Today’s SEMIANNUAL MONETARY POLICY REPORT TO THE SENATE: All posturing and no substance. In the usual scene of playing for the folks back home, Chairman Bernanke was lectured to about the need to do his job and feed the system with so much liquidity that “job growth” would have to take place. (Mr. Schumer, to you a copy of the work of Richard Koo and the concept of a balance sheet recession). Some Senators were berating Bernanke for the LIBOR scandal in an effort to show that the U.S. Congress was serious about banking abuses. For the record: When the banking sector is under stress the FED’s only concern is the repair of banking balance sheets and if the profits come from manipulating the setting of a short-term bank rate, the means justifies the ends.
Posts Tagged ‘LIBOR’
Friday brings the May unemployment report. The consensus jobs number is for 500,000-plus on the NFP, a 9.8 percent jobless rate and average hourly earnings to rise 0.1 percent. The headline number will be difficult as we will have to factor out the census hiring, but we will wait to decipher construction and manufacturing as being very important.
Notes From Underground: G20 Dead as Geithner comes up short in effort to criticize the German austerity measures and the ban on shorting and naked CDSsMay 27, 2010
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?
Notes From Underground: Just when the market thought it was safe to rally … SAFE is rumored to signal OUTMay 26, 2010
We thought we were finally getting a little relief rally in the equities, with a thaw in the Libor/OIS and the EURO FX market attempting to hold onto its late gains of yesterday, when rumors about the Chinese State Administration of Foreign Exchange (SAFE) wanting to dump euro-denominated assets. There was no name to the spokesperson who made the statement. We are very skeptical of this rumor because if the Chinese were serious about wanting to dump euro debt, we doubt they would announce their intentions. As we mentioned yesterday, it was the Chinese deciding not to buy Greek debt that set the current debt crisis into motion. Adding to the euro’s problem was the 5 year BOBL auction in Germany that did not get the fulfillment of BIDS, thus a “failed” auction.
The case for a bullish DOLLAR has certainly been made in NOTES FROM UNDERGROUND during the past five months. Since the Chinese walked away from a potential bid on 25 billion of euro-denominated Greek debt, the pressure on the European debt markets has led to a reduction in EURO-based assets by large private investors, pension funds and even some central banks. The overall effect has been a further deleveraging of the global financial system and thus the increased fears of global deflation taking firm control of the credit markets.
Both Canada and the U.S. reported strong job numbers and the market paid heed for a very short period of time. We are focused on credit for that is where the markets are focused. The global markets are enamored with the possibility of combined action by the G7 members, especially with the ECB leading the way by providing a massive dose of short-term liquidity to remove the pressure on the LIBOR rate–European Banks are having funding problems on the overnight markets.
In 2001 when the European Union was in a recession, financial analysts were pressing the ECB president,Wim Duisenberg, to cut interest rates. In attempting to gain credibility as a tough, hard-money institution, Duisenberg responded, “We hear but we do not listen.” Well, we would say to his successor, Jean-Claude Trichet, it is time to start listening.