The Fed language and the recent housing numbers coming out of the US have left me concerned for the future of the US vs Euro Vine strategy. The fundamental basis for this vine was that the US would recover faster than the Eurozone. While the vine has been a success so far, the news as of late is making the US recovery seem further off than originally thought. This ‘flattening’ of the US recovery projections against the Euro will decrease the alpha generated from the Vine strategy going forward. I will watch this development closely and determine if the vine should be liquidated or if there is still potential for more gains going forward. More active investors could hedge the strategy by buying the JPY to the USD if you feel this is a short term hiccup.
The one two punch of the Chinese Yuan showing signs that it will be allowed to appreciate and Chinese workers demanding, and receiving, higher wages cold make many of the worlds goods cheaper for the Billion plus potential customers in China. But this is not without a downside'I think that long term this will make the prices of products assembled in China more expensive while giving more purchasing power to the workers in that country. The trick would be to find out who is going to pay more and who will sell more. This could leave to a larger shift in trade relationships and the current export and import ratios of nations; probably getting ahead of myself but worth thinking about.
The revaluation of the Yuan (given appreciation is allowed to occur at a reasonable pace) should give the Eurozone countries more business as the Chinese people will have the ability to buy more imports than before. This coupled with the weakened Euro should be the catalyst that is needed for the EWG to stay above the $20 line, making the move to the 4th segment of the Vine strategy seem safer.
An interesting way to look at playing BP is purchasing bonds and buying long term out of the money puts on BP stock. I was looking into this before and the cost of the puts vs the cost of the bonds made it lack reward. Perhaps with the recent credit downgrade it will make it more lucrative. I will write a more detailed article about this with my findings.
The news of Foxconn raising wages due to employees’ discontent (and suicides in extreme cases) shows that companies are starting to bow to pressures from employees for higher wages. This could prove great for countries struggling to get out of this recession through exports because of the possibility of more disposable income in the largest customer base in the world. Coupled with demand by the Chinese for imports this could be the added boost that European and other economies need to get out of their slumps. Though I still feel that domestic demand will play a big part in their recoveries an increase in exports would certainly help.