I will be in Frankfurt, Germany next week where the 68th annual conference for Chartered Financial Analysts is being held. Once a year, nerds from all over the globe gather to talk about the current state of the economic world. Usually, host cities alternate between the U.S. and a foreign destination (last year was Seattle and the year before was Singapore). However, I learned that next year’s conference is to be held in Montreal, Quebec. Not quite the U.S., but it’s close enough. I mean they used to have a Major League Baseball team.
European Central Bank (ECB)
Frankfurt is home to the European Central Bank (ECB), pictured here. It seems to stand all by itself a long distance from downtown Frankfurt.
On April 15, the ECB held a press conference to announce how smoothly the ECB’s new stimulus program was going. Shortly after Mario Draghi, ECB President, began to speak, he came face to knee with a protester who was seated on the front row posing as a journalist. She leaped onto his desk and proceeded to shower him with confetti. Apparently, security systems do not detect paper confetti.
She was wearing a T-shirt emblazoned, “END ECB DICK-TATORSHIP,” which as someone who has grown up with the nickname “Dick,” I took a mild offense to.
She was quickly corralled and taken away.
This particular protester, Josephine Witt, was trying to point out that the ECB is not a democratically elected institution. Witt stated, “We have this image that the northern countries are disciplined and hard-working and the southern countries are just lying on the beach doing nothing.”
So I’m guessing there will be more than the average number of sessions at the conference dealing with European financial problems, particularly those related to Greece (one of the southern countries). As Ms. Witt pointed out, in the Eurozone, Germany is viewed as the “perfect son” who saved his money for a rainy day… the son who paid cash for his car, and always spent less than he earned so he would have a nice nest egg for retirement. Greece is viewed as the “problem son” who is always broke, lying on the beach and has become a perpetual deadbeat. He has always spent more than he earned, and he ultimately always has to ask his perfect brother for a loan.
At first, the perfect son was happy to help his brother out with a small loan. After all, he IS family, right? But as the demands for loans became more frequent, the perfect son began to realize his irresponsible brother might not ever be able to repay his debts. So the perfect son began to lecture his brother on how to live his life… how he needed to be more frugal and live within his means. How he needed to earn more (which is tough to do when your income is limited), and needed to spend less (which is tough to do when a large part of your income is now spent paying interest on loans). And he was warned that future loans might depend on him adopting a more frugal lifestyle.
Lectures between siblings never go well, and as you can imagine, the problem son sees his perfect brother as being a little sanctimonious and uncaring (and he has never been democratically elected). At family dinners, an argument almost always ensues because, in between bites, Mr. Perfect always has to make some little passive/aggressive comment about how he noticed his brother is driving a brand new car. And that maybe his brother should be making payments on his loans before purchasing new toys. Next thing you know, people are yelling, food is flying and the problem son threatens to disown the family as he picks up his car keys and storms out of the house. Mr. Perfect Son would love to scream, “Go ahead. See if anybody cares!” Except that if his brother actually DOES leave the family, he (perfect brother) might not get paid back the money owed.
So the home city of the ECB might be the perfect setting for this year’s conference. I’m now wondering if Ms. Witt might be a last minute guest speaker.
Stock markets around the world backed up in March, although not enough to get very much attention. The S&P 500 declined 1.7% and foreign markets fell almost 2%. For the past 12 months, the S&P 500 has increased about 10.5%, while foreign markets lost 3.5%.
However, in the first half of April, emerging markets have shown remarkable signs of life, increasing 6.5% in two weeks. Most of the gain is attributable to Chinese stocks that have been on a tear in April, up over 15%.
Oil prices have increased dramatically in April, up over 17%. This shouldn’t come as a surprise to anyone, particularly anyone over 40 years of age. My entire adult life, every significant drop in the price of oil eventually has been followed up with a significant increase.
Bond markets don’t seem to be the least worried about any imminent actions by the Federal Reserve Bank (our version of the non-democratically led institution). The 10-year Treasury bond is still trading below 2%.
At Boyer & Corporon Wealth Management, we have been slowly shortening the duration of our fixed income portfolios… very slowly. We are not concerned about inflation or increasing interest rates, but realize that rates will eventually have to increase. Yet “eventually” could be a long time.
We think stocks are fairly valued and have written/shorted call options against many of our stock positions.
I will provide a summary of the CFA Conference next month, which is usually pretty interesting. Till then…
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