As Marc Faber famously stated: "You can print money, but you can't control where the money will flow into." This is the most important line that investors need to keep in mind when we are talking about decoupling.
Since Ben Bernanke announced QE3 on September 13, 2012, we all know money is going to be created out of thin air. We just don't know where the money will flow into eventually, we can only observe.
As you may know, I started monitoring the correlation between stocks, bonds and cash since June 4th, 2012. Peter Schiff forecasted that once the decoupling started (meaning that stocks and U.S. dollar cash drop at the same time), then the bond market would plunge. (Normally the U.S. dollar would strengthen when stock markets drop.)
Since a couple of months now, the decoupling has started to emerge (Chart 0). Coincidentally (or maybe not), it falls together with the announcement of QE3 by Ben Bernanke. As you can see the green, red and blue dots are all trending down since 2 months.
Chart 0: Decoupling between Stocks - Bonds - Cash
It's difficult to see, but I will give the 3 charts below. The NASDAQ (equivalent of S&P) has dropped for a month now.
The U.S. dollar cash index has dropped for 2 months now.
As a result the bond market is starting to implode. Yields are going up.
If all three markets (stocks, U.S. currency and bonds) go down, there has to be another part of the market that goes up.
I observed that the money is now flowing into Asia. Several Asian markets like Thailand, Indonesia, Hong Kong (Chart 4), Shanghai are making new highs as we speak. Australia (which is tied to China) is making new highs. The Hong Kong (Chart 5) and Shanghai real estate markets are making new highs.
(Click to enlarge)
|Chart 4: Hang Seng Index|
(Click to enlarge)
|Chart 5: Centa Index Hong Kong Real Estate|
The rise of the Asian real estate market can also be seen in several real estate developers in China that are making new highs. The most significant one is Sun Hung Kai Properties (OTCPK:SUHJY), which is still trading at very inexpensive values (P/E of 6.5, dividend of 3%).
The other market that has made new highs is the precious metals market which went up 10% in 3 months time.
Another part of the evidence of decoupling is that the money is now flowing from the Western world to the Eastern world via the currency market. The Chinese yuan for example has outperformed the U.S. dollar significantly. Currently the yuan is making new highs against the U.S. dollar at an exchange rate of 6.24 USD/CNY. The same is happening with the Singapore dollar. Recently we had news that Hong Kong even had to intervene in the currency market, preventing the HKD to go up against the U.S. dollar by buying U.S. dollars.
I observed that the money is starting to flow from the Western world to the Eastern world and I'm sure this trend will keep getting stronger seeing all this evidence. This is why I suggest investors to start looking overseas for their investments. For example, they can invest in the Chinese real estate market via Sun Hung Kai Properties or invest in Australia as it is tied to China. As Asia is all about commodities, investors could buy into real assets like precious metals.