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||Asean Affairs 4 February 2013
Shayne Heffernan Trading Week Ahead
A difficult start to the week as I see it, Markets are high, without just cause, Japan has turned in to a rogue currency manipulator and serious traders are waiting for a few bubbles to pop.
In Asia we will see a week of discussion regarding currencies, as the Yen falls the rest of Asia will take action, Korea will be first as they move to protect themselves against the move in the JPY, South East Asia will not be as fast to take action but currency values will be the hot topic of discussion around the region.
We have been buying Yen but it may move a bit higher before reversing, but it will reverse.
Gold is looking to come back in to the spot light as the Fed continues to hold rates well below the real inflation rate in the USA, this creates an issue, bonds are now a losing bet, cash is in real terms depreciating and the market rally we have had has been fueled by an succession of QE rounds and low interest rates, it is not a rally based on economic factors, it is a created market that should scare any real investor.
History has taught us that cycles to come and go in economies, abd that clock is ticking on us all.
In 1860, French economist Clement Juglar identified the presence of economic cycles 8 to 11 years long, although he was cautious not to claim any rigid regularity. Later, Austrian economist Joseph Schumpeter argued that a Juglar cycle has four stages: (i) expansion (increase in production and prices, low interests rates); (ii) crisis (stock exchanges crash and multiple bankruptcies of firms occur); (iii) recession (drops in prices and in output, high interests rates); (iv) recovery (stocks recover because of the fall in prices and incomes).
In this model, recovery and prosperity are associated with increases in productivity, consumer confidence, aggregate demand, and prices. But since 2008 the recovery has been based on Government and Central Bank manipulation, the question now is whether or not this substitutes for actual economic recovery, I do not think it does, what has happened is that socialist policies have replaced market factors, potentially building to a more catastrophic correction.
Where this correction will occur is a little harder to pinpoint, 3 options exist, 1 Stock Market Crash, 2 Currency devaluation on a massive scale, 3 A rapid shift in the power base of the world from the West to the East.
In the mid-20th century, Schumpeter and others proposed a typology of business cycles according to their periodicity, so that a number of particular cycles were named after their discoverers or proposers:
the Kitchin inventory cycle of 3–5 years (after Joseph Kitchin); This would put markets in immediate danger now
the Juglar fixed investment cycle of 7–11 years (often identified as 'the' business cycle); This would see a 2015 collapse
the Kuznets infrastructural investment cycle of 15–25 years (after Simon Kuznets also called building cycle]); Immediate danger of a 1997 repeat
the Kondratiev wave or long technological cycle of 45–60 years (after Nikolai Kondratiev). This one puts us in the range of 2 cycles from the 1935 crash.
So do I think we are about to collapse? Maybe, certainly it is impossible and certainly we will have a massive correction before 2015.
Where to invest, another tough question but I think the best answer is to be balanced, value driven and with currency, country and sector diversity.
We offer assistance in building such portfolios and you can contact us at Sales@Heffcap.com, Goldman Sach, UBS, JP Mprgan etc also offer similar services.
Shayne Heffernan Ph.D.
Economist/Hedge Fund Manager
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