Oh well, another day of market volatility emanating from the four corners of the globe. The Korean Peninsula sits on edge, the Chinese say that they are still investing in Europe, the U.S. Congress is still in the throes of financial regulation, and Treasury Secretary Geithner stops in Europe to add to confusion to a muddled mess. The Chinese denial of the SAFE rumor led to a sharp equity rally and in general a market profile of risk on: the dollar sells off as money searches for return rather than safety. The financial world is truly the soap opera “As the World Turns.” Volatility is here to stay and the most important task is to find the dynamic that is in play at any one time. Is it LIBOR, commodities, easy money? Which ultimately drives the risk-on/risk-off drama?
The Chinese refuted the no Europe investment rumor, as the State Administration of Foreign Exchange (SAFE) President Gao Xiqing asserted that the Chinese have no plans to reduce investment in Europe. Remember that the Chinese did not move to sell off Freddie and Fannie debt when those two GSEs were in severe stress. This rumor denial is what set the risk-on trade back in motion. By the time Wall Street opened, the S&Ps were already substantially higher, which forced DOLLAR longs to cover their positions and the full matrix of risk was in full play. Europe didn’t melt under the weight of Geithner’s prescence as the Treasury Secretary backed off from criticizing the Berlin Government for its move to austerity. Geithner said, “there was an agreement on the need to restore gravity to governement finances.” This statement was so soft as to be meaningless, which means that any sppeches about G20 agreement on bank regulations are dead on arrival. There will be no international agreement on financial regulation as all nation states will go their own way–they can’t even agree within Europe. How will 20 nations in various degrees of economic growth come to any agreement? The markets will respond to talk but we make the rhetoric to be empty.
In today’s final message of insanity, there is a piece in the Financial Times, in which Mr.Lellouche, France’s Europe Minister, admitted that the “bailout” changed the European treaty. While this is an honest assessment, it will not be well received in Germany. Why go on the record at this time and feed the German media with more fodder for the anti-Europe frenzy that is building in Berlin? The next logical step is for the German Constitutional Court to hear the case of the dissidents who have challenged the legality of the no bailout “Bailout.” How stupid can these European Pols be? As the song says, “when will they ever learn,when will they ever learn?” Trade accordingly as the world spins.