First and foremost: Notes From Underground has become a global community and the outpouring of support and condolences to my family has been phenomenal. Again, my heartfelt thanks to all who expressed such wonderful thoughts.
Much has transpired since last Sunday as the Swiss franc and the Japanese yen have continued their recent weakness as intervention with the intention of forcing the YEN and FRANC lower have been very successful. Also, as usual, I will poke at this weeks circus in Davos, Switzerland. From my perspective, the entire conclave of insider trading–as the rich and business elites gather to discuss ways to save the world–in the last 20 years are a direct result of the political and economic movers and shakers exchanging ideas in the Swiss Alps. Yes, we go from crisis to crisis.
The idea of paying exorbitant amounts of money to rub elbows and hopefully get a leg up on the lower echelon of financial investors reeks of a giant gathering of insider information. The capricious nature in which the U.S. regulators prosecute “insider trading” just lends me to call for the break-up of the ridiculousness called Davos.The economic theorists that all faux free marketeers love to quote, Adam Smith, succinctly summed it up 250 years ago:
“People of the same trade seldom meet together,even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.”
The last 20 years has certainly been the outcome of predicted conspiracies.I do not know what course others may take,but for me.“PEPPER SPRAY DAVOS.”
***Yesterday Jens Weidmann spoke and warned of the “politicization of the exchange rates.” This is nothing new but it will be a reminder that the recent silence of the Bundesbank president will not last and his rhetoric will become more vibrant as the German election nears. The German regional election over the weekend in Lower Saxony was a defeat for Chancellor Merkel, but because the results were very close there was not much to glean about the antipathy toward the policies of Frau Merkel’s government. Many are predicting that the German economy is steadying but I am doubtful of growth in the peripheries and am sure that the weakening YEN is going to have a very negative impact on the German industrial exports and thus the overall economy. The German national elections may be determined more by Tokyo than Brussels.
***Tonight the Bank of Japan (BOJ) moved to set a policy of a 2.0% inflation target as well as a program of opened-ended asset purchases. Prime Minister Abe is in full control of economic policy as even the present sitting BOJ Governor, Mr. Shirakawa, voted in favor of the 2.0% inflation target, though the vote was 7-2. The vote on the open-ended asset purchase program was unanimous. The market may well have priced this in but the words of Weidmann about possible currency wars rings loud.
The Japanese action is going to create problems for Mario Draghi, especially as he openly continues to cling to the promises of the G-20 to allow market set rates. Again, Europe is in no economic condition to solely bear the brunt of currency depreciations. In a Sunday article, Ambrose Evans-Pritchard writes Japan being at the center of economic action. Pritchard ends the piece by quoting from BOE Governor Mervyn King, “… but yen manipulation snatches market share, incites protectionism, and takes us into the brave new world of ‘actively managed exchange rates.’” The BOJ has most certainly tossed the ball back to Mario Draghi.