Daily Equity Report

Global equity prices fell back again, reaffirming that prices are still in a broad sideways pattern. With global companies, economy’s and countries under pressure, central bank authorities are still on the path of easing interest rates and trying to increase the general stock of money.

A Standard Bank fixed income report announced that in addition to the UK, the US and Switzerland, now Canada and Sweden may also soon look at quantitative easing – a euphemism for the printing of money.

Source: Ecowin and Standard Bank

The graph reflects the percentage change in US monetary supply versus that of Canada.

As soon as central bank rates go as low as 0,5% there is very little point in going to zero.

The ECB is likely to drop their interest rates by a further 0,25% to 1% in early May. Rates are also at historic lows

Quantitative easing is simply designed to increase the stock of money and as the Standard Bank report indicates, “We see this policy as a deliberate attempt to devalue local currencies against local goods and services.”

It will also ensure devaluation against other things like foreign currency.

Bond managers, Pimco said this about the possible quantitative easing (QE), “The basic rationale behind a QE program is an acknowledgement that Milton Friedman was right when he said “inflation is always and everywhere a monetary phenomenon,” and that in order to generate inflation, all a central bank has to do is print money.”

As central bankers have escalated their intervention in the currency markets, it is exceptionally difficult to anticipate short term currency movements.

Thus far monetary easing by governments around the world has not had a perceived impact on asset prices. They want to avoid the scenario in Japan, which really only embarked on printing of money in 2001, some 11 years after the start of the downturn.

The jury is still out.

Kind regards

Ian de Lange
info@seedinvestments.co.za
www.seedinvestments.co.za
021 9144 966