Saturday, April 19, 2014



Suppose you are flying a Jet with  thousands of tons of cargo, trying to fly like a glider driven only by the wind. Rather difficult task, don't you agree?

Now, imagine an economy that has been inflated with trillions of dollars just to stay afloat, trying to stay in course with a declining amount of cash flow.

Is it possible for developed economies such as Japan , the U.S. and the European Union to achieve a landing with the withdrawal of all injections of adrenaline they have received since 2009?

The U.S. Federal Reserve is trying to make it, as it did on previous occasions that proved a failure : stopping the QE (printing money) , this time in a gradual way during a pre-set amount of months to see if the economy U.S. is able to sustain itself on its own feet, forgetting that the market is completely interdependent with the world economy, which in turn is in a fragile state.

As I mentioned in previous columns , I seriously doubt that the FED will even end the stimulus program and rather reverse the course , trying to re-accelerate the printing press. And the U.S. economy can not achieve a soft landing after the unprecedented amount of paper money circulating back through the financial system . It is only a matter of time before the markets get hit by the retiring of the intravenous injection, giving the Fed to have an excuse to backtrack .

Japan is going in the opposite direction trying to avoid the downturn with increasing propulsion (a time bomb waiting to explode), and Europe is already warming up.

The withdrawal of stimulus is causing a rise in U.S. interest rates and a consequent appreciation of the dollar , deadly formula for that country has been paying his debt by systematic depreciation of its currency. Also the gradual loss of it's political global power has taken a toll on commercial relationships, therefore undermining the currency.

Looks like a good time to buy bonds of medium duration in dollars ( and high quality) , since surely its recent price drop will be reversed in the short term . The U.S. can not achieve a soft landing with such a heavy fuselage.