Steer clear of US assets

published 9 October 2014

A private-equity friend emails to tell me that he has just bought gold for the first time since 2006.I ask him why?Is there anything in particular on his mind? His answer isn't specific. "I just think that things look pretty rubbish everywhere," he says.

You can see his point. Flick through this week's magazine and, Matthew Lynn's ode to frackingaside, you won't find much joy.

We tell you about how the eurozone is heading for a triple-dip recession and worry that the falling oil price will cause a nasty fiscal squeeze in unstable states. We look at the miserable state of Nauru, the island where the cash has finally run out.

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We note the ways in which even the greatest of fund managers trip up (Warren Buffett has lost a small fortune on Tesco and Bill Gross hasn't had a good year). We look at the Ebola crisis: the misery of the illness and death it brings is obvious, but far beyond its physical reach (so far) it is already hitting markets and global travel.

And we also look at something that is causing a headache for a lot of investors the US dollar. Last year, James Ferguson told us that the end of quantitative easing (QE) in the US, along with the beginning of QE in Europe, would lead to a much stronger US dollar.

He was right. The dollar index is now at a five-year high. That's good news for Americans wanting to spend a weekend in Paris (and the workers driving the low unemployment numbers that are forcing the end of QE), but it's bad news for pretty much everyone else.

For the details read John's excellent cover story but the one thing MoneyWeek equity investors need to take away from all this is that the US stockmarket is not the place to be when tightening monetary policy means the end of QE (remember that the modern world is completely devoid of risk-free assets let no one tell you otherwise).

In the same article in which he wrote about the coming rise of the dollar, James told us that QE tapering would also push the US stockmarket down.

Why? First because the amount of new money going into the market directly from QE and indirectly via buybacks financed on the cheap as a result of QE will collapse. And second because margins on exports and the value of cash piles held outside the US will fall in dollar terms.

That's not an attractive thought when stockmarket valuations are already

horribly high. John suggests (and I agree) that America may well end up with more

QE before this is over.

But until then we think you'd be wise to steer clear of US assets and perhaps to insure against any of the global turmoil mentioned in our pages this week by hanging on to some gold.

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast - but still writes for Moneyweek monthly.

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.