Can banks charge for deposit? Really?
The market has discussed the “when” and “how” the
US could taper its Quantitative Easing.
The USD 85 billion a month Asset Purchase Scheme is viewed to be vital
in keeping the world rotating. Well, at
least it keeps the bull running in the US and European stock markets. The recent gesture from the US Fed and its
Chairman Bernanke is interesting to put it mildly. Ben Bernanke is paid to make sure the world
does not fully understand his words.
Yet, many people have to make a living in knowing what Uncle Ben is
saying and how that could affect the market. Uncle Ben and his team, the Federal Open
Market Committee, have said they would taper its bond buying probably in the “coming
meetings”. If the US Fed is slowing down
the money printing machine, it wants someone else to throw money into the
system. And the lucky ones are
BANKS! One potential outcome is for the
Fed to pay banks a lower interest for putting money with Fed itself. Currently, Fed is paying 0.25% for banks to
park their reserves (versus the European Central Bank paying 0.1%). If the Fed starts to pay less, Bernanke and his
colleagues are hoping banks would put their money to work and perhaps lend to
some corporates. Well, most human beings
are lazy by nature and bankers are no difference. The banks are thinking of paying their
customers less for their deposit as a result of Fed paying the banks less. Wait a minute. Bank clients are already getting practically
zero interest from their USD deposit.
Similarly in UK, Germany or other healthier EU countries, bank clients
are getting donuts from their bank deposits.
So, getting even less could means clients will need to pay the banks for
looking after their money. That’s a very
scary thought for retirees or companies that are cash rich. This is the final push to the investors
through the revolving door into the casino of stocks, bonds and other
securities. This could be what the Fed
wants. By cutting the rate Fed pays for
bank reserves, the bank clients would put their money to corporate bonds or
shares.
With determination, the US Dollar has successfully
weakened against the British Pounds. As
of 26 November, it is USD 1.6153 to GBP 1 and this is pretty much as strong as
the GBP has been against the USD in 2013.
The peak was 1.6381 on 2 January, 2013 and the bottom was 1.4814 on 9
July, 2013. The Euro peaked against the
US Dollar at 1.3832 on 25 Oct, 2013. It
is now back to 1.3532 level which is still a lot stronger than the year low at 1.2746
on 4 April, 2013. While USD is weak due to
Fed relax monetary policy, positive news or the expectation of positive news in
US real economy is preventing the US Dollar to weaken further this year.
Another interesting currency is Gold which is like
a world currency without a government monetary policy. Gold has been drifting south since September
from USD 1415 per ounce to USD 1253 as of 25 November. The year low was USD 1180.50 on 28 June,
2013. Gold, in some views, is a hedge
against a few purposes such as inflation, US default risk, Euro zone breakdown. Now all 3 troubles seem so far away. It looks as though the stock market is here
to stay. Some believe gold prices have
to fade.
UK stock investors are likely to have a good year
in 2013 with FTSE100 Index going up 13.5% year to date as of 25 November, 2011. Further upside this year could be a big ask
with Christmas approaching as fund managers and institutional investors taking
holiday. The overall tapering gesture
from US Fed could put a lid to cool off the US bull market. China has been lagging behind the West in
terms of stock market performance. In
November, China had its Third Plenary Session of the 18th Central
Committee. It is a very long name for a
very big communists gathering. One big
outcome is that the Chinese government is relaxing its one child policy. It sounds strange to the West that the
Chinese government could limit the number of children a couple could have. Currently, only if both parents are single
child, they could have the second child.
The proposed change is that if one of the parents is a single child, the
couple could have the second child. This
brings some demographic dividend to China.
Overall, President Xi Jinping and his government seems to have got the
steering wheel of the nation firmly and even famed investor Jim Rogers recently
interviews are giving positive comments over the Chinese stock market.
