Investment opportunities remain despite central banks’ green light for printing, says Psigma’s Becket

Thomas Becket, chief investment officer at Psigma Investment Management, says that despite central bankers giving in to the temptation to print money, there are a number of investment opportunities opening up.

So they came, they saw and they printed. And then they printed some more. Over the last month we have had ultimate confirmation, if we needed it, that the raison d’etre of the modern day central banker is to crank up the printing press and flood the economy and financial markets with dollars, euros, pounds and yen. As we expected, the US Federal Reserve launched QE3, the European Central Bank bowed to pressure and announced plans to buy huge swathes of peripheral European bond markets and even those sleepy fellows at the Bank of Japan decided to ramp up their own asset purchase programme. The Bank of England reignited their printing policy a few months ago and seems set to be doing it for some time to come.

There were some surprises within the various announcements, including the open-ended nature of the US asset purchase programme, with the Federal Reserve openly suggesting that this policy would be pursued until the unemployment rate started to fall from today’s uncomfortable level of over 8%. This is a clear and aggressive change and allied to their pledge to keep interest rates on hold through to at least mid 2015 shows they are fully committed. The Fed seems to believe that 7% unemployment is the right number to target. They have also made it abundantly clear that they are willing to abuse their inflation credentials in order to assume their employment goal.

In Japan it is slightly different, as it normally is. The Bank of Japan has reiterated their determination to hit their target of 1% inflation, as they attempt to move their languishing economy out of its deflationary stranglehold. Being Japan this attempt will probably fail or have negative side effects, but at least they are finally doing something.

As has been typical over the last few years, it was the Europeans who grabbed the limelight, with “Super” Mario Draghi’s actions backing up his strong language in July. His policy of printing money to buy the bonds of peripheral European nations who request aid goes quite a long way to support his view that the euro is irreversible. Well, at least for a few months. There are obviously a number of implementation risks, such as the fact that the Spanish still have to go cap in hand to qualify for assistance, but let’s not allow such issues to cloud what has been a relatively calm period in the European crisis. If we wanted to be really critical, we would point out that Draghi’s actions do not solve the long term structural issues that still plague Europe, such as the imbalances between the “core” and the “periphery”. What they do though, is buy precious time for the politicians. The next few months will show whether or not they choose to use the breathing space wisely.


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