The U.S.
The U.S. Federal Reserve cut interest rates by 0.25% yesterday. That, plus an announcement that they were closely watching the growth of the U.S. and world economies, will continue to keep the market in a trading range for the next few weeks. The U.S. market is overbought and will need to move sideways for a while to remedy this situation. After a few weeks of sideways movement, we expect the U.S. market to resume its move upward, thanks to:
- Good earnings in many industries;
- Strong support from global central banks, including the U.S.;
- More rationality developing among market participants as fears of a recession are moving to the back burner;
- A solution developing for the U.K. to conclude the Brexit process some time within a few months;
- Some improvement in the U.S./China trade war, with a “phase one” agreement in a few weeks or months; and
- Positive earnings discussed on corporate conference calls; we listen to many, and the CEOs see good opportunities for profits ahead in most industries.
In summary we continue to believe that U.S. will stocks move higher.
Gold
Gold continues to move sideways, building a base. We anticipate a move upward in coming weeks as the amount of negative-yield debt worldwide grows. In our view, it is this parameter more than any other that will determine the demand for gold.
The U.K.
We believe that the British pound and the U.K. stock market will gradually move ahead as the Brexit process nears a conclusion. We believe that after Brexit, the U.K. and U.S. will create a major trade treaty that benefits both. The U.K. will also sign treaties with Japan and other countries.
Asia
We note that India is doing well; we are not invested there partly because of the high valuation of Indian shares, but we are impressed that they are rallying at this juncture. We will report more on this later.
Currencies
In our view, the linchpin for all currencies is the U.S. dollar. The dollar is moving sideways after weakening against the pound and the euro. We believe that the dollar will very slowly lose ground against these two currencies due to the resolution of the Brexit issue, which has impacted both negatively. As Brexit moves toward completion, shorts in the pound and euro will cover. Generally, we see the dollar as sideways against most currencies, with the exception of the Chinese yuan. At some stage the yuan will decline rapidly, although this may not occur for a couple of years or more. Countries with high inflation rates, such as India, will gradually and slowly devalue against the U.S. dollar.
Bitcoin and Cryptocurrencies
Bitcoin gave traders some of its typical volatility after blockchain-positive comments from Chinese president Xi Jinping. In our view, this volatility does not change the longer-term calculus surrounding cryptocurrencies. We believe that the trend will be toward increasing regulation, and in many cases, governments will be implementing their own digital currencies and reining In our view, there are three critical trends that crypto speculators with a longer view should be watching: (1) the regulatory environment around existing cryptos, and the development of crypto ETFs; (2) the progress (or lack of progress) of Facebook’s [NASDAQ: FB] Libra initiative; and (3) the development of state-sponsored digital currencies.
Thanks for listening; we welcome your calls and questions.
