A Singular Viewpoint

A Singular Viewpoint

Current Overview July 14, 2015

John Hsu 0 1090


The US seems to be on track for a mild economic recovery. At this juncture, a 2+% Real GDP growth seems to be a sustainable number. Furthermore, Chairperson Yellen has repeatedly telegraphed the message that it is likely that the Fed will implement a policy of normalization of interest rates in the near future, subject to data input on an on-going basis. We believe that a hike in interest rates, albeit nominal, is likely in September. We maintain that the Federal Reserve is committed to being ahead of the curve, i.e. take action before inflation manifests itself. Yet the first early signs such as the increase in minimum wage, have already appeared on the horizon. The second issue is perhaps more relevant. The Fed has been under significant criticism from both political parties in Congress. Republicans in general have been critical of the zero interest rate policy implemented by Chairman Bernanke, whereas the Democrats are mindful of banks being too big to fail. The Fed is acutely aware of its critics on Capitol Hill and realizes that it would be providing political fodder for raising interest rates during the Presidential political season. In short, the Federal Reserve has a relatively small window of opportunity to raise rates.

Current Overview July 9, 2015

John Hsu 0 1115


In our write-up dated June 22nd, we shared our view that a correction in general is healthy for capital markets. The Shanghai market up to its recent peak in mid-June, rallied 112% without any consolidation. So, a healthy correction was long overdue. This round of liquidity-driven rally in the A-shares market has led stock prices to climb to unreasonable levels with valuations that detach from fundamentals. It is therefore normal that market forces will drive asset prices back to their intrinsic value level.