Thursday, 23 June 2011


I get the feeling the market is already thinking about QE3 in a big way, and for some is acting as an insurance policy on their long equities/commodities/risky asset positions. Clearly this must be building valuations.

The more interesting point however are the second order effects of any potential QE3, and a question of its scale. IF it happens, and that is a very big if, it will be under some serious political flak, and as such its only worth then bothering doing if its a meaningful size, but clearly not going to be truly shocking and awe size.

QE2 had very wide reaching side effects; stock prices rallied hard, but more importantly, do did commodity prices, and food in particular. Another round of QE will put huge pressure on China, exporting inflation from the US to China in a big way. China will have to tighten, but even then, the political pressure from higher commod prices and higher food prices will have to lead to one of three outcomes;
1) substantial revaluation of the RMB
2) excessive monetary and fiscal tightening within China
3) revolution

(2) seems the most likely, but that is like somebody pulling very hard on the handbrake for the resource economies like Australia.

I am short $audusd, and doing a lot of work on Australian banks, and highly leveraged companies looking very actively for good short opportunities.


  1. You ever looked at Porsche's accounts? They look weird (I'm presuming as so much of it is VAG) but good value on the headline figures.

  2. I'll have a look, I imagine though that its to do with almost going bust buying derivatives to buy volkswagen as you suggest.

    in the same sector, BMW sales look very robust.