With the gong show occurring in Washington, it’s amazing anyone has the courage to write a blue ticket for any American assets. But we have to remember that the big long term money is slow moving. Implementing an asset shift is not something decided on a whim following one of President Trump’s tweets.
As summer comes to an end, and investment committees meet in early September, I don’t see how at the margin, America doesn’t get a downgrade from asset allocators throughout the world. The simple fact is that the much hyped Trump optimism has been sorely misplaced. He hasn’t accomplished any of his promised goals, and the recent infighting makes any progress increasingly unlikely. I don’t want to make any political judgements, I would rather just concentrate on what the chaos means to the market. Infrastructure, tax cuts – the chances of a transformative piece of legislation being passed – out the window. Trump’s supposed superb business acumen – if it ever truly existed, also vanished. And we haven’t even dealt with the potential of a debt ceiling disaster. It’s a complete shit show, and to think money managers will be standing at the door ready to invest in America is foolish. Long term money is overweight US assets, so the recent disorder will cause some serious trimming of American securities.
Now don’t mistake my analysis as an “end of the world – we are about to collapse†doomsday call. I just think it might be a good time to think about selling some US names, and maybe have a look at some other equity markets.
I am going to toss an idea out there that is sure to gather a lot of cynical smirks, but hear me out. The Federal Reserve is desperately trying to be the first Central Bank to actually shrink their balance sheet after an extensive quantitative easing program. At the same time, the ECB has been preparing the market for a tapering of their QE program. But do you know who is still balls to the wall printing? The Bank of Japan.
Abeconomics is still in full force. The Bank of Japan is still expanding their balance sheet like mad. And although many pundits are skeptical of Prime Minister Abe’s chances of being re-elected in the upcoming elections, and see nothing but risks, I am not as pessimistic.
I don’t think the Japanese people will reverse Abeconomics. Sure, the hedge fund gurus will all tell you what a disaster it’s being, but I just don’t see it.
Have a look at Japan’s nominal GDP.
