Notes From Underground

There are a number of rumors making the markets uneasy. First, there is an array of whispers about meetings in Tokyo in which the MOF and BOJ are going to weigh some type of intervention to curb the rise in the YEN. We have no idea how this would be accomplished, but think it could be through large selling of YEN into the market. However, with the failure of the SWISS National Bank’s efforts, we doubt that the Japanese would do anything so simple.

But the rumors about pending problems from Europe are making the Japanese situation more difficult. It is rumored that President Sarkozy has made his top economic advisors return from their vacations in order to deal with a downgrade in France ‘s AAA credit rating. This rumor put pressure on the EURO today, even as the economic news was better than predicted. In addition to the French rumor, an article appeared in DER SPIEGEL, the German magazine with a stellar reputation, ran a story that predicted that the economic hardships caused by the austerity plan were going to create great political turmoil in Greece in the fall. Nothing new in the Greek story but it is resurrecting unease in the EURO where complacency has been setting in.

A new bout of EURO selling will become a very serious problem for Japan and also for the DOLLAR. Today, the SWISS FRANC was the primary recipient of the safe haven trade but we will be attentive as to what other assets are proving alluring to the safety first crowd. GOLD has quietly been rising so we will watch for the technical resistance levels to hold–do your work and be prepared. The BONDS from the world over have certainly been a repository for the risk-off crowd, but they cannot be the only venue. The DOLLAR’s safety status also makes us suspect for the ill-conceived policies that dominate the financial landscape in the U.S. truly makes the DOLLAR’s strength a mystery to us.

Our readers know that we are critical of the FED and other policy makers for their dependence on flawed models and their inability to make the necessary changes to respond to the new realities. In Friday’s Financial Times, noted economist Joseph Stiglitz takes the FED and others to task for their continued dependence on these flawed models. Stiglitz raises some interesting questions and should provide all those people enamored with the “cult of personalities” some wisdom. The sycophancy that pervades the media to all pundits with “credentials”–should make us all pause about how much credibility we give to anyone with a microphone and a chart.

Tags: BOJ, bonds, Der Spiegel, Dollar, Euro, Fed, Financial Times, France, Gold, Japan, Joseph Stiglitz, Sarkozy, Swiss Franc, Swiss National Bank, Yen

This entry was posted on August 19, 2010 at 9:26 pm and is filed under Currency, Europe, Federal Reserve. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.