The CrossBorder Capital Blog

  Why Are World Investors So Downbeat?   Global investors seem too downbeat in absolute terms, and certainly relative to expanding liquidity conditions and improving economic expectations. They hold moderate levels of equities and high quantities of ‘safe’ assets. Historically, these points usually signal upcoming periods of high equity returns.  

The US Dollar in 2020: QE4 Causes A Nasty Sucking Sound?   Many indicators are pointing towards ‘risk on’, such as cautious investor positioning data and rising Central Bank liquidity injections. Signs of a US dollar peak would surely confirm this shift, because the US unit has attracted substantial safe-haven flows since 2015? Not only do latest US capital flow data evidence a peak, but, simultaneously, so does the other successful predictor of the US dollar, the quality mix of liquidity. Helped by the Fed’s new QE4 policy, these are peaking after several years of strength. Could 2020 be the year when the US dollar finally stalls?    

Putting Everything On Red? Why This QE4 Really Matters For All Investors   Some policy-makers are downplaying their latest QE4 activities. We think these activities are significant and probably will add around one-fifth to the pool of Central Bank money. During each of the previous QE phases, US bond term premia rose by an average of 135bp, dragging Treasury yields higher. In both QE1 and QE2 the US dollar fell, but in QE3 it strengthened slightly and in all QE phases equity prices rose. We view this renewed QE4 as a ‘risk-on’ period. This phase may signal the ultimate end-game of the 10-year bull market, but, with so much cash already sitting on the side-lines, this new stimulus likely still has some way to go.  

The Repo Ricochet   Recent repo rate spikes are a warning of another 2007/08 Crisis, but not a guarantee of one. Markets are becoming illiquid. Despite FOMC rate cut in September, policy needs to focus far more on balance sheet expansion, i.e. QE. This will push bond term premia higher, cause yield curves to steepen and underpin outperformance from value over growth stocks.    

The Most Interesting Chart in the World?       The underlying World economic backdrop is not as bad as it initially appears from a ‘normal’ assessment of financial market indicators. The inverted US yield curve and skidding inflation-adjusted interest rates (TIPS) are largely liquidity phenomena that are distorting markets through unusually depressed term premia. There is a shortage of ‘safe’ assets in global financial markets caused by fiscal austerity policies, compounded ironically by Central Bank quantitative policies and worsened by flight capital from Emerging Markets. These forces have triggered an excess demand for ‘safe’ assets which has driven up US Treasury prices and, simultaneously, hammered down term premia. Assuming that the recent Global Liquidity upturn continues, this may be enough to reverse the downtrend in term premia and normalise market.    

Up, Up and Downnnnnnnn… Why Our Problems Are Financial (Again) and Not Economic   World Central Banks are again easing Global Liquidity conditions. More QE has to be the persistent message. Policy-makers have, in practice, run out of interest rate cuts, since low and negative rate undermine the credit mechanism. This will likely cause bond yield curves to steepen, and gold and cryptocurrencies to rally more.    

Does China Control The World Gold Price?   Gold prices may have broken higher in US dollars, but they also appear to have broken their traditional relationship with Federal Reserve policy since they seem to be ahead of the curve of Fed easing. The puzzle may be explained by the current jump in liquidity injections by the People's Bank of China. The PBoC is a key international policy-maker and must be correctly seen as part of the US dollar system. This easing move is equivalent to Fed action, so why wait for Washington? Beijing is already driving gold higher.