Dear Reader,
Protectionism...what a cold and unwanted word.
Many media sources are warning on its impending impact, whilst others are more optimistic by the fact many are already worrying about it, rather than cheering it.
However, I do believe we have a fine tonic of protectionism already going on, a la sophisticated.
By promoting equity markets and weakening the USD by promising more quantitative easing, effectively, you boost the wealth of Americans (in USD terms), but it is harder to spend that abroad, due to the weaker USD. Hence, it makes buying American the best option.
This seems like a fantastic idea to increase US consumer confidence. As we have discussed in previous blogs, consumer spending can increase when one, or all, of the following pillars are positive:-
1. Wages are increasing, unlikely with high unemployment
2. Credit is expanding, unlikely with the financial and consumer sector de leveraging
3. Asset prices are increasing: quantitative easing is trying to boost this factor
Let me repeat, what a fantastic and tacit way of increasing the "wealth perception" snd hence confidence of Americans.
However, there is one problem. When every country trys to play the same trick! The solution then becomes a problem. A many trillion USD problem. Because if all countries apply the same strategy, everyone wastes money, because no value is created and no permenant relative loss in currency will be achieved. It is this road that we seem to be going: and what an awful road it can be. Hold on steady chaps its going to be a rough ride, and as each day passes, it becomes harder to turn back!
It is for this reason we must apply inflation protected strategies in portfolios, to help us from having our portfolio potentially permenantly de valued from reckless money creation. Remember, financial instruments are priced in currency: the currency issue cannot be ignored.
Yours sincerely,
Alessandro Sajwani
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¡Hola Alex! Estoy totalmente de acuerdo y aprovecho para decirte que tambien con el email que me enviaste.
ReplyDeleteFlorencio
Estimado Florencio,
ReplyDeleteThe article touches on many ideas you have previously raised over the years in our past discussions. We try and show that protectionism need not only consist of introducing trade tariffs. There are many mechanisms authorities can take to influence the flow of capital. Indeed, I often joke that the FED is bankrolling an emerging market bubble. The beauty of this is that US consumers are the ones gaining exposure to this sector, hence enjoy the "wealth creation perception" , but when the bubble bursts, it will not be the US that has to clean it up! Brilliant startegy!
Kind regards, Alex