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FORWARD THINKINGA N I ND EPEND ENT POINT OF VIEW BY: ER IC S T-C Y R C EO, C LOV E R AS S E T MA N A GEMEN T L I MI T ED
Nov 09, 2010 forwardthinking@clover.ky TELEPHONE (345) 947 0005 FACSI M I L E(345) 949 0005
Where do we go
from here?
On
July
07th
of
this
year,
I
wrote
an
article
where
I
recommended
to
everyone
to
increase
their
equity
exposure
as
I
turned
more
bullish
toward
the
stock
market.
My
forecast
was
simple,
either
we
were
moving
out
of
this
“everlasting”
recession
and
stocks
will
out-‐
perform
going
forward
or
the
fear
of
a
“double-‐dip
recession”
will
force
the
Federal
Reserve
to
come
to
the
market
with
new
liquidity.
Since
I
made
this
recommendation,
the
SP500,
the
most
followed
US
equity
index
is
up
by
more
than
15%,
and
most
emerging
markets
are
showing
returns
in
excess
of
20%.
Most
of
this
growth
in
stock
value
was
created
on
the
expectation
of
another
phase
of
quantitative
easing
(QE)
from
the
Federal
Reserve
in
the
USA
and
low
and
behold,
we
had
the
Fed
last
week
promising
to
pump
an
additional
USD
600
Billion
dollars
in
new
liquidity
into
the
market
over
the
next
eight
months.
FORWARD THINKING
A INDEPENDENT POINT OF VIEW BY: ERIC ST-CYR CEO, CLOVER ASSET MANAGEMENT L I MI T ED
Nov 09, 2010 forwardthinking@clover.ky TELEPHONE (34 5) 947 00 05 FACSI M I L E(345) 949 0005
www.Clover.ky
The Clover Asset Management Free Press
FORWARD THINKING
A INDEPENDENT POINT OF VIEW BY: ERIC ST-CYR CEO, CLOVER ASSET MANAGEMENT L I MI T ED
Nov 09, 2010 forwardthinking@clover.ky TELEPHONE (34 5) 947 00 05 FACSI M I L E(345) 949 0005
consumers. Remember, the average family in the USA is today worth $100,000 dollars less than
they did two years ago. If we want the economy to do better, we need the consumer to feel better
and start spending again and the easy (lazy?) way to do that is to increase their personal wealth by
sending all asset values higher. To do this, you must reduce the value of the currency thereby
increasing the value of almost everything else. Think about it, if tomorrow morning you need two
dollars to buy what one dollar was buying yesterday, you will be under the impression that the
price of the item you are buying has doubled when in fact it may be the value of your currency that
was cut in half… Depreciating currencies should create inflation, a necessary evil to combat
deflation and restart the economy. The strategy has worked so far for liquid assets such as bond
and equities; however the problem remains where it originated at the start of the crisis with Real
Estate value. This Real Estate bubble in the US was so disproportionate that even with a dropping
dollar and rapidly rising liquidity, house values remain depressed and may even roll over in the
near future. Of the estimated 15 million homeowners underwater, about 7.8 million owed at least
25% more than their properties were worth in the first quarter of this year ... More than 4 million
borrowers were underwater by more than 50%. Why not just bringing the keys back to the bank?
For each dollar the US citizen has in the stock market, he has another 3 dollars invested in his
house, if you don’t fix the real estate market, you don’t fix the economy…The following graph
clearly illustrates that QE had a limited impact on property value. I expect no impact on Real Estate
value from QE2.
www.Clover.ky
The Clover Asset Management Free Press
FORWARD THINKING A INDEPENDENT POINT OF VIEW BY: ERIC ST-CYR CEO, CLOVER ASSET MANAGEMENT L I MI T ED
Nov 09, 2010 forwardthinking@clover.ky TELEPHONE (34 5) 947 00 05 FACSI M I L E(345) 949 0005
www.Clover.ky
The Clover Asset Management Free Press
FORWARD THINKING
A N I ND EPEND ENT POINT OF VIEW BY: ER IC S T-C Y R C EO, C LOV E R AS S E T MA N A GEMEN T L I MI T ED
Nov 09, 2010 forwardthinking@clover.ky TELEPHONE (345) 947 0005 FACSI M I L E(345) 949 0005
Expect
the
dollar
to
bounce
back
rapidly
when
we
see
either
a
new
sovereign
debt
crisis
in
Europe
(and
we
will
see
one
again),
a
lack
of
buying
interest
in
treasuries
from
foreigners
who
want
to
be
paid
more
for
the
increase
5inancial
risk;
another
crash
in
the
stock
market
or
positive
economic
news.
Keep
your
eye
on
the
dollar,
it
is
the
best
indicator
of
things
to
come,
especially
as
it
gets
stronger,
equity
will
give
back
some
of
their
recent
gains.
www.Clover.ky
The Clover Asset Management Free Press
FORWARD THINKING
A N I ND EPEND ENT POINT OF VIEW BY: ER IC S T-C Y R C EO, C LOV E R AS S E T MA N A GEMEN T L I MI T ED
Nov 09, 2010 forwardthinking@clover.ky TELEPHONE (345) 947 0005 FACSI M I L E(345) 949 0005
In
closing,
is
there
any
“Light
at
the
end
of
this
tunnel”?
The
answer
is
yes
as
we
are
now
seeing
consumers
gradually
reducing
their
debts
(see
previous
graph).
This
crisis
was
originally
created
by
excessive
debts,
and
if
and
when
the
sum
of
this
cumulative
debt
is
5inally
reduced
to
a
healthy
level,
you
can
expect
the
economy
to
“SLOWLY
“show
signs
of
real
growth.
However
this
will
take
time,
as
you
don’t
correct
twenty
years
of
excess
over
night.committed
excess
for
more
than
20
years;
it
will
not
heal
itself
overnight.
Eric St-Cyr
CEO
Clover Asset Management Limited
Tel: 345 947 0005
eric@Clover.ky
6
www.Clover.ky