BofA FX Strategist breaks down the state of G10 Currencies

10/16/2014 Portland, Oregon - Pop in your mints…

Yesterday we had the pleasure of hearing a presentation by John Shin, the G10 FX Strategist at Bank of America.  Mr. Shin is highly intelligent and a deft presenter, as one would expect from someone of his caliber (Harvard PhD in Econ, etc.)  He also managed to make the material, essentially a rehash of Central Bank rate policy over the past several years through today, somewhat entertaining and relevant.

One of the big takeaways from the presentation was that the ECB has not been performing well in its role when compared to the FED, Bank of England, and Bank of Japan, against which it is often compared.  Mr. Shin acknowledged that in many cases their hands are tied as, while they have the experience, they seem to struggle with their mandate, to maintain a stable currency, as they are vilified in a world where other Central Banks have taken stimulus to extremes once thought unimaginable.

The Euro is a very important currency.  The Euro and the ECB as its managing institution are also very young relative to their counterparts.  Making their job even more difficult is the fact that they are managing the currency for the Eurozone, whose internal fiscal and market dynamics at time defy analysis if not logic.  Here at The Mint, we recognize that the ECB is simply making the best of what’s around as they constantly mend the currency union that holds what is at times a tense economic union together.

Mr. Shin also spoke at length about the Unemployment rate in the US and the associated workforce participation rate (roughly 64%) which has rapidly declined due to, according to Shin, a roughly 50/50 mix of demographic and economic factors.  He also put the workforce participation rate in perspective, as it is still above where it was in the 1960’s, roughly 59.5%.

Generally, he was bullish on the US Economy and the US Dollar, and had pegged his expectations for FED rate increases to mid-next year.  It will be interesting to see if his call plays out.

After the presentation was finished, we asked him for a nugget of advice in terms of what his one Key Indicator was to keep a pulse on economic activity.  He said that, while they track many indicators, as one would expect, there is none that speaks more to the contemporaneous state of the US economy than the monthly jobs numbers.  Concretely, when they top 200,000, the economy is in good shape, anything below that is a bad thing in his view.  He said no other data point correlates so well with other economic growth indicators.

So there you have it, the dollar will remain strong and as long as the economy adds 200,000 jobs or more per month, all is well from the perspective of one of B of A’s best and brightest.

Mr. Shin is in charge of the “World at a Glance,” which is their flagship publication which highlights the bank’s key forecasts in FX, rates, and commodities.  An extremely interesting read put together by some of the best in the business.

Will his forecasts on FED rate increases come to pass in mid-2015?  If today’s market action is any indication, low rates could be with us for a long time to come.

Stay tuned and Trust Jesus.

Stay Fresh!

David Mint

Key Indicators for October 16, 2014

Copper Price per Lb: $2.98
Oil Price per Barrel (WTI):  $83.02

Corn Price per Bushel:  $3.52
10 Yr US Treasury Bond:  2.15%
Bitcoin price in US:  $391.63
FED Target Rate:  0.09%
Gold Price Per Ounce:  $1,239

MINT Perceived Target Rate*:  0.25%
Unemployment Rate:  5.9%
Inflation Rate (CPI):   -0.2%
Dow Jones Industrial Average:  16,117
M1 Monetary Base:  $2,815,400,000,000

M2 Monetary Base:  $11,513,000,000,000