Apr 2, 2015

Why the Greek Drama is Boring Us to Bits

Alexis Tsipras has told his inner circle that if pushed to the
wall by the EMU creditor powers, he would tell them 'to do their worst'

 Photo: AFP
Janet Yellen did it again.

At the beginning of March, the rise in the US Dollar seems to be unstoppable and oil prices seem to be inching its way down as oil producers around the world refuses to budge by cutting their production.

Than came the highly anticipated Federal Reserves Meeting.

The stock market rallied and the USD promptly tanked when Janet Yellen was judged to be more dovish than what the market had expected. The trend of rising USD and falling oil prices was promptly arrested. A week later Yemen erupted into a civil war and other Middle Eastern countries waded into the war to support their own interest. Essentially, it became a battle ground between Iran and Saudi Arabia. Although Yemen produces little oil, the potential geopolitical risk that may spread to other oil producing Middle Eastern countries essentially came oil price the perk up needed to hold it's ground against the falling trend.

Over at Asia side, China continues to release economic data indicating that the economy is slowing down faster than what most analysts estimate. The Chinese government also release their estimate of the economic growth in China to be at 7%, down from 7.5% in 2014 and 8% in 2015. The situation in China is probably worse than what is indicated and it seems almost curious to see the estimated growth slowing at a predictable 0.5% year on year and the final year end growth result to be 0.1% lower than the estimate. The Chinese government seems to be an extremely good predictor of their economic growth given the complexity of its economy and low transparency of its economic data.

On the other hand, the Chinese stock market soared on the bad news, almost defying all logical sense. The sentiment is summed up the best in one of the article which I have read:

"Once again stock markets are living in a world of their own. U.S. stocks surged Monday and there seemed few clear explanations for those gains. Yet that’s nothing compared with China, where the clear signals of an economic slowdown have been met with a 15.9% gain in Shanghai’s main index for the first quarter and a whopping 39.6% jump for that of Shenzhen. Japan’s market  also rounded out the quarter remarkably well, with the Nikkei up 10% since the end of December. Eurozone shares promise to finish out the term strongly as well. It’s all about central bank stimulus, of course – or in the case of China, merely in the expectation that the bad news will generate stimulus. A world in which bad news is perpetually good news for stocks is not necessarily a healthy one. Just saying. (MC)"

(Source: http://blogs.wsj.com/moneybeat/2015/03/31/macro-horizons-world-stocks-ending-1q-ebulliently-stimulus-joy-everywhere/ )

Over at the Euro zone, The Greek Drama is still acting out, frustrating many of the Euro actors while the rest of the world munch on their popcorn to see how this family drama will pan out. Will the Euro family finally kick out this member of their family for the betterment of everybody, or will they kick the ball down the road and hopefully someone else will have to face the problem. Either ways, the time bomb is ticking and many international investors are hopeful that the flood of cheap money from the European quantitative easing program will ease the pain of whatever problems that the Greek Government will throw into the Euro Zone.

Portfolio Strategy

With the initial buzz of the economic steroids injected by the various central banks around the world finally subsiding, investors started to fuzz about the fundamental problems plaguing each of the economies again. The hangover will probably hit in a couple of months time and I am not intending to hang around to receive any of the puke that will probably splatter on the portfolios of many investors. I am intending to move another 20% of the equity components to USD, given the decent correction USD had due to a dovish US Central Bank. The portfolio registered a gain despite a 1% fall in worldwide equities for the month of March and I intend to keep it that way, should a more drastic correction in global equities occur some way down the road.

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