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Why It Might be Time to Look at European Equities

Since the market low in March 2009, European stocks have performed very well, considering the problems in the region were far worse than anywhere else.  Indeed, over the past 12 months European markets have outperformed other regions, with the exception of the US. In fact, banks and investment houses such as, Morgan Stanley, JPMorgan, Coutts (the private bank) are overweighting Europe if not begin to overweight Europe.

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Warning: Investors are rushing to Japan market

Many investors are now ‘rushing’ into Japan market and in a big way!  Mutual and exchange traded funds investing in Japanese shares attracted record inflows last week. So far this year almost as much money has gone into Japanese mutual funds as in the best two full years of the last decade.  Some label these monies as ‘dumb’ money as they are late to the party.

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Don’t Fight with the Central Banks

One of the investment wisdom is – Don’t fight with the Fed.  Look what is happening:  The Fed is leading the charge with its unlimited bond buying targeted toward mortgage markets, its third iteration of quantitative easing (QE3) in four years. Meanwhile, the European Central Bank, the Bank of England and the Bank of Japan are taking similar actions, all in an effort to re-inflate stagnant economies.  What does this mean?

{loadposition adsense_r336x280}In a normal world, stock and bond prices would not be rising in tandem.  But  in the “New Normal” with the central banks acting in tandem to support and re-inflating both “assets”, investors should go along for the ride.  In PMICO’s CEO Mohammed El-Erian’s word – "Respect what the Fed, ECB and BoJ are telling us - They are all in, and they are going to be in there supporting asset valuations.”

Here are some strategies to ride along in addition to Equities which may be highly volatile:

  1. Shorter and Intermediate Term Treasuries as the shorter bond will be more stable as the Fed is buying and the interest rate is likely to maintain at near zero – recommended by El-Erian
  2. Gold as the hedge against the excess liquidity.  Investor should reap the rewards when the excess liquidity lead to inflation and currency devaluation.  Gold is seen to be an alternative to paper money and it’s has an inverse relationship to the dollar:  when the dollar fall, gold should rise.  However, gold has not been performing lately with some attributed to the outcome of the US ‘fiscal cliff”.  Why?  Jim Rogers offers the best possible explanation: “Most things correct 30 percent every year or two, even in big bull markets - 30 percent corrections are normal and yet gold has only done that once in the past 12 years, Gold on any kind of historic market basis is overdue for a nice correction."

Reference:  CNBC, Javier E. David, 2012-12-22, “Global Investing Advice:  Don’t Fight Central Banks”

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The New Bubble - Asian Junk Bonds?

Asian investors’ desperate demand for yield has driven the local junk bond market to by far its busiest January ever with almost $8bn worth of deals sold – four times the previous January ($2.1bn in January 2011) record and more than half of last year’s total (total for last year is $15.3bn and in $16.2bn in 2010). 6 out of 10 biggest deals are Chinese property companies. Add a comment

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The Fiscal Cliff Fear

The Fiscal Cliff Fear is in.  Lawmakers face the so-called fiscal cliff, or $607 billion of tax increases and federal spending cuts set to kick in automatically in January. The Congressional Budget Office has said the economy would contract by as much as 0.5 percent next year if Congress doesn’t act.

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