Did someone from the central casting dream this up?
This week we have a presidential election in Brazil, a Congressional mid-term election, a key Federal Reserve meeting, a Bank of England meeting, a European Central Bank meeting, a Bank of Japan meeting, and a key US economic statistic. I almost expect to see Jack Bauer jetting from an electoral crisis to a monetary crisis to a bureaucratic crisis, solving them all with his Baretta!
But life doesn’t come with a sound-track and the issues the electorate and the central bankers are facing are real, framed by that final item, the unemployment rate. The economy is lousy, and it’s not getting better very quickly. What can governments or central banks do about it?
Conspicuously absent from this cacophony of meetings is China. Their central bank has already decided to raise interest rates, but the real question is how significantly they allow the Yuan to appreciate against the Dollar. By some measures the Yuan is 20% undervalued.
If the Chinese continue on the same road they’re on, they’ll end up like Japan in the ‘80s: we’ll get all the toys, and they’ll get a bunch of our paper. At the end they’ll end up with a Japanese lost decade: too much domestic investment and not enough domestic consumption to sustain their growth.
The world is planning, and the Chinese are planning, but this begs the question as to whether planning works. One thing’s for sure: the whole world is watching.
Douglas R. Tengdin, CFA
Chief Investment Officer
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