Notes From Underground: Is the U.S. Chinese symbiosis fragile?

First we note the obvious: Friday’s data on retail sales was much weaker than forecasted but unlike the previous week when the unemployment number was much weaker then expected, the S&Ps tried to break late but the downside fizzled and we experienced a late rally to close higher on the day. Are we back to a risk on mode? It is too early to tell as the market is going to retest the 200-day moving averages on the various equity indexes. There is a great deal of money sitting on the sidelines that became nervous because of the May 6 market action. It appears it will take some sideways action above significant technicals to bring this money out of the closet and back to the capital markets.

The FED funds rate looks to keep interest rates low for awhile and the deflationary fears will dampen Europe’s rates so where will the best return on money be? Investors are going to have to start putting money to work, especially pension funds that need to generate higher returns than T-BILLS. We have been waiting for an article by this blog’s editor on the troubled situation of public pension funds. It is with great pride–she is my daughter–that we link to her article to give a heads up to our readers on a large problem that exists in the U.S. financial system. Underfunded pensions pose a major deflationary drag going forward and the FED is going to have to keep rates lower to try to enhance the returns on public pension funds. Is that the classic PONZI or what? We know this is an issue down the road but it is one more problem that confronts the FED. We will be monitoring this development as the EQUITY markets slosh around looking for direction.

The biggest news story over the weekend, no not the Russians sending a flotilla of tanks to KYRGYZSTAN, was the Reuters article that appeared in the Chinese Official News Agency. A story in the Chinese press refers to members of Congress as “a bunch of baby-kissing politicians.” The Chinese were striking back at Schumer et al., and their continual call for a YUAN revaluation.

“These congressmen claim they are the white knights defending the interests of the American people, but in fact, they are nothing more than a bunch of BABY-KISSING politicians trying to sway voters by manipulating the YUAN debate.”

It was further added in the commentary that U.S. lawmakers were trying to divert public attention from”much more serious domestic economic problems,which are caused in part by their incompetence.” We don’t know the official source but this is certainly incendiary language. This comes right after Geithner and company were in China so we have to assume that the Strategic Economic Dialogue did not go as well as the spinmeisters tried to present. The outcome will be that Schumer will certainly respond so we will look for the rhetoric to rise. And, it certainly calls the question on all the punditry that was picking a near-certain, immediate YUAN reval.

In closing, we wish to pay homage to a great quote we read in Friday’s Financial Times. It was the brainchild of an investment blogger Nicholas Vardy and it compared mathematical models to bikinis: “What they reveal is suggestive; but what they conceal is vital.”

We wish we had written that for it is so poignant. We here at Notes From Underground are always searching as to why 2+2=5 is also a beautiful thing, thus this concept has brought us to tilt against the great rationalists that are represented by the mathematical model builders. And so it goes……

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2 Responses to “Notes From Underground: Is the U.S. Chinese symbiosis fragile?”

  1. Hondo Says:

    Yra, I was proud to be a Medill grad (BSJ 96) when I read your daughter’s article on the Illinois Teacher Retirement System. She took a very complex subject (CDS) and highlighted both its risks and rewards.

  2. yra Says:

    thanks Hondo–as she edits the blog she is reading these comments and as a parent and mentor I am in fact very proud of her.She has the tenacious instincts of an investigative reporter

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