A G7 meeting to watch out for
Abraham George Macro Musings
When I was very active in the wild west foreign exchange markets of the 80s and 90s, the biggest event that could influence the FX markets was the G7 meeting. The coordinated actions taken by the G7 countries had big impacts on stocks and bonds too.
Foreign exchange markets were very big those days. I mean in terms of opportunities to make or lose money as volatility was very high. The markets were very inefficient too as few players had the best information. I had the opportunity to work with some of those elite groups who dictated (and moved) the prices.
What was the main cause for the big volatility and price fluctuations? Global inflation at that time was very widely distributed. When inflation became synchronized, the volatility died down and FX became less interesting. The G7 meetings became less interesting to a point that most didn’t even care when and where they took place.
Currently, there are three days of meetings of G7 finance officials in Germany which will conclude today. This is in preparation for the major G7 leaders meeting in June.
G7 meetings are more important when there is a crisis. And we have no shortage of that. What G7 brings to the table is global coordination and action. We are facing runaway inflation and financial instability.
What could really be on the G7 agenda? Media reports hint that they will be 1) Climate change 2) Ukraine support 3) food and energy support for emerging markets 4) Inflation and 5 ) crypto.
These are not factors directly related to the economy or the stock markets. There may not be any mention of the stock markets. The focus will be globally coordinated transformation mainly related to climate and ESG.
What could really transpire is a quick move to crypto regulation. Last week the market witnessed a shocking run on stablecoins. The stable coin Terra got completely annihilated which was supposedly ‘stabilized’ algorithmically.
The biggest stablecoin in the world is Tether. A run on this coin will completely expose their lack of prudence in reserve management. While it was valued at around USD 85 bln last week, it is currently at $74 bln as per their own disclosures.
A serious fall in Tether due to Terra’s fall or regulatory action can wipe out most of the 19,500 odd cryptocurrencies. I reckon that about 1% may survive and those that do could be great buys.
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Abraham George is a seasoned investment manager with more than 40 years of experience in trading & investment and multi-billion dollar portfolio management spanning diverse environments like banks (HSBC, ADCB), sovereign wealth fund (ADIA), a royal family office and a hedge fund. Currently, he is a co-founder of a new hedge fund where foreign citizens can invest in Indian growth stocks like Tanla operating in hyper-growth markets like CPaaS.