“We follow governments’ monetary policies and fiscal policies, and quite frankly I’m scared.”
The stark comment accurately summed the roundtable discussion hosted by Merk Funds’ president and chief investment officer Axel Merk on Monday in Denver. Titled “Currently Wars and Competitive Evaluation,” Merk (left) sounded off on a number of topics related to currency, economies and central bank actions worldwide.
Although Merk was nervous about the relative strength and actions taken recently by global policymakers, the strife nonetheless represents opportunity, he stressed.
“Cultural differences often dictate whether countries will, or will not, significantly add to their balance sheets,” Merk began. “For those that don’t like the bad guys adding to their debt, they will really like Australia, who is busy mopping it up.”
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Moving to a discussion the Federal Reserve, he noted that regional presidents are mainly academics, and will often disagree. The institution’s governors, on the other hand, are more in lockstep and tend not to disagree.
“This year is one of the most dovish years for voting members,” he explained. “Although he didn’t use the term ‘irrational exuberance’ in the recent speech, that’s what he meant. The markets reacted poorly and he walked it back.”
The trouble the Fed is seeing, he added, is the underlying trouble with employment, in that more part-time jobs are being added and less full-time jobs, something that has little to do with the health of the economy and everything to do with Obamacare, Merk claimed.
“We might be the cleanest of the dirty shirts, as so many pundits like to point out, but we underperformed the euro last year as well as year to date. That means this is a financial boom, and not, say, a housing boom. So what happens when mortgage rates rise?”
Traditionally, Bernanke never really worried about long-term unemployment figures, Merk continued, because of the aging demographic and “that’s just what happens. Someone at the fed then showed him the raw numbers. It turns out that isn’t happening; people are working longer and not retiring. That’s a real problem.”
Bernanke, Merk claimed, wants to leave a legacy of “he saved the world during and after the financial crisis. It may not be true but that’s how he wants to pass the baton to the next guy or gal.”
Returning to Japan, he noted that after 2008, the yen was the best performing currency, but it’s status as a safe haven has eroded in conjunction with the country’s current account balance.