What you'll discover in this podcast with Marc Ostwald:
- World trade and the global economy: is innovation good?
- Why market psychology is showing a ‘deep visceral fear’
In this edition of our podcast Trading Global Markets Decoded, our host Martin Essex is joined by Marc Ostwald, Chief Economist and Global Strategist at ADM Investor Services International, specializing in debt markets, currencies, commodities, and asset allocations. On the agenda: world trade and the global economy, the state of market psychology and whether CHF and JPY are overvalued. You can listen to this podcast with Marc Ostwald by clicking on the link above or through one of the alternative platforms listed below.
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World trade and the global economy: Is innovation even desirable?
Talk begins on the world’s trade headwinds and their impact on the global economy, from the relationship between Japan and South Korea, to dampening demand in the auto sector, to the shift to service sector economies.
Is technological advancement necessarily good for the economy? “We need to be careful with [the concept of] disruption,” Marc says. “We’re seeing a lack of global inflationary pressure, and innovation is often a race to the bottom in terms of cost-cutting, which plays out most severely for the workforce.
“Is that positive? For consumers yes, but if it’s coming at a huge cost in terms of wages, we have a problem. We need to make sure we don’t end up praying at the altar of innovation and assuming it’s all good.”
Italy’s debt crisis has once more come under scrutiny recently, but is it as critical a problem as many commentators believe? “Italy has a debt problem and a lot of it sits on the balance sheets of Italian banks, but it’s still a wealthy country and it has among the lowest mortgage debt to GDP ratio of any developed country,” Marc says.
The ‘deep visceral fear’ of global market psychology
How does he see the general market psychology at this point? “The pendulum swings violently between what appears to be irrational exuberance into deep visceral fear.
“The longer the financial repression goes on, the harder it will be for people to generate easy income without a high level of risk in their portfolio.”
Investment opportunities now reside in looking at every country on its own merit – to a greater extent than in the past. “We’re looking at the developing world and working out what we want to target.
“The axis of power has shifted away from the EU, NATO and North America and towards Asia and the Shanghai Cooperation Organization.”
Also, the world of macroinvesting has changed. “As we are now, a lot of banks don’t do what they’re supposed to, which is market making, because they’re afraid they’ll get accused of proprietary trading.”
Talk moves to bonds: German Bunds and US Treasuries in particular. “German Bunds have to face ECB quantitative easing but also German government budget policy, and these put downward pressure on yields.
“Japanese government bonds actually yield a lot more than German bunds, but they may not do if the Yen carries on appreciating.”
Are CHF and JPY overvalued?
Are CHF and JPY overvalued? "When we look at forex market movements, we get excited about volatility, but I don’t think things have moved very sharply and we don’t get the type of movements we saw during the Plaza Accord, for example.
Marc is impressed by how resilient Japan's domestic economy is proving to be, citing more similarity between Japan and the US at the moment than for a long time.
“They’ve got so many headwinds blowing on the export side, yet the economy is still doing quite well and domestic demand is pretty robust. So purely on that basis the Yen doesn’t look that overvalued.”
An environment where global trade is growing is one that’s bad for USD , Marc says. “A lot of developing economies accumulate a lot more in the way of trade surpluses, those trade surpluses are recycled in foreign exchange reserves, and these foreign exchange reserves are initially always accumulated in US Dollars and then diversified, which Is why it’s a negative for the Dollar.”
How about gold ? “If we see major economy interest rates start to rise, interest in gold will be diminished.
“The benefit is that the opportunity cost of holding gold, which doesn’t generate income of its own other than the price, is so low compared to holding negative-yielding eurozone government bonds, that you can see the attraction of gold or even digital currencies.
"[Putting your money in that asset] is better than paying governments to borrow from you.”
Marc points to opportunities in commodities . “They’ve been under a cloud for a long time, and we’re beating up on them, but when it comes to the global demand for raw materials, be it agricultural or energy, if its already priced in, then commodities are too cheap in some cases.”
Follow Marc on his platform
For more on Marc’s views on various markets, follow him on Twitter at the handle @MOstwald1.