GOING FOR GOLD
This post was written for www.hnworth.com, a site targeting high net worth individuals in Singapore.
Have fun reading !
********************************
I would sound pretty irrelevant or even irreverent if I did not mention something about China or Greece today after the thrilling week we have gone through that has us riveted to news streams the entire weekend that also beholds a déjà vu Wimbledon Men’s Singles Finals where we shall see a re-match between the 2 tennis greats, Federer and Djokovic, with last year’s down to the wire finals still fresh in our minds.
My view on the situation in China cannot be more simplified than this chart that was illustrated by Rick Santelli on CNBC. (http://www.zerohedge.com/news/2015-07-09/rick-santelli-unleashed-its-not-economy-stupid-central-planners-are-control)
Yet, it will not be imploding anytime soon because China is still a shuttered market and A-shares can go on rallying another 200% from here, divorced from reality if you like, as they are already over a 100% higher valued than their H-shares counterparts, so what is another 200% with all the measures introduced that includes allowing folks to pledge real estate to buy shares and an embargo on selling by major stakeholders ?
The main risks would be outside China, if you ask me, because the first aid measures will come at a price, that they will be inward looking for a while which leaves dependent economies, including those in Europe and Americas, in the lurch.
Europe is a different can of worms and can only be explained by 1 word – POLITICS !
Germany really is the big brother and whilst Greece is still in the Euro, they can only turn to the EU Commission for help ! They cannot take any external loans from China, Russia, Turkey or the US (and if the allegations in Malaysia are any true, wouldn’t the prime minister be able to afford to single handedly bail Greece out ?).
If Germany supports any debt relief or bailout, they would possibly confront this next chart of high risk and, thus, fragile governments in these 3 other European countries that are seeing a rise in the leftist movement. http://on.wsj.com/1JLaeNP
With Germany being the largest budgetary and trade surplus country of the bloc, what do you think ?
Coming to the main point I am making today.
I noticed a glaring aberration in the activities of the week, one which cannot be ignored by portfolio managers, it is that all the traditional safe haven instruments have been shunned. US 10Y treasuries rose with the occasion but its sell off couldn’t have been more abrupt, closing the week lower along with Gold and the Swiss Franc.
Only the VIX index managed to pull off an amazing winner, up 7% on the week and up 25% from its low during the week.
And of course, we have the Bitcoin, rising 8% on the week as some found it a means of circumventing the capital controls situation in Greece.
