As expected, the Bank of England held the overnight lending rate at 0.5 percent. The POUND held its ground and actually rallied against the other major currencies. The U.K. yield curve steepened a touch but basically rested as it has been very active of late–it widened out with the MPC acquiescing to the recent rise in CPI numbers. The markets will have to wait until February 23 to find out the breakdown of the nine-member panel voting record. In the U.S., the JOBLESS CLAIMS number was much better than expected as the number dropped to a two-and-a-half-year low. The credit markets were numb to this data point as it has been so volatile due to weather-related effects.
In another twist, it appears as if my man Axel Weber has opted out of the ECB Presidency and seems to be in line for a major position at Deutsche Bank. I have believed that the German citizenry would prefer a Bundesbanker to head the European Bank because it is the Bavarian Burghers who will be the taxpayers picking up the tab from any bailout of the PIIGS. Chancellor Merkel may be relieved that the pre-eminent monetary hawk has exited the stage but it will still be important to put forward a German to insure against monetary profligacy in the European monetary realm (one profligacy at a time please). At this time, we know nothing more about Weber’s real plans and await to see the outcome of the political chicanery that consistently plagues all things European.
All day long the airwaves were full of blather about President Hosni Mubarak stepping aside for a new leader and all the talking heads were certain that the Egyptian President would be gone by tonight. WRONG ,WRONG,WRONG! Mubarak is staying till his term “ends” in September and he fooled all the pundits and the talking heads on the major networks. Mubarak was not going to be pushed by the U.S. administration into abdicating and though I don’t speak Arabic, the translation of the speech made Mubarak merely fulfilling the duty of a great Egyptian patriot. He firmly stated that an Egyptian war hero was not going to be pushed out of power by “outside” powers and the Egyptian people had been heard loud and clear but he was going to serve out his term.
Readers of NOTES FROM UNDERGROUND know that I often rant against the G-7 and G-20 for being atavistic remnant of a colonial past. Again, we are shown that the world is changing and just as the youth and working people in Tahrir Square want a greater voice in their government, the former colonies of the world don’t wish to be dictated to by former colonial powers. France was slapped in Tunisia and now the U.S. was slapped in Cairo. The U.S. must rethink its real influence when it comes to dealing with the emerging economic and political powers. It seems that the U.S. is searching for its character and is causing alienation from its most erstwhile allies.
In a DEBKA piece today, which actually had the Mubarak situation correct, it seems that the Saudi Royals were none to happy about the conduct of U.S. policy in reference to Mubarak. Whether this DEBKA story was credible or not, it is another moment where the U.S. has had it stuck to them hard and are badly embarrassed on the world stage. Yes, the Egyptians have been the recipients of massive amounts of military and foreign aid for more than 30 years but yet it still could not direct events. Foreign aid does not secure control anymore then owning a large amount of a country’s BONDS. Welcome to the twenty-first century. For the U.S. it was another KY moment: A military leader that doesn’t want to be leashed is taking his own marching orders. It seems that Egypt is the land where imperial designs go to die. Just ask the BRITS in 1956.
Tags: Axel Weber, BOE, bonds, CPI, Debka, ECB, Egypt, G-20, G-7, jobless claims, MPC, Mubarak, PIIGS, Pound
February 10, 2011 at 9:43 pm |
Yra,
Again, you’re right on the button with this inexperienced, naive handling of world developments by the U.S. Government. Adding insult to injury, if it isn’t Leon Panetta, it’s James Clapper making statements that make the average guy in the street wonder what “intelligence” really is in our Government. On the “Economic Intelligence” front, news from China tonight is still reacting to our Fed Chairman’s remarks, now ancient history, but still creating ripples in the pond.
“SHANGHAI (Dow Jones) 6:52pmCST
Federal Reserve Chairman Ben Bernanke’s comments Wednesday on China’s latest interest rate hike indicate the U.S. is far from recognizing the danger of overly cheap money that is threatening to fuel inflation in emerging economies, the China Daily, the Chinese government’s English-language mouthpiece, said in an editorial Friday.
At a hearing of the House of Representatives budget committee, Bernanke made a rare criticism of another country’s financial policies, calling this week’s interest rate hike by China’s central bank a “surprising” way to curb prices.
But the paper said in the editorial: “Such remarks indicate that the United States is far from even recognizing the danger of too cheap money, which, to a certain extent, led the world into the worst global financial crisis in more than 70 years in the first place, and now threatens to fuel runaway inflation in many emerging economies.”
The China Daily said the timing of the rate hike, at the end of the Lunar New Year holiday, showed an “extraordinary sense of urgency.” The People’s Bank of China on Tuesday raised benchmark interest rates by 0.25 percentage point for the third time since October.
“It is thought that the consumer price index hit a new high last month after reaching a 28-month record of 5.1% in November,” the editorial said. China is set to issue January’s CPI figure around Tuesday.
Newspaper website: http://www.chinadaily.com.cn
-By China Bureau, Dow Jones Newswires; 8621 6120-1200; djnews.shanghai@dowjones.com”
I keep thinking someone is going to wake me up real soon and I’ll be able to realize that this has all been a very bad dream….
February 10, 2011 at 11:21 pm |
The Saudis are appalled at US strongarm methods to unseat Mubarak. The US threat to cut off the $1.3 B military aid to the Mubarak government received a Saudi announcement that it would match that aid. US policy is confused and its outreach to the Moslem Brotherhood is ill advised.
Amateur Hour on display.
February 11, 2011 at 8:30 am |
Yra and All,
Zero short term rates are no doubt wrecking havoc on portfolios across the world. However, it is harder for me to see the link between U.S. monetary policy and food inflation in emerging markets (particularly in the context of major supply shocks created from natural disasters throughout the world).
According to John Makin (via the Economist) – RISING commodity prices amount to a regressive tax on most consumers and producers. In the US there is little pass-through to core CPI, and consequently the Fed does not seem to be and should not be inclined to tighten policy.
According to Dennis Lockhart (Fed President of Atlanta) – Inflation affects all prices. Inflation is not the rise of individual prices or the rise of categories of prices.
Lockhart goes on to point out that, “in principle, the central bank could respond to the impact of rising costs in particular markets, but only by exerting downward pressure on the dollar price of all goods and services. Monetary policy is a blunt instrument without the capacity to systematically influence prices in targeted markets. Because monetary policy affects the value of the dollar across the board, the targeted item would still be expensive relative to income and relative to everything else.”
Thus, I am finding all too easy to buy into the argument that food inflation would still be occuring in emerging economies irrespective of interest rates in the US. Furthermore, Bernanke makes a valid point when he told Congress, and that economics club the other day, the Fed cannot plant bushels of corn, extract barrels of oil, or refine gallons of gasoline.
China is choosing to remain linked to U.S. monetary policy (via currency) and so long as they do they are going to have to deal with the fact that current U.S. monetary policy is extremely inappropriate for their economy – even if there are compelling arguments for raising rates to at least 1 percent in the US.
Someone pretty damn wise once said…”markets are like water. They will flow to the weakest point they can push through, and they always do.” At best that logic would argue that the MARKET REACTION to tight supply/demand balance in agricultural commodities is more responsible for food inflation than monetary policy – though one could see an argument that QE and QE2 excacerbated it by shifting capital out on the risk curve (i.e. increasing the firepower of investors concentrated on commodities markets).
At the end of the day, a fed funds rate of 1 percent would go a long ways to restoring some sense of stability in portfolios (pension, etc.) throughout the world, but it will do little to solve the supply shocks that have occurred.
Thanks as always.
Danny
February 11, 2011 at 8:36 am |
Danny–absolutely and the point bernanke makes is right on in that regard–and I still think the U.S. ethanol program has gone a long way to push ag prices higher,as have the agricultural polices of Europe of which france is a huge beneficiary.Ethanol lobbyists argue it is not the case but their logic is totally self serving—if farmers move to plant CORN then they are not planting beans and wheat and or other grains–all aiding and abettting higher food costs
February 13, 2011 at 7:23 am |
To Yra:
Thank you, thank you and thank you. I’ve been reading your blog since saying hi to you in the parking lot at Elliott’s service. You’ve taught me much in a short time – mostly a reminder that I need to keep studying/practicing the art of trading. The depth of your knowledge that you share with us readers is very commendable and honorable.
Know you’ve been harping on the US Government’s flawed ethanol policy and I recommend you and all the readers to read the Financial Times post by Gregory Meyer on “Outrageous fortunes of a commodity trader” published February 11, 2011
Again many thanks!
February 13, 2011 at 11:20 am |
thanks Rob–can you send that post as a link so other readers can access it
February 14, 2011 at 3:56 am |
To Yra:
Thank you, thank you and thank you. I’ve been reading your blog since saying hi to you in the parking lot at Elliott’s service. You’ve taught me much in a short time – mostly a reminder that I need to keep studying/practicing the art of trading. The depth of your knowledge that you share with us readers is very commendable and honorable.
Know you’ve been harping on the US Government’s flawed ethanol policy and I recommend you and all the readers to read the Financial Times post by Gregory Meyer on “Outrageous fortunes of a commodity trader” published February 11, 2011
Again many thanks!
February 14, 2011 at 3:58 am |
Yra, How do I send the post as a link for other readers?