Monday, April 2, 2012

Financial repression will hit US consumers the hardest----By Shan Saeed

Financial repression — the government maneuver of keeping interest rates below the inflation rate in order to dodge debt — means that investors would be wise to put money into risk assets now. With so much printing taking place, the living standard of average american has gone down by 50% since 1986 according to Billionaire Real Estate guru SAM ZELL. Financial repression is the right word” for what the Fed is doing. The consumer sector is damaged, with the real growth rate of consumer spending averaging just 0.5 percent annually over the past four years. Low interest rates create asset bubble or cause asset price inflation. FED is executing the same. Wont help in the long run.

It is important to “recognize that investors are locked up in a financially repressive environment that reduces future returns for all financial assets. Negative interest rates on saving, high inflation, lower productivity growth and weak manufacturing base are the symptoms for the consumers getting crushed like a sugar-cane juice. US dollar is losing its strength globally and investors are moving into commodity currencies like Canadian / Australian dollar or Chinese Yuan or Norwegian Krone or Singapore Dollar

In such a mildly reflating world, unless you want to earn an inflation-adjusted return of minus 2 percent to 3 percent as offered by Treasury bills, then you must take risk in some form like equity, precious metals, energy market or art market.

The “delevering” of the global debt load continues, most conspicuously in Europe, but “the total amount of debt however is daunting and continued credit expansion will produce accelerating global inflation and slower growth in the years to come. In that scenario, “financial assets relative to real assets outperform. . . as wealth is brought forward and stolen from future years if real growth cannot replicate historical total returns. I have advised my clients to take position in REAL ASSETS. I have recommended short and inflation-protected bonds but also dividend stocks and commodities in short supply. I am BULIISH ON AGRICULTURE COMMODITIES. Rice, Sugar, Coffee and Wheat are my favorite pick


Europe's economy will become 1/3rd of the global economy in the next 5 years. This was shared by Nobel Laureate Robert Fogel at Uni of Chicago, Booth School in London in August-2008. He is absolutely correct in his prediction. Europe will have sub-par growth going forward
Austerity in Europe is indeed having an impact now, according to the OECD. The Paris group sees U.S. growth at 2.9 percent in the first quarter and 2.8 percent in the second, while total growth for the Group of Seven largest economies will be 1.9 percent. There is a recovery which is firming with respect to past numbers. But it is clearly coming at different speeds, with North America and the United States growing faster and the euro area still in a weak spot. Recovery figures are not stable and might go down further in the months to come.

Disclaimer: This is just a research piece and not an investment advice. All financial transactions carry a RISK.

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