The yen reached its highest point in three months versus the dollar last week after Governor Kazuo Ueda signalled that the Bank of Japan is nearing the end of its ultra-loose monetary policy. On 19 December, the Bank of Japan will make another decision on that policy. The probability of an interest rate hike has risen sharply in a short time when, in fact, the market has been waiting for it for more than a year. The Yield Curve Control (YCC) policy originally intended to support banks by ensuring a steep yield curve has degenerated into a procyclical policy that conflicts with efforts to strengthen the yen. At a time when the Japanese economy is doing badly, YCC is putting an extra brake on the economy due to the need to keep long-term interest rates high. At the moment, things are going w

By originally labelling inflation as a temporary phenomenon, central bankers were too late in combating it. That was compensated with rapid, sharp interest rate hikes, which the economy will only feel in full next year. Part of that late intervention is that central bankers today do not dare to look ahead, relying instead on two ‘lagging’ indicators: inflation and unemployment. These indicators, by definition, look backward and not forward. As a result, central bankers would rather be late than early in cutting interest rates. That does make the job easy for those who dare to look ahead. As a result, a year ago, predicting inflation would fall throughout 2023 was relatively easy, and inflation will continue to fall for the next 12 months based on the forecasting indicators. Unemployment re

After the dollar rose to 150 yen on 3 October, the same dollar suddenly fell 3 yen on 4 October. This raised suspicions of intervention by the Japanese government. This was not confirmed by finance minister Shunichi Suzuki. Japan did intervene in currency markets regularly in the past, but usually to ensure that a weaker yen would positively boost the Japanese economy. Incidentally, those interventions had little effect. The only result was that they left Japan with extensive foreign exchange reserves by selling yen and buying the dollar in particular. Impossible trinity Any interventions in foreign exchange markets conflict with the Japanese central bank’s Yield Curve Control (YCC) policy. The YCC policy ensures a weaker yen, while any interventions aimed at a stronger yen. A combination

The Hamas terrorist attack launched more than a week ago appears to be aimed mainly at frustrating the normalisation of the State of Israel’s relations with its Arab neighbours. Indeed, Morocco, Bahrain and the United Arab Emirates signed peace agreements with Israel in recent years. A similar agreement with Saudi Arabia was imminent. Israel also got on well with Russia with which it struck an occasional coalition in Syria. That leaves only Qatar and Iran. Qatar supports the global terrorist organisation Muslim Brotherhood, of which Hamas is a part. Despite the fact that Hamas is composed of Sunnis, its common enemy Israel ensures that Shia Iran gets along well with Hamas. As so often in the Middle East, the enemy of my enemy is my friend. Qatar does increasingly try to play an independent

Asking the question “What do you think of the dollar?” is relatively straightforward. The answer, however, is not. One answer that is always correct is that the dollar is likely to remain the US currency for years to come, but this is probably not the answer to the question. Incidentally, the same answer is much less definite with the euro.Predicting the dollar is not easy. There are 10 factors that affect the dollar. These can still be identified. The problem lies in the weight to be assigned to those factors. Currency markets are often manically monogamous. Usually, strong emphasis is placed on one specific factor and the others seem to play no role until they do.Below is an overview of the 10 factors that affect the dollar:Top-down, a strong economy also includes a strong currency. In t

Late last year, many economists were counting on a recession in 2023, but it is now clear that the chances of such a recession this year are not so high. Europe is not having an easy time of it and there are plenty of countries with two quarters of contraction, but it is not enough to speak of a significant downturn causing markedly falling corporate profits. On top of that, due to relatively high inflation (which is what corporate profits are all about), nominal growth is still positive. In that respect, falling inflation is a bigger threat to corporate profits than two consecutive quarters of contraction. In addition to the definition of a recession and the meaning of a recession, in this article, five arguments why the likelihood of such a recession in 2024 has increased. What is a rece

Jackson Hole is an American winter resort in the state of Wyoming. In summer, it is usually very quiet in such ski resorts, but for visitors to Yellowstone National Park, it is on the route. Moreover, the valley near Jackson Hole offers good views of the Grand Tetons. On that plain lies the most photographed barn in the United States with the peaks of the Tetons in the background. The photo shows an idyllic Bob Ross picture, disturbed in summer only by the many photographers all trying their best to emulate the National Geographic photo. Since the advent of Instagram and Facebook, places like this are very popular. Jackson Hole is otherwise best known for the meeting of central bankers. Central bankers' meeting Jackson Hole is thus best known for the annual meeting of central bankers in t

Just when the market has finally embraced the concept of a soft landing, investors are finding out that there are also drawbacks to a soft landing. Compared to the doomsday image of stagflation less than a year ago, a soft landing may revive the fairy tale of Goldilocks, but that does not mean it is all rosy. Both in terms of liquidity, economics and valuation, there is something to be said for such a soft landing. For central banks, the downside of a soft landing is that it is not clear whether inflation has finally returned to the 2 per cent target. The Russian invasion of Ukraine temporarily boosted inflation, but now inflation is benefiting from base effects a year ago. As a result, it was relatively easy to predict that 2023 would be the year of disinflation. It is only difficult to d

Warren Buffet's investment advice is to put 10 percent into short-term Treasuries and 90 percent into a low-cost index fund on the S&P 500 index. For the sake of simplicity, we'll assume that that includes only U.S. stocks. The late Jack Bogle wouldn't invest outside the U.S. either. The typical American investor has less than 20 percent in stocks outside the United States. Now most investors have a "home bias," but in this case that "home bias" is extreme. Now it helps that U.S. stocks have performed extremely well since the Great Financial Crisis. People tend to place a greater value on events in the recent past than events further back in history. The last thing said to us is best remembered. This is also known as the recency bias (recentness effect). Furthermore, from the world's m

Despite the rise in the price of European stocks this year, the discount of European stocks to U.S. stocks has reached 40 percent. Now a discount of about 20 percent has been common over the past 20 years. The main reason for such a discount is the sector breakdown. Compared to the United States, there are relatively few technology companies here, and it is precisely those companies that are currently highly valued. The American technology sector is ten times larger than the European one. But even adjusted for this sector distribution, it is true that each European sector has a lower valuation than its American counterpart. For many investors, such a discount provides a reason to consider European stocks. Still, it is wise to first take a closer look at what causes this discount. As so oft

The importance of energy to an economy is often underestimated. According to Einstein, everything is made up of energy (E=MC2), which means that everything is there as a result of energy. Energy is often invisible. Take electricity, the heat of the sun or the movement of air, for example. Without energy, there is also no economic growth. The strong economic growth of the last 200 years has been made possible thanks to the lavish use of fossil fuels. But even before the industrial revolution, some countries were able to grow strongly thanks to the advantage of sufficient energy. The Romans were adept at using energy from the sun, water, wind and wood. However, with a growing population, at some point, a choice has to be made between food and energy. Whereas firewood and charcoal were initia

Recessions have different causes. The more recent recessions were mainly caused by the financial system. As a result, the main fear was deflation. Such fear combined with a large amount of debt is lethal. If there is deflation, the cash flows to pay off the debts shrink and the contraction keeps deflation going. Such a debt-deflation spiral must be avoided at all costs. Japan's two forgotten decades are often taken as an example of such a development. In such a recession, it is not about interest rates, let alone deflation. It is about stabilising the economy and for that, central banks have to go deep. Governments took massive debt from the private sector and a lot of unconventional monetary policy was required this time, even beyond the edge where there is monetary financing. Central ban

Many commodity stocks are still extremely cheap, but that does not mean they will increase in value this year. Still, they are valuable additions to a portfolio for several reasons. Commodity stocks are preferred to direct investments in commodities themselves. For example, many oil stocks are valued as if the price of oil were at $50 a barrel. In that respect, there is a cushion against further falling oil prices. Also, future inflation is likely to be caused largely by shortages of commodities. Oil prices have fallen this year for several reasons. Some time back came news that China has settled for peace between Iran and Saudi Arabia, meaning that much of the Middle East premium has disappeared from the price of oil. Furthermore, Russia seems to have weathered the winter much better than

More money has probably been lost in timing the stock market than in corrections in the stock market. That seems to be the case again this year. After a tough 2022 investment year and a difficult December, investors were cautious early in the year and, in fact, they still are, given all the cash on the sidelines. The vast majority of economists predicted a recession. That recession did not materialize and, despite the banking crisis and the hassle surrounding the debt ceiling, the likelihood of it has clearly diminished. However, the stock market is carried by only a few companies that are benefiting from the hype in artificial intelligence. Now, the impact of artificial intelligence on the stock market and economy is at least as big as the Internet or the iPhone, nor is it something limit

The U.S. jobs report was much stronger than expected with a whopping 339,000 jobs (195,000 expected and the previous two months were also revised upward by 93,000), but the unemployment rate rose from 3.4 percent to 3.7 percent (the highest level in seven months) while wage growth slowed to 4.3 percent. Hours worked also fell from 34.4 to 34.3, the lowest level since 2011 (not including the April 2020 drop during the corona crisis). Employers are apparently in no hurry to lay people off yet. Profit margins are too good for that and the labour market is tight. Job growth was carried by the service sector. Given the inflation data for the coming months, this is insufficient for the Fed to raise interest rates in June or July. Now that the Fed has started pausing, it is also not obvious to ra

After several decades of low inflation, investors are now again facing probably a somewhat longer period of higher inflation. Inflation comes at the expense of purchasing power, and this touches on the main risk of investing, which is the permanent loss of wealth (purchasing power). One way to mitigate this risk is through inflation-linked bonds. Ordinary bonds are sensitive to changes in interest rates and therefore inflation. Short-term bonds also suffer from this, albeit much less than long-term bonds. Hence, since 1981 in Great Britain and since 1997 in the United States, there have been (government) bonds that provide protection against inflation: the so-called "inflation-linked bonds" or "index-linked bonds" for short. In the United States, these bonds are called TIPS: Treasury Infla