I was at the Toronto Money Show last Friday and Saturday. I will be publishing my notes as I transcribe them.
There were a number of speakers in the Opening Ceremonies of the Money Show for 2015. The first speaker was Andrew Busch whose talk was called "What's Next for the US Dollar, Euro and Currency Wars. He has a free web site.
First he said that it is the central banks that drive currencies. The ECB has started QE (Quantitative Easing). The BOJ (Bank of Japan) continues QE and the PBOC (People's Bank of China) had cut interest rates.
In the US, the Fed (Janet Yellen) is looking to raise interest rates. The underemployment rate is below 5%, inflation is low and the US dollar is strong. He also points out the effect of a rising currency is the same as rising interest rates. He said the US is looking for GDP growth of 2 to 2.5%. The Fed has ended its QE.
The last time the US raised interest rates was 2006. However, with unemployment below 5% this should drive up wages, but this is only happening in pockets. Congress has just passed the Budget and it raised the Debt Ceiling. The Debt Ceiling will not now be a problem now for a couple of years.
Why is the Fed waiting to go from an emergency period to a normal period? Part of the problem is that there is not much transparency with the Federal Reserve's policy. The US economy continues to have GDP growth of around 2%. It is better than in a lot of other places.
The US PCE Inflation (Price Index) is falling with the price of oil. Texas, North Dakota and Alberta are not doing well, but airplane travel is.
The Fed has said that they will raise rates at the next meeting (in December). If they do not they will lose creditability. It is only the Fed that is contemplating raising rates. The Fed is standing alone with what they are doing.
With the ECB (European Central Bank) they have just started QE. EU unemployment is at 11%. The GDP growth is 1.6% and the CPI is at a negative .1%. They have deflationary problems and they want to devalue their currency. Their QE should be around €60 Billion a month until it reaches some €1.1 Trillion. The goal is low interest rates and a weak Euro to the US Dollar.
He talked about "Unpacking the ECB". QE is working but reforms are needed. The Euro is weak. There are risks in the on-going crisis.
The BOJ is maintaining QE at ¥80Trillion per year. Deflation is a problem as CPI is at 0.2%. The ¥80Trillion a year is the solution to Japan's problems. They are a large shareholder in large ETFs and they want to increase the value of the stock market. A weak Yen is the target.
He talked about "Unpacking the BOJ". Japan must reform. Abe has not been able to do reform.
The PBOC have cut rates and they have added to QE 6 times since November. They said GDP growth is 7%, 7% and 6.9%. They have devalued the currency for the first time and this left uncertainty. We cannot believe their GDP figures. Unemployment is at 4%. Their target GDP growth is 7.1% and they say they are getting 6.9%.
He talked about "Unpacking the PBOC". China has panicked over the stock market and GDP growth. The Chinese government has a hand in the stock market. So you can never tell what the actual value of the market is really at. In August the Chinese Government did everything they could to stop the stock market from falling, but it still went down.
In the US, the US dollar is rising. Also there is good news in that the US is starting to do Tax Reform. It is also good new that Paul Ryan, is now speaker of the House of Representatives. Also with shale production, it is easy to turn it off and on.
Canada has problems in housing and energy. Housing costs are 165% of deposable income and it is too high. Energy price are not going anywhere.
All countries have to reform. The problem is that reform is very hard for politicians.
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