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Credit and Money
Supply Indicators:
The injection of
capital and elimination of caps on swap lines between foreign central banks
and the Fed have engineered modest improvement in credit indictors over the
past week.
In addition, to our
close observation of Libor fixings and the LIBOR-OIS spread, we also pay
close attention to the TED spread as an indicator of financial health. The
TED spread has narrowed by 169 points, but the elevated reading of the VIX
indicates continued fears in market. However, the improvement in the TED
spread is an indication of the market slowly beginning to function.
Unfortunately, the
improvement has not been paralleled by the LIBOR-OIS spread. This spread has
only compressed by 60 basis points and is another indicator of continued
stress in credit markets.
Commercial Paper
There is a modest
signal that lending has restarted on the back of the Fed program to purchase
commercial paper. Through the end of the week, the major target appears to
have been the commercial community, as the non-financial community continues
to suffer.
Bank Assets
Commercial banks see
an increase in assets and a modest restart to lending with consumer still
drawing on home equity.
Fear still pervades
among financials. Banks are holding excess reserves which is an indicaton
that banks are horading cash in the aftermath of the Treasury’s
annoucement one week ago.
Monetary Aggregates
MZM declines while
adjusted monetary base skyrockets. With velocity of money declining and Fed
mopping up excess liquidity in the market, risk of inflation has
substantially moderated in the near term. However, given the sharp increase
in the adjusted base the market should closely observe continuing Fed action
to sterilize those increases.
Joseph Brusuelas
Chief Economist
VP Global Strategy
Merk Investments LLC
Merk Investments LLC is the manager of
Merk Mutual Funds, including the Merk Asian Currency Fund and the Merk Hard
Currency Fund. The Merk Asian Currency Fund invests in a basket of Asian
currencies. Asian currencies the Fund may invest in include, but are not
limited to, the currencies of China, Hong Kong, Japan, India, Indonesia,
Malaysia, the Philippines, Singapore, South Korea, Taiwan and Thailand.
The Merk Hard Currency Fund invests
in a basket of hard currencies. Hard currencies are currencies backed by
sound monetary policy; sound monetary policy focuses on price stability.
The Funds may be appropriate for you
if you are pursuing a long-term goal with a hard or Asian currency component
to your portfolio; are willing to tolerate the risks associated with
investments in foreign currencies; or are looking for a way to potentially
mitigate downside risk in or profit from a secular bear market. For more
information on the Funds and to download a prospectus, please visit www.merkfund.com.
Investors should consider the
investment objectives, risks and charges and expenses of the Merk Funds
carefully before investing. This and other information is in the prospectus,
a copy of which may be obtained by visiting the Funds' website at www.merkfund.com or calling 866-MERK
FUND. Please read the prospectus carefully before you invest.
The Funds primarily invest in
foreign currencies and as such, changes in currency exchange rates will
affect the value of what the Funds own and the price of the Funds' shares.
Investing in foreign instruments bears a greater risk than investing in
domestic instruments for reasons such as volatility of currency exchange
rates and, in some cases, limited geographic focus, political and economic instability,
and relatively illiquid markets. The Funds are subject to interest rate risk
which is the risk that debt securities in the Funds' portfolio will decline
in value because of increases in market interest rates. The Funds may also
invest in derivative securities which can be volatile and involve various
types and degrees of risk. As a non-diversified fund, the Merk Hard Currency
Fund will be subject to more investment risk and potential for volatility
than a diversified fund because its portfolio may, at times, focus on a
limited number of issuers. For a more complete discussion of these and other
Fund risks please refer to the Funds' prospectuses.
This report was prepared by Merk
Investments LLC, and reflects the current opinion of the authors. It is based
upon sources and data believed to be accurate and reliable. Opinions and
forward-looking statements expressed are subject to change without notice.
This information does not constitute investment advise nor a solicitation or
an offer to buy or sell any products or services. Foreside Fund Services,
LLC, distributor.
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