There were no real market-moving news stories this past week, but that didn’t stop the precious metals from coming under severe pressure on the Asian opening as prices in gold and, especially silver, fell prey to liquidation and downside stops were elected in a relatively illiquid market environment. The DOLLAR/YEN was also under initial pressure as Japanese Economics Minister Akira Amari was on the Sunday morning Japanese news show saying, “the correction of the strong yen is largely completed.” Mr. Amari was voicing concerns about further rapid yen depreciation could negatively impact Japanese consumers. The selloff in DOLLAR/YEN seems to be rather tepid based on the massive LONG DOLLAR/YEN POSITIONS, but this bares watching when Europe and the U.S. markets open. More importantly, the initial price action in the Nikkei equity market doesn’t seem to be very concerned about the comments of Mr. Amari.
Posts Tagged ‘Germany’
There was a Reuters story yesterday by William Schomberg, “G7 Finance Chiefs to Discuss Bank Reform Push.” Very few people picked up on this but it seems strange that all the sudden a meeting is called to discuss what elements of bank reform. Are they going to try to persuade Germany to get behind the EU push for a banking union and if so why the hurry before the September German elections? The idea of a banking union with resolution authority is sure to be a lightening rod for all the German angst about the bailouts of the peripheral nations. The Reuters piece notes that some G-7 officials are upset that the U.K. called the meeting so soon after the recent IMF talks in Washington. One official said, “I am really annoyed I’ve got to give up my weekend for this.”
The international distress call is going out from Europe as the overall eurozone unemployment rate reached 12.1%. Germany had a low rate of 5.4% while Spain was more than 27%. So how is the ECB to do deal with the huge discrepancy between the economic performance of its 17 members? If the austerians are being relegated to economic purgatory then the pressure on the ECB to act will be diminished. Cutting rates for the sake of a show of action will be a detraction from the bigger political issue. Why irritate the Bundesbank and Chancellor Merkel by moving the ECB lending rate by a measly 25 basis points?
What ailed the markets yesterday seems to have moved to the back pages and the equity markets recovered most of their losses. Gold and silver staged very tepid rallies considering the massive selling that took place during the past week. The global equity markets are still comfortable with central bank policy and even a terrorist attack on U.S. soil cannot shake of confidence of investors seeing high profits, low inflation and no alternative to the returns on equity. It is an old theme but when a market continues to discount unfavorable data and news the power of momentum is in full bloom.
Notes From Underground: #Irony … Carmen Reinhart Says “Do Not Take Size As An Indicator of Importance”; Harry Rheems DiesMarch 21, 2013
Okay, you must have some fun amongst the idiocy of the Eurocrats. It seems that the best intentions of last Friday night’s decision to sacrifice the pawns in the game have done exactly what I thought the ill-conceived plans would accomplish. For 10 billion euros of bailout capital the fallout has been large drops in equity values. The capital losses are small compared to embarrassment facing the European policy makers. In a Bloomberg article by James Neuger, “Europe Plays I-Didn’t-Do-It Blame Game on Cypriot Deposit Levy,” it seems that German FM Schaeuble, France’s FM Moscovici, Spain’s FM Guidnos and even Finland’s FM Urpilainen all claim that they were opposed to taxing the guaranteed deposits of under a 100,000 euros. They all seem to point to the ECB and IMF as wanting the “bail-in.” This is a classic example of what my friend Andy Schreiber used to say: “Success Has Many Fathers, Failure Is But An Orphan.” The Cypriot situation is a situation that punches way above its weight. Carmen Reinhart, an economist I cite regularly on financial repression, silenced the talking heads on CNBC when she claimed that, “Do not take size as an indicator of importance.”
Notes From Underground: The Fed’s Zero Rate, Quantitative Easing Policies Are Stock Market FundamentalsMarch 10, 2013
The continued parade of stock market analysts who proclaim the equity market is rallying merely on Fed monetary policy instead of market fundamentals have spent far too much time doing case studies and not reading economic history. Interest rates as the variable signaling the cost of money are a very critical element and a key fundamental of the economy and especially the equity markets. U.S. multinational corporations are sitting on record piles of cash and also reporting strong profits. Much of the growth in profits can be attributed to two factors: Very low borrowing costs and continued pressure on wages. The FED has created the low interest rates and has hoped that the profitability resulting from low borrowing costs would bleed into higher wages and thus the need for increased hiring. The problem is many fold on the lack of success in aiding jobs creation. Globalization has kept pressure off wages and the deleveraging of the private balance sheets has meant that downward pressure remains on demand.
The world awaits a resolution from the fog of U.S. budget battles. The negotiating table was left in a further haze by Secretary Geithner’s comments. In no uncertain terms, the point man for the Obama administration made it “clear” that the White House will let the economy go over the proverbial cliff if tax rates are not increased on the nation’s wealthiest two percent. It is not a good negotiating tactic to back your opponent into a corner from which there is no escape. Immediately after the Geithner comments to CNBC’S Steve Liesman, legislative Republicans responded in a very negative fashion. If the negotiations are mere theater then let the economy feel the brunt of mandated austerity and the STOCK MARKET BE DAMNED. Best economic and budgetary policy cannot be made solely for the sake of saving the equity markets. Bad fiscal policy destroys wealth and jobs anyway so it may be better to push an economic downturn to finally get everybody focused on a genuine long-term reform.
On November 19, 2012 I wrote a blog post about France getting a yellow card from Moody’s. In that post was another item about a Reuters story, “Germany Floats Idea of Greek 25-cent -on Euro Debt Buy Back.” Well, the importance of looking back is because that Reuters LEAK from Germany was virtually the agreement that was reached by the European policymakers in a short-term resolution to assuage the IMF and other Greek creditors. It is another example of the necessity of paying attention to official sources and leaks. I will re-post that NFU in its entirety with the link to the Reuters article. Preparation is the key to successful trading and investing.
The Greek debt issue will be resolved for the moment–as we have maintained for months. What is 31 BILLION EUROS among friends? Now that the Catalan independence parties have won a resounding victory in the Spanish region of Catalonia, the political waters of Europe have become murkier. It will be doubtful that Catalonia will actually secede from the Spanish polity but the mere threat will mean that Brussels will have to become more involved in pushing billions of more euros into the Spanish coffers. The Catalans are angry because they send far more euros to Madrid than they receive back in Barcelona. According to the most recent data from 2009, Catalonia had sent 16.4 billion euros more to the Spanish Treasury than flowed back to the region.
The key policy maker who raised the issue of the fiscal cliff back in April 2012 has been missing in action from the discussion. It is widely understood that the FED is not supposed to involve itself with fiscal policy, but that proposition was violated when the FED chairman voiced great concern about the failure of Congress to halt the potential drag on the economy. The FED has continually supplied the liquidity as the “only game in town” but it seems obvious that the great enabler of Congressional “benign neglect” should offer some guidance while not overstepping its mandate. More members of the G-20 were out over the weekend warning about the potential disastrous effects of a fiscal calamity in the U.S. on a very fragile global economy. What will it be Ben? I say yes, you say no. Bonds say buy and stocks say sell. Congress says goodbye. Will the FED say hello?