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The economic sensitive sectors like materials copper, iron ore or steal have been very weak, so we don't need the FED to tell you that something is wrong with the economy.
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At least this time around Mr Bernake did the right thing
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I think one of the problems will occurs sometime in the future when let's say the FED have only 30 years bonds and a time would arrive when they should increase short term rate due to, whatever, weakness in the dollar, inflationary pressures, or rising sharply escalating commodities prices, it will be very difficult for them to increase short term rates because then the bond market will thank and they will have a hugh loss in their balance sheet.
But let's put it this way, yesterday was better than what they have sad for the last 12 years.
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Are we going to see a QE3?
Yes for sure. Let's say my view has always been if the S&P drops to around 900-950, we will get QE3 for sure.
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But on the other hand I'm very happy because the dollar went up. I think for the US it's more important to have a strong dollar than have a strong market.
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Is that sustainable?
Yes I think the dollar will continue to rally not because it's a desirable currency because it's better than other currencies are. And I would also like to mention, in my view we don't know yet for sure why stocks have been this weak over the last 3-4 months.
I think the stock market is a discounting mecanisme and particularly here in Asia, weakness in stock, let's say here in Hong Kong, has to do with a force coming meaningful slowdown in the Chinese economy and disappointing news out of China.
If we would define a bubble as excessive credit grows and artificially low interest rates than China has had a gigantic bubble.
Now will it collapse, or will it just slowdown, it's another issue, but I think some sectors of the economy will collapse.
How high can gold go?
I think Gold has had a big move and recently became very overbought and dollar strength means, like in 2008, that global liquidity is contracting, and when you have a contraction of the global liquidity, it hits industrial commodities a lot, it strengthens the dollar, it hits asset prices. And in 2008 the gold price didn't go down, but the gold shares went down a lot.
And so it is conceivable that somebody will say ok copper is down say this much, gold is still relatively high I'm gonna take my profits on my gold position.
I'm not selling my gold because I think in the long run they will print money. As soon markets in the world are down another 10-20% even the republicains will write a letter to the FED "you have to ease". Now they can sit down and say "don't ease, we have done enough", but as soon as asset prices go down and the economy is weak, everybody will again applaud the FED if they print money.
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