Macro Economic views

My trading time frame is anywhere between 40 days and 5 minutes. Macroeconomics insight have not much to do with my trading decisions. But most probably like all of us at times we reflex on what it moving the market. What is feeding the current dynamics.

Below I try to formulate my thoughts, some incomplete, some incoherent, some in contradiction. But that is life.
Feel free to add, agree, or disagree.

The three major currencies seem to be in a 'fight' to the gutter. I am of the opinion that the Yen will win this fight. The Japanese will probably have the greatest motivation to win at all cost. Motivate by not having an alternative.

USD
- the general opinion is that the Fed will stop easing in 18 months or so. This will minimize the pressure on the USD (support for a higher USD)
- Apparently the US is becoming energy 'independent' in the next years. This will have major effects on the power dynamics within and outside the US. The amount of USD yearly exported to finance the energy need will subside strongly. So less selling USD to buy Oil. Means support for a higher USD.

YEN
- Japan has to solve an enormous deficit and debt while have a ageing population. Sell the yen, and every % down means you owe a % less. This works as long as a continuous lower yen doesn't have an effect on the interest rates. Since your own Central Bank becomes a buyer of last resort of bonds, interest rate will not quickly be affected. (supports lower yen)
- Lower yen will support an improved export, which will raise GDP, which will reduce debt in terms of %GDP


EUR
- IMO Europe has 'just' a distribution problem of wealth. Total deficit and debt of all Euro countries is approx 20% less than USA debt/gdp.
Every large country has regions which are net contributors and regions which are net beneficiaries to the dynamics which makes it a country. What we see happen in Europe is more interesting in terms of social experiment than in terms of hard Euro-based economics. They are telling richer Northern European that they need to carry the South. Doing so would be better for the group as a whole. No different than in the USA where the coastal regions carry the way larger mid-west on their backs. But it is less of a social experiment since the contributing regions and the beneficial regions are both called USA.

GLD
Gold is not a currency, it value comes from an auction process. It is not used in commercial transactions as means for payment. I can see the use for gold as a trading vehicle. But so are pork chops or Bee wax whenever they can get into a steep trend. IMO one day the Gold bid will disappear and gold will fall faster than you ever thought possible.

SP500
With the USD getting stronger, Earnings relatively high, and currency fueled headwind on exports. I don't see a new large uptrend coming after the Fed stops pumping money in the system.

Japanese Stock
No real opinion other than that maybe a currency debasement might fuel a stock market rally. The question is what will your yen hedge cost and will you still be able to make a net.profit.

Euro Stocks
European companies are master in growing the business in a low-gdp-growth environment. With the Euro in a neutral stance, I suspect that the euro-market will be great for stock pickers while the generic indexes will float trendless.

US Interest rate
IMO this is an easy one -- US interest rate will go up. How much and when are much more difficult to answer questions. Are we expecting deflation or are we expecting inflation? Probably best is not to expect big inflation or deflation. Probably best is to expect moderate inflation and a 30yr rate which goes back to its long term moving average of 5%. This gives BTW already a big tradeable trend in the /zb's.

JPN Interest rate
Japan just starts its process of reducing debt by reducing the value of its currency. For years to come JPN interest rates will be very low.

Happy trading,
Ernst