Tuesday was another day of currency fluctuations as the U.S. DOLLAR tumbles. Since the Sept. 21 FOMC meeting, the U.S. currency has been sliding against all the world’s major tradeable currencies. The market has become convinced that the FED’s more pronounced desire for a second round of QE is a desire to achieve some DOLLAR depreciation. A lower dollar with global competitive devaluation has been a panacea for the risk-based algorithms so we are saddled with all assets rising in harmony . The metals and most other commodities have been the recipient of the global flood of liquidity and even EQUITIES have joined the chorus of “MAY THE CIRCLE BE UNBROKEN.”
The talk of currency wars and various types of exchange controls have led the risk-on paticipants to seek refuge in most assets other than paper money. The question becomes, “What if the FED was to back off from embarking on a QE program because the mere mention of it has given a lift to all asset classes, especially the EQUITY MARKETS?”
A few weeks ago Alan Greenspan suggested that an equity rally would do alot to lift the spirits of the economy. We don’t give Sir Alan a great deal of respect but we found this viewpoint of interest for it helped to explain why the former FED chairman was a serial bubble blower. If others from the FED were to be of a similar mindset, would a sustained stock market rally quietly place the FED QE on hold? What would the outcome be if all these traders who moved out of dollars and into alternative assets if the FED were to become reticient to more active pump priming? The rally in equities may stay the FED hand and that is what we will be looking for.
Moves by the South Koreans and the Japanese added to the currency turmoil. The Koreans have been moving to stem WON appreciation as the rapid advance in September has made the KOREAN politicos very nervous so they are going to audit speculative WON accounts to check levels of leverage and others acts of irresponsible speculation.
The Japanese BANK lowered rates and announced further plans of QE by purchasing JGBs and maybe even NIKKEI EQUITIES. The BOJ has been concerned about its independence and seems to have softened the bank’s previous hard-line stance on another round of QE as they have bowed to political pressure. Shirakawa even said the BOJ could buy more JGB’s than cash exists in the system in an emergency move, a previous sacrosanct limitation.The world is on a path of destruction by engaging in competitive devaluations.
The IMF is helpless but trying to jawbone the situation is Strauss-Kahn’s most convenient tool. Global pressure and an equity rally may put the FED on hold for the short term. A more positive unemployment number on Friday would do more than anything to give the Bernanke group the opportunity to pause and halt the DOLLAR slide. Thursday’s BOE and ECB meetings have now taken on an added importance, as we will be paying close attention to the post meeting statements for any hint of acknowledging the impact of DOLLAR weakness on European policy. As global imbalances need rectifying the notion of 2+2=5 becomes more significant each day … and so it goes.
Tags: BOE, ECB, Equities, Fed, FOMC, IMF, Japan, JGB, Korean won, Nikkei, QE, U.S. Dollar
October 6, 2010 at 9:19 am |
To Quote another song done by the Doors, from “The End”,
The west is the best
The west is the best
Get here, and we’ll do the rest
Ray
October 6, 2010 at 11:05 am |
richard farina–husband of mimi wrote the book—been down so long it looks up to me
October 6, 2010 at 11:10 am |
Been Down so Long by the Doors:
This was inspired by Richard Farina’s 1966 novel Been Down So Long It Looks Like Up To Me. Farina died in a motorcycle accident 2 days after it was published.
Jim Morrison died shortly after this album was released. He did some of his best work on it, but still struggled with alcoholism and drug abuse. He went to Paris to relax, and died there under mysterious circumstances.
October 6, 2010 at 12:10 pm |
It’s Official: Fed Is Now Second Largest Holder Of US Treasury Bonds. So, …?