Notes From Underground: The FINNS ARE SKEPTICAL and the CHINESE RAISE RESERVE RATES … AGAIN

The news from the G-20 meeting was nothing new as the acrimony was quieted but next-to-nothing accomplished or agreed. The Chinese announced that they were raising the BANK RESERVE RATE. Does this really make any difference? The impact of non-banking entities is growing in the Chinese economy so we will have to watch if commodities sell off in the face of the efforts to slow the GREAT DRAGON‘s economy and slow the rising inflation that the Chinese leadership is so concerned about.

If the RESERVE RATE has any meaning, the precious metals should sell off somewhat but all of the previous efforts have not resulted in any type of meaningful correction–except for the copper. Food prices remain buoyant and certainly the global price of oil has increased. Either the Chinese economy is growing far faster than official estimates or the cause of the COMMODITY PRICE INCREASE lies elsewhere and for different reasons than just global growth. There are several articles in the weekend press about the end of QE2 and the possible impact on commodity prices and equity values. When the first round of QE ended, the S&Ps broke, the DOLLAR strengthened, and, defying the conventional wisdom, the long end of the curve rallied. I don’t believe the results will be similar this time. As usual, I caution to let the markets be our guide and see how it starts to play out.

Today’s election in Finland has shown that the anger directed at the bailout plan is very real. Yes, the most pro-Europe party polled the most votes but the present ruling group dropped to fourth with the anti-Euro sentiment polling second and third. The current PM‘s party dropped to fourth place, which means that the conservative party will have to coalesce with on or both of the Euro-skeptic parties. Finland by itself is insignificant but the anti-Euro sentiment gives great strength to the anti-EURO sentiment building in Germany.

It will be interesting to see what type of coalition Finland pastes together but more important is the developing strength of the anti-BAILOUT sentiment. We will pay attention as to the public resentment that is building against any type of bailout of the PIIGS. Even with all this uncertainty, the DOLLAR struggles to rally … HMMM.

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