Jean-Pierre Verster on Fed Jay Powell, Hospitality, Property and Tencent

With David Shapiro travelling back to local shores, hedge fund guru Jean-Pierre Verster took the reins as Monday’s BizNews Power Hour co-host. Discussion centred around the US Federal Reserve’s speech at the Jackson Hole Summit on Friday, as well as focusing on hospitality and property sectors as investment propositions. Verster said that whilst the consequences of the extremely accommodative monetary policy actions of Jerome Powell could be dire, the markets seem to have enjoyed his dovish stance. Jean-Pierre outlined that out of the big three Chinese tech giants – Tencent, Alibaba and JD.cot – his preference lies with Tencent, which would make a lot of South African investors sleep a lot easier this evening. – Justin Rowe-Roberts

On the market’s reaction to the Federal Reserve Jay Powell’s speech: 

Yes, well the market took it as a positive sign, and the JSE – except for Naspers this morning – was up on the back of the Jackson Hole Summit late on Friday afternoon and the S&P 500 was up as well. So the big takeaway for me is that it’s almost like Goldilocks’ porridge. Not too hot. Not too cold. So on the one hand, Jerome Powell said that they are going to taper the open market operations – the buying back of bonds – so that means we are nearing the end of quantitative easing. But on the other hand, that does not mean that they’re going to raise interest rates anytime soon. So you have this perfect Goldilocks scenario where interest rates are probably going to stay lower for longer, even though we are coming to the end of tapering. And that is positive equity markets. It means money is going to stay cheap and therefore risk assets have done well on the back of that announcement.

On whether it is healthy for financial markets to be dependent on such accommodative monetary policy:

I don’t believe it is. No, not at all. We’re all like junkies and we need to get our fix. Every time you get your fix, it becomes less effective and we need a bigger dose the next time around. So this is exactly this weird and wonderful macroeconomic world we are in – where central banks have really embarked on an experimental policy. And it isn’t healthy. It’s almost a case of them saying – “well, maybe the alternative is even less healthy for the world economy.” If it wasn’t for central bankers, imagine how bad unemployment and pricing stability would be.

And maybe we would all be in a big recession. The big, very difficult question to answer is by trying to avoid smaller recessions, are you perhaps creating a doozy of a recession in the future? No one can say this for sure, but the warning signs are there. And Japan is the one example about what could happen to the rest of the world’s economy. And if you look at Japan’s economy over the last 30 years, it’s not a pretty sight. So we’re just hoping that the central bankers know what they are doing, because if they don’t, we’re all going to be Japan(ified) very soon.

On the reasons the commodity counters are effected by Fed Jerome Powell’s actions:

Yes, commodity markets would be interested. Commodity markets do well when interest rates are low, but they do even better when inflation expectations pick up and people try to hedge the fact that money might be worth less in future by buying hard assets, by buying commodities. So the Jackson Hole announcement was, on the one hand good, but on the other hand, bad for commodities.

Good, because interest rates seemed like they’re going to be lower for longer, but bad because it also indicated that there could be lower for longer because there’s no big threat of inflation. So on balance, I actually think Jackson Hole wasn’t that good for commodity markets in general because it did indicate that maybe inflation, like we’re seeing right now in economic data, is transitory and therefore that it’s not such a big long-term problem. And that isn’t great for commodity markets.

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