Asia: Brown's victory & Asia's monetary Economic Clock
Summary
We all know by now that Republican Scott Brown beat Democrat Martha Coakley by a margin of 52% to 47% in the Massachusetts Senate race. But what are some broader investment implications of this? We take a look at how these results should affect the Economic Time® of those Asian countries whose currencies are most strongly tied to the US dollar - and, thus, how to make money off Mr. Brown's victory. What we write is of trading nature today; America's triangle of trouble is not going to vanish must because a 50 year old Republican won a state Senate seat!Topics Covered
- Budget implications of Brown's victory
- Effect on the dollar
- Effect on Asia's monetary Economic Time®
- How to make money off this idea
Background
1. Budget implications of Brown's victory
Readers know of our concern about the swelling U.S. budget deficit. Indeed, we postulated that if this keeps on swelling, a market crash could be triggered.
With Brown's victory, the Democrat's "filibuster hold" on the Senate is broken. This dilution of their majority implies that the health care bill will not pass as it stands currently in both chambers. Indeed, when it comes to "conference" - i.e., when both chambers have to hammer-out a joint health bill - watch it get diluted considerably.
That will cause a sigh of relief among many tax payers, reeling under financing bankers' disgusting boni and poor peoples' devastating health care costs.
Delving more deeply, however, something else emerges: with Obama's popularity obviously waning (high taxes being one reason), watch the Republicans re-emerge strongly in the mid-term elections this November. This implies more fiscal conservatism, as in: less likelihood of higher taxes, more likelihood of lower spending. In other words, Brown's victory has stopped (some o) the rot in America's burgeoning budget deficit.
2. Effect on the dollar
This should lead to market euphoria. First, Wall Street should rise, now that the conservatives have won a crucial election. Secondly, and more importantly, people will load back into the dollar, given that it will be rejuvenated as a "safe haven" currency. Of course, carry trades will still be put on, and that will weaken the dollar. But our view is that in the near trading term, the dollar will bounce up in a type of sympathy vote for Brown's victory.
3. Effect on Asia's monetary Economic Time®
If we are remotely correct in this view of a dollar bounce, then watch Asia's dollar satellites bounce too, in particular the RMB and the HKD. This means that their current excess supply of money has to increase: China and Hong Kong cannot allow their currencies to strengthen too much on account of political/peg reasons. Watch the same phenomenon to a lesser extent in Singapore and in Malaysia, whose currencies are less tightly-tied to the USD.
4. How to Make Money Off This Idea
- Always consult your financial adviser first.
- Buy the dollar on a short-term Brown-bounce
- Go long US Treasury Bonds for now
- Buy Chinese and Hong Kong banks: the near term intensification of an excess supply of money implies even better Economic Time® as well as cheaper deposit rates (if they can get even cheaper!)
- Look at banks in Singapore and in Malaysia for the same reason.
- All of these ideas are trading ideas.
