After making a terrible call two years ago, shunning Treasury’s, and having to apologize to the investors behind the world´s largest bond fund (PIMCO), Bill Gross now tries his hand as a currency trade advisor:
Big Macs are out, horsemeat is in … not in burgers perhaps, but at least in the latest headlines. What is rather evident, though, is that my favourite valuation metric for currencies – the relative pricing of Big Macs in individual countries – is being subordinated to the willingness and ability of central banks to print money.
Once an investor has picked winners and losers based upon the increasing size of a central bank’s balance sheet, however, he or she should understand that all of these QE bullets are reflationary attempts that may produce a semblance of real growth, but rather more inflation in future years.
Unless there is a white flag or an ultimate ceasefire, money printing lowers the value of all global currencies – much like horsemeat lowers the value of any burger or shepherd’s pie.
And at that point Mr. Gross, the world will be a better place. More real growth and employment and, maybe surprising to you, little in the way of inflation.
But you should have a chat with my friend Lars!