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 Fresh!
David Mint
Key
Indicators for October 16, 2014
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
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
Unemployment Rate: 5.9%
Inflation Rate (CPI): -0.2%
Dow Jones Industrial Average: 16,117
M1 Monetary Base: $2,815,400,000,000
