But then so are most global stocks. And that’s something I really struggle to understand.
Why are European stocks so much higher when Europe’s economic prospects look so miserable? Well, actually, that is quite easy. The reason the DAX has broken 10,000 highlights the fact that investors much prefer to risk their money in European companies for the potential of big stock market upside gains, than receive miserable returns investing in artificially low European bond yields.
And of course, there is the fact that Japanese investors are spending trillions on global stocks. I did read one ridiculous blogger declaring “stocks can never go down”… of course they can, but it does feel that there is more support behind equities than there is downside.
Gold!
Which leads me on to Gold. For some reason, the editors of this august journal have a care for the yellow metal and believe I should opine on the topic. Is it going to go up or its going to go down. If we get a rising global threat level it will go up – but in the absence of threats what sets the global price of gold?
Well, that’s quite easy. Its Indian farmers. Billions of them set the price of gold because of the culture of showing off one’s wealth in terms of bangles and such. Just visit a gold souk anywhere to see how strong that dynamic is right across Indian society. The demand for gold is largely determined by how much surplus cash the middle and especially lower classes have.
And that’s where the weather gets interesting. The weather boffins are expecting an El Nino ocean-current event in the Eastern Pacific this year. That results in the Indian Monsoon being dryer than normal, which reduces Indian crop yields. As a result Indian farmers scale back their anticipated gold purchases so the price of Gold comes under pressure. As long as other tensions or factors, like Mr Puttin getting antsy about the Ukraine, don’t intervene.
Driving profits
The other market I’m looking at this week is global autos. I’m convinced the auto sector is worthy of investment consideration – selectively. The US market is recovering and some of the makers are seeing substantial mature demand of top-end cars that generate the highest margins. We’re also going to see new US rules support the growing fashion for green vehicles.
Buying auto stocks is a selective trade. For instance, I would never been seen dead in a French car, although a BMW or Audi would suit me just fine. Although my youngest badgerette loves her Fiat 500, it’s not a car for a gentleman. But, in anticipation of grandchildren I suppose I ought to go green – and that means Toyota. So that’s my big trade this week – Toyota for the long term and auto technologies like in-car computing systems and the clever stuff underlying Google’s new driverless car technologies. I must find out what the drink-driving rules re driverless cars will be….
Next.. I really must go out and buy one of these new circular TV screens to not watch the World Cup on…
Regards,
The Badger of Broad Street