Mobius Is Bullish on China

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Since last week’s shock result, the nation’s benchmark stock index has rallied into a bull market and the yuan -- while falling to a seven-year low against the dollar -- has risen against a basket of peers. The nine basis point increase in China’s 10-year sovereign debt yield is dwarfed by the 33 basis point jump by U.S. Treasury yields.

The resilience is notable given China was in the cross-hairs of Trump electioneering, with the Republican branding the country a currency manipulator and threatening to impose tariffs on its goods. While Pictet Asset Management Co. says the president-elect’s plans risk sparking a trade war between the world’s two largest economies, Mark Mobius is turning more bullish on Chinese equities, arguing Beijing officials may accelerate market opening.

"I’d say we are more positive on China in a sense that Trump will help open the door up more," Mobius, executive chairman of Templeton Emerging Markets Group, said by phone from Dubai. “There’s a fear that Trump will institute protectionist policies but I don’t think that’s the case. Trump will be more business-like and realistic when negotiating with the Chinese."

Article from Bloomberg dated Nov. 15th, 2016.

Interview with Ms Lautenschläger, Member of the Executive Board of the ECB

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This article is interesting because it makes you understand the role of the ECB and where we stand in the current banking system strengthening. If you have any question, please contact : This email address is being protected from spambots. You need JavaScript enabled to view it.

Interview with Ms Sabine Lautenschläger, Member of the Executive Board of the European Central Bank and Vice-Chair of the Supervisory Board of the Single Supervisory Mechanism, in Süddeutsche Zeitung, conducted by Ms Meike Schreiber and Mr Markus Zydra and published on 2 November 2016.


So it can't be ruled out that there might be another financial crisis of the kind we saw in 2008?

A financial crisis can never be ruled out entirely. But much has been done since 2008 to make the banking system more stable and to give us greater scope for action. Banks now have greater capital and liquidity reserves and better risk management than in 2008.

So no need to worry?

Banks are now much more resilient, and we as supervisors are able to take more far-reaching action in dangerous situations now that we have more instruments at our disposal.

The IMF recently described Deutsche Bank as the most dangerous bank in the world. As the responsible supervisory authority, you surely can't stand for that, can you?

You'd have to ask the IMF what criteria they applied in coming to this conclusion. The IMF also put it differently.

It said that Deutsche Bank appeared to be the most important contributor to systemic risks.

You see, that means something different from saying that it's the "most dangerous" bank in the world. The Financial Stability Board has published a ranking of the large, globally active banks according to their systemic relevance - that serves as a good guide.

This obstinacy is not popular with the banks, and many politicians also fear that banks will no longer be able to lend sufficient volumes as a result of all the regulation. What political pressure do you face?

As supervisors, we want to have banks that are able to finance the real economy not just in the short term, but also in the medium and long term. Some see a contradiction between banks granting loans and at the same time meeting tough regulatory requirements, but I don't see a contradiction here. Quite the opposite: a bank that has to fulfil strict supervisory conditions will be able to service the economy not just for the next few years, but also in the longer term.

The current business strategy of most banks mainly involves raising fees. Doesn't that mean that consumers are also paying for the ECB's zero interest rate policy in this way?

I have a question for you: would you like to give away your newspaper for free?

Not really...

Quite! But you would like your bank to manage your account, say, for nothing? I think that we need fair prices for services in the banking sector just like in any other sector. Everything cannot always be free. And that has nothing to do with low interest rates, it is a general truth.

Are you saying that the low interest rates are not a problem for the banks?

In the long term, the low interest rate environment can represent a considerable challenge, in particular for banks in the traditional lending business. But I would like to point out two things. First, the low interest rates are the result of persistently weak growth and structural factors such as demographic change. So many factors, both national and global, play a role here, not just the central bank's key interest rate. And second, the period of low interest rates also has benefits for the banks. They can obtain refinancing at better rates, and expansionary monetary policy also supports the economic recovery, which is also beneficial for banks.

Yet banks now even have to pay a penalty rate if they deposit money with the central bank. Is the ECB not putting the stability of banks at risk in this way?

It isn't easy at present, but banks have to find a way of dealing with the economic environment in which they find themselves. The banking business means constant adjustment. And a large number of the banks that have clear weaknesses in their business models had income that was too low and costs that were too high even before interest rates were low.

Article published on the BIS Web site on November 6th, 2016.

Total returns (%) as of Sept. 30, 2016

Total Return as of Sept. 30 2016

ETFs combining multiple investment themes

  • ETFs combining multiple investment themes are next big thing ?
  • Billed as a core holding, will investors buy and hold?

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For its next act, the $3.5 trillion ETF industry wants to sell you the steady income of a dividend, the upside of a small cap and the good night’s sleep of a low-volatility stock. All at once.

And they really hope you buy it. Just about every big fund provider, from Goldman Sachs Group Inc. to BlackRock Inc. and Franklin Templeton Investments, is pinning the next leg of growth on the idea. (27.10.16)

SEC's investigation

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Following the previous news dated September 7th, 2016 published on the SWISS PROFILINVEST Web site, new information have been published.

The SEC's investigation of how Exxon Mobil values assets in a world of increasing climate change regulations is eliciting sharp reactions, with some investors seeing it as a tipping point, while others are calling it a politically motivated attack. But many agreed on one thing: It's a potentially transformative moment for U.S. companies, which now have to worry about regulators' scrutiny of future climate change impacts more seriously than before. (23.09.16)

Recession or not ?

 Croissance PIB US depuis janvier 2015

Deceleration of the US GDP since Q1 2015.

Question : are we going into recession in the USA in 2017 ?

UN's sustainable development goals. Ranking published in the Lancet.

  • Iceland and Sweden share the top slot with Singapore as world leaders when it comes to health goals set by the United Nations (Switzerland no 19), according to a report published in the Lancet. Using the UN’s sustainable development goals as guideposts, which measure the obvious (poverty, clean water, education) and less obvious (societal inequality, industry innovation), more than 1,870 researchers in 124 countries compiled data on 33 different indicators of progress toward the UN goals related to health. (23.09.16)

Policymaking by major central banks

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Swiss ProfilInvest has decided to publish articles time to time in an effort to develop new way of thinking, of discussions with clients.

Stephen Roach was the Chief Strategist of Morgan Stanley until the late 90's. In the folowing article, he describes the main challenges of current central banks monetary policies. Though we might not agree with him, the arguments are interesting in order to understand history and to appreciate current situation.

By Stephen S. Roach
Project Syndicate, Sept. 26, 2016

NEW HAVEN – The final day of the summer marked the start of yet another season of futile policymaking by two of the world’s major central banks – the US Federal Reserve and the Bank of Japan. The Fed did nothing, which is precisely the problem. And the alchemists at the BOJ unveiled yet another feeble unconventional policy gambit.

Both the Fed and the BOJ are pursuing strategies that are woefully disconnected from the economies they have been entrusted to manage. Moreover, their latest actions reinforce a deepening commitment to an increasingly insidious transmission mechanism between monetary policy, financial markets, and asset-dependent economies. This approach led to the meltdown of 2008-2009, and it could well sow the seeds of another crisis in the years ahead.

Lost in the debate over the efficacy of the new and powerful tools that central bankers have added to their arsenal is the harsh reality of anemic economic growth. Japan is an obvious case in point. Stuck in what has been essentially a 1% growth trajectory for the last quarter-century, its economy has failed to respond to repeated efforts at extraordinary monetary stimulus.

Whatever the acronym – first, ZIRP (the zero interest-rate policy of the late 1990s), then QQE (the qualitative and quantitative easing launched by BOJ Governor Haruhiko Kuroda in 2013), and now NIRP (the recent move to a negative interest-rate policy) – the BOJ has over-promised and under-delivered. In fact, with Japan’s real annual GDP growth slipping to 0.6% since Shinzo Abe was elected Prime Minister in late 2012 – one-third slower than the sluggish 0.9% average annual rate over the preceding 22 lost years (1991 to 2012) – the so-called maximum stimulus of “Abenomics” has been an abject failure.

The Fed hasn’t fared much better. Real GDP growth in the US has averaged only 2.1% in the 28 quarters since the Great Recession ended in the third quarter of 2009 – barely half the 4% average pace in comparable periods of earlier upturns.

As in Japan, America’s subpar recovery has been largely unresponsive to the Fed’s aggressive strain of unconventional stimulus – zero interest rates, three doses of balance-sheet expansion (QE1, QE2, and QE3), and a yield curve twist operation that seems to be the antecedent of the BOJ’s latest move. (The BOJ has just announced that it is targeting zero interest rates for ten-year Japanese government bonds.)

Notwithstanding the persistent growth shortfall, central bankers remain steadfast that their approach is working, by delivering what they call “mandate-compliant” outcomes. The Fed points to the sharp reduction of the US unemployment rate – from 10% in October 2009 to 4.9% today – as prima facie evidence of an economy that is nearing one of the targets of the Fed’s so-called dual mandate.

But when seemingly solid employment growth is juxtaposed against weak output, the story unravels, revealing a major productivity slowdown that raises serious questions about America’s long-term growth potential and an eventual buildup of cost and inflationary pressures. The Fed can’t be faulted for trying, argue the counter-factualists who insist that only unconventional monetary policies stood between the Great Recession and another Great Depression. That, however, is more an assertion than a verifiable conclusion.

While policy traction has been notably absent in the real economies of both Japan and the US, asset markets are a different story. Equities and bonds have soared on the back of monetary policies that have led to rock-bottom interest rates and massive liquidity injections.

The new unconventional monetary policies in both countries are obviously missing the disconnect between asset markets and real economic activity. This reflects the aftermath of wrenching balance-sheet recessions, in which aggregate demand, artificially propped up by asset-price bubbles, collapsed when the bubbles burst, leading to chronic impairment of overleveraged, asset-dependent consumers (America) and businesses (Japan). Under such circumstances, the lack of response at the zero bound of policy interest rates is hardly surprising. In fact, it is strikingly reminiscent of the so-called liquidity trap of the 1930s, when central banks were also “pushing on a string.”

What is particularly disconcerting is that central bankers remain largely in denial in the face of this painful reality check. As the BOJ’s latest actions indicate, the penchant for financial engineering remains unabated. And as the Fed has shown once again, the ever-elusive normalization of policy interest rates continues to be put off for yet another day. Having depleted their traditional arsenal long ago, central bankers remain myopically focused on devising new tools, rather than owning up to the destructive role their old tools played in sparking the crisis.

While financial markets love any form of monetary accommodation, there can be no mistaking its dark side. Asset prices are being manipulated across the board – stocks and bonds, long- and short-duration assets, as well as currencies. As a result, savers are being punished, the cost of capital is repressed, and reckless risk taking is being encouraged in an income-constrained climate. This is especially treacherous terrain for economies desperately in need of productivity-enhancing investment. And it is not dissimilar to the environment of asset-based excess that incubated the 2008-2009 global financial crisis.

Moreover, frothy asset markets in an era of extreme monetary accommodation take the pressure off fiscal authorities to act. Failing to heed one of the most powerful (yes, Keynesian) lessons of the 1930s – that fiscal policy is the only way out of a liquidity trap – could be the greatest tragedy of all. Central bankers desperately want the public to believe that they know what they are doing. Nothing could be further from the truth.

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According to German website, a client of the Xetra-Gold Exchange-Traded Commodity was told the fund's designated sponsor, Deutsche Bank, would be unable to deliver the requested gold. This was contrary to the explict reps and warranties made explicitly in the Xetra-Gold's prospectus, which said that investors are entitled to the delivery of the certified amount of physical gold at any time, and proudly added that "since the introduction of Xetra-Gold in 2007, investors have exercised this right 900 times, with a total of 4.5 tons of gold delivered."

As the German article concluded: anyone who wants to easily convert their Xetra-Gold holdings into physical gold - at least for clients of Deutsche Bank - can do so only by selling their shares, and then buying gold coins or bars directly elsewhere. Which leads the author to the logical question: what is the worth of the Xetra-Gold service, which certifies the right to redeem physical gold, if said delivery is no longer possible? In other words, what was supposedly an ETC which promised physical delivery upon demand, is nothing more than yet another "paper only" play.

Comment :
These are some of the risks, we tend to avoid with our different Partners.
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