First and foremost: To all of my readers, friends and their families in the path of the hurricane that has wreaked havoc on so many lives, my thoughts and prayers are with you as you strive to put your lives back together. For you I am “Waitin’ On A Sunny Day.” The markets will do their job of assessing the damage to property and the economic impact that follows such devastation. Hopefully lost lives were kept to a minimum. For those trying to measure the economic impact I warn to be careful with all the flotsam and jetsam that will be filling the airwaves about how the repairs of the storm battered region is certain to be a form of economic stimulus.
Posts Tagged ‘Dollar/Yen’
Notes From Underground: Europe has AUSTERITY and POLITICAL REPRESSION; The U.S., FINANCIAL REPRESSIONNovember 21, 2011
****WARNING: TRADING IN HOLIDAY THINNED MARKETS DURING TURBULENT TIMES CAN BE DANGEROUS TO YOUR WEALTH****
Today’s 2-YEAR NOTE auction in the U.S. received a 4.07 bid to cover ratio, the highest in records dating back to 1992. The rate NOTE BUYERS received was a meager 28 basis points. (Yes, thank you sir, may I have another?) There are those on the FED who are concerned that inflation is a threat and feel that the FED is too easy to meet its stable price mandate. The question becomes: Which financial geniuses are purchasing a TAXABLE INSTRUMENT AT A LOWER RETURN THAN THE INFLATION RATE?
Today the new President of the ECB, Mario Draghi, established himself as a true leader and moved to undo the damage of the über arrogant Jean Claude Trichet. The two rate increases in the last six months by the European bank were an overshoot of mammoth proportions as the peripherals were in the midst of a severe credit crisis and moving toward austerity budgets. Spain, which maybe in the worst condition of all–21.5% unemployment and a deflating housing market–was not in need of a EURIBOR increase as its mortgage rates float in reference to the bank rate. If Trichet did not understand the depths of the credit crisis then he should have never been the ECB president. It was always reported that the ECB decisions were unanimous, but today’s move by Draghi indicates that Mr. Trichet rode roughshod over the bank’s policy making for it was reported that it was a 25 basis point decision by unanimous consent.
Notes From Underground: The clock to the end of the first quarter and the money from the BIG EASY has overwhelmedMarch 29, 2011
Wow, what a long strange trip it has been. This quarter has certainly been visited by the four horsemen of the apocalypse. Every time the market thinks it has seen a cataclysmic event, something new arrives on the stage. Floods in Australia, earthquakes in New Zealand and Japan, high food prices and riots in the world over, and of course there is always war breaking out somewhere. In a prior time (THINK 1960s), we had a different hedge group writing: IT’S GOOD NEWS WEEK by the HEDGEHOPPERS.
All these calamities and still the equity markets in the U.S. have rallied and the DOLLAR has failed to invoke its haven status. The only explanation I can discern from this action is that EASY MONEY from our friends at the FED has trumped all else. It seems that DOLLAR-based investors are searching for any type of investment that can yield more than inflation. Risky assets get bid up as money scours the investment map. Commodities, high-dividend yield stocks, high-yield corporate bonds are all desired.
Yet, as the Financial Times reported today, the demand for MUNI BONDS isn’t there post Meredith Whitney as the yields are insufficient to overcome the fear of default. At least GREECE pays you a true risk yield to purchase its SOVEREIGN DEBT. The end of the quarter leaves me thinking that the FED and all the other QE-providing BANKS have so perverted the global interest markets that the decision to remove the monetary stimulus will create a great deal of volatility. The question is, when?
The coming quarter will begin to answer that question but the political stage will continue to surprise as 2012 brings forth many elections. In May, the Canadians will go to the polls and the Portuguese will follow. I am certain that other Parliamentary Governments will fall as the austerity budgets begin to take a toll on voters of many Western nations. As the quarter comes to an end, the EUR/YEN cross that has been the barometer of so much of the risk on/risk off paradigm, is breaking out to new highs since the second quarter of 2010. Is this a reflection of the G-7 intervention or merely the need for Japanese investors to seek higher yields outside of Japan?
The FT reported yesterday that several macro hedge funds suffered severe losses from the March 17 YEN rally that sent the DOLLAR/YEN rate to 76-plus. As the quarter ends, there are more questions than answers but I sincerely hope that the FED will begin to remove some of the haze that engulfs global financial markets. The politics will create volatility. Responsible central bank policies would do much to help remove some of the greater uncertainties. For many, this was certainly a “WINTER OF DISCONTENT.” Being a CUBS FAN, it is time for HOPE to SPRING ETERNAL.Hey Bernanke, PLAY BALL.
Paragraphs two and three of the FOMC statement remind all concerned that the FED has a dual mandate. In fulfilling that statutory mandate, the FED is using all tools at its disposal to fulfill that mandate. Paragraph two said, “Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability.” Then in paragraph three it said: “To promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate….”
During the weekend BOJ Governor Shirakawa delivered a speech in which he stated that the BOJ is “ready to take appropriate action if needed” to deal with the strength of the YEN. It seems that the Japanese government has been getting more heat from the corporate sector because of the YEN’s relative strength and the damage it is doing to the major exporters. Shirakawa offered caution on how the “appropriate actions would proceed as the BOJ is prohibited from “monetizing debt” and it also does not want to risk raising bond yields from fear of inflation.
BOJ seems to have a self-imposed cap on government bond buying so as to avoid debt monetization. Shirakawa alluded to the concept that the BOJ could not buy an amount bigger than the cash in circulation. He didn’t say that it was illegal restraint or just a precautionary stance. The BOJ is on the HORNS OF A DILEMMA as it risks creating inflation that would badly undermine the vast majority of domestic Japanese investors. It is important to remember that 97 percent of all outstanding JGBs are owned by the Japanese themselves–unlike the holdings of U.S. treasuries and MBSs. No wonder the Chinese are buying Japanese debt. It would be political suicide for the MOF to push too aggressively on the monetary creation issue for the huge impact it would have on retiring Japanese savers. Shirakawa and the bank, though, appear nervous that politicans such as the defeated OZAWA will make some move to amend the Bank of Japan law, which guarantees its independence. This is a very serious dilemma for the Japanese polity and we will watch closely. Ever since the initial intervention of September 15,the DOLLAR/YEN has settled down but the EURO/YEN has rallied from 108 to close out last week at almost 114. This is the best effect the Japanese could have gotten.
After all the glad handing between Wen Jiabao and Obama, China this week announced that it was levying anti-dumping duties on the import of U.S. chicken products. It has accused the U.S. poultry industry of dumping chicken broiler parts, which has caused damage to its domestic industry. China says it will palce import surcharges of 50 to 105 percent. In the mainstay of world trade, this is no big deal–ok chicken shit–but it sends a message. Schumer and others want to place a tariff on the Chinese for currency manipulation, but the Chinese know that rural, agrarian states in the U.S. Senate and these states have a great deal to lose in a trade war with the U.S. American farmers are doing phenomenally as they export massive amounts of product to the Chinese. Many traders have been blindsided this summer by the continuing strength in ag markets, even as the U.S. farmers bring in record crops. Latin America also had large crops last year so even with drought in Russia and Ukraine, crop prices were and have held up very well. Even Caterpillar and John Deere have been in opposition to the Schumer initiatives. The Chinese have put the senate on notice that the tariff game is much more complicated than the simplistic language of populism.
The most interesting article over the weekend was the front page WSJ piece about the super-secret committee of European heavyweights that met to make sure the entire EU project didn’t implode. The acrimony between Sarkozy and Merkel was very real and we would suggest that the wounds will take long to heal. Sarkozy was doing everything he could to gain the upper hand on the bailout of the PIIGS and it was reported he tried to bring a television crew to one of the meetings as to embarrass Merkel.
As the story unfolded, it was a real possibility that the EU could have blown apart. As we blogged about a month ago, the idea of Sarkozy heading the G-20 beginning in November 2010 needs constant surveillance as a politically wounded Sarkozy is capable of great mischievous. The stresses in the foundation of Europe are far from over as the WSJ poignantly exposes. Yes, the EURO has rallied more than 10 percent since the height of this summer’s tensions. It probably is the surest sign of how weak the underlying fundamentals are for the U.S. DOLLAR. The more that is revealed about the fragility of the economies of the developed world, the more we realize how difficult the trading environment is and will continue to be. Keep your technicals up and be ready for violent swings as the global political economy reacts to sudden changes wrought by weak economic fundamentals. Throw in the impending trade friction and the surprises can come from all corners of the world. This is not the environment to be playing CHICKEN.
The political turmoil that has roiled the markets has been resolved and Japanese Prime Minister Naoto Kan handily defeated the old warhorse, Ichiro Ozawa. The DOLLAR/YEN was sold off as the markets were attune to the Kan victory. Ozawa was presumed to lead a battle for Japanese intervention to stem the YEN strength. Now it seems that the markets have been resolved and the present regime will allow the markets to set the YEN rate, which is being interpreted as further YEN appreciation.
The unemployment data has become much more difficult to trade as the breakdown of information is filled with so much countervailing data. We need to look at the private sector job creation as the census jobs roll down, then the average hours worked because average hourly earnings take on more importance as an indicator of possible increased consumer spending. However, the overall jobless rate may stay the same or go higher. The consensus number for non-farm payrolls is 105,000 lost , but we caution to wait for the full breakdown before getting too excited.
There was little news this weekend in the arena of financial enlightenment. There were several stories about the FED and its balancing on a tightrope of inflation/deflation. Thomas Hoenig, the dissenter from Kansas, was out making sure that the markets understood that he was not calling for tightening but rather was trying to keep the FED from painting itself into the same corner that it had under SIR ALAN. Hoenig wants the “extended period” language exorcised from the FOMC release so that the FED has more flexibility to move if and when robust growth emerges.