Fed sacrifices dollar over banking system: Tyche Group

Martin Hennecke,Senior Manager at Tyche Group while speaking to CNBC-TV18 said by lowering interest rates and pumping more liquidity, the Federal Reserve appears to have chosen to sacrifice the dollar over sacrificing the banking system.

Excerpts from CNBC-TV18's exclusive interview with Martin Hennecke:

Q: While we are seeing a relief rally of sorts across Asia following of course Fed’s move and what’s been happening on Wall Street overnight but how long can it sustain?

A: That’s a very tricky question what we are emphasizing is that the US problems haven’t got away and they will get worse but alternately they will result in destruction of the US dollar. The Federal Reserve appears to have chosen to sacrifice the dollar over sacrificing the banking system, which is what they are doing with artificially lowering interest rates, pumping more liquidity in the market. That means if the dollar goes into the destruction and hyper inflate, the equity market could rise further even in the US even as the economy tanks.

Fundamentally we see that Asian markets are much more healthy than the Western markets. We see Asian currencies with good potential to appreciate.

We maintain our exposure to the Asian markets especially Hong Kong, China for example after the recent sell off they have become pretty good value and we are now using this opportunity to increase our exposure and going further down on the Euro and other Western assets.  

Q: Now coming to two-part question firstly do you expect India to track global cues here again and secondly do you think Bank of Japan will be borrowing costs next month even without a Governor?

A: I can’t actually say that, I can only say that for developed economies we are generally quite optimistic. Longer-term on Japan we don’t really anticipate and try to get short-term policy move there. We just say that it is interesting to know that the Japanese exports dependent on the US has dropped significantly over the last couple of years and now the exports are less than 20% of their produce to the United States and more than 20% to China and sharply rising numbers throughout Asia. So they are the machinery-manufacturing center for Asia now and the equity valuations after the recent sell off have become reasonable. The Yen is still attractively priced. We do quite like the Japanese market as compared to the Europe and the US.