I think the key is, in the united states, they have been on stimulus for more than five years.
10% of gdp per year.
He marginal benefit of extra stimulus, in my view, that is the most important keys of the bernanke speech.
What it means is that slowly but surely, over the next 12-18 months, the stimulus will come to an end.
It does not matter what fends -- what funds will do at the short end of the curve, but what the forward curve will do.
10 years and out.
0-5 years, because 10 years is credit risk.
New zealand, five years is what matters.
As a result, i would expect dollar linked currency rates to start heading up.
That is very important.
Five years, it has kept them going down.
This is an important change.
I understand your analysis.
You are basically saying keep cool whether they taper now or in december or january.
This is not the market sentiment.
They are hanging on this guy's every word.
In china, growth is slowing.
The markets do not seem to be too worried about it.
In japan,, or the fed, what worries you the most?
Central banks have been devaluing the currency.
That is what the dollar has been trying to do.
Who is pegged to the dollar?
China and every commodity producer.
The japanese, after five years, the average 30 year dollar yen is 120. when the united states started debasing the dollar, the yen went to 90. listen, you did 50% of qe in five years, i will do 50% in one year.
What happens, they want to bring the yen back to 120. the only currency stuck in between is the euro.
The euro will sit at 1.18 15 years ago.
U.s. gdp has gone up 10% over a similar time.
But the currency is 10% higher than it was.
Today, a fair value of the euro is between 1.10 and 1.15. it should not be at 1.30. if we were to get that, suddenly the child problem in europe, italy gets competitive.
Suddenly you him balance the currency war.
The decision of drawdy -- draghi to give forward guidance is to make sure the currency guys do not keep investing in europe.
He is saying, i am not going to raise rates at the margin.
The euro, i want it lower.
Do we get forward guidance, do we not?
That is the million dollar question.
It is a policy decision.
You have six people on a unanimous decision that said we want loose monetary policy.
That is important.
For the first time, they have a direction.
That is massive.
It does not matter the details.
The problem with forward guidance is that forward guidance is great, it puts everyone at ease.
So they will discuss rates at every meeting.
To me, that is not forward guidance anymore.
They decided given where the economy is going, that they needed to lose monetary policy.
Having said so, they will still have meetings every month.
That is what matters.
Let's talk about the uk.
The fed giving detailed forward guidance.
Mark carney getting ready to give us more?
Will he get more and will it transpire in the currency?
In my view, it will.
Mark carney has always been pro- forward guidance.
Given the data any indication he has for the foreseeable future.
If the data changes substantially, we could suspect a change in policy.
The ecb could not commit and it has been a big problem.
Everybody starts pulling them around.
That creates a self-fulfilling crisis.
Ultimately, you cannot be the only guy that the markets keep pushing into the corner and get up.
The ecb has realized this and said, hey guys.
If you think about it, it is unfair to have a currency that is 10% overvalued.
The euro is the new yen.
That is the problem.
There is a long way to go to get it to 1.10 though.
Think about what the swiss central bank has been doing.
They kept on saying, we must be like the swiss national bank.
Last year, they decided to increase the balance sheet by four times gdp.
They took eight years of history and said, ok, we change policies.
The euro today has become the new yen.
They need to defend themselves without having ammunition.
How do you threaten markets without being able to shoot?
The ecb cannot be engaged for quantitative easing.
You need to make sure the currency stays low.
It is absolutely normal.
Thank you so much.
I like this analogy.
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