(and I Thought Madoff Was In Jail)

It seems that Vice President Biden used some of his miles to head to China for his summer vacation. The Chinese have been vocal critics of the U.S. and its profligate ways. As the largest foreign holder of U.S. Treasury debt, the Chinese have more than a passing concern in the outcome of U.S. economic and fiscal policy. The Chinese are not the single largest holder of U.S. debt as that award goes to the FEDERAL RESERVE. The Obama administration sent BIDEN to reassure the Chinese that the U.S. still maintains a FICO score more than 720.

Does nobody in the Obama group remember the rude reception Geithner received from the Chinese students in a Q and A session in June 2009? The students laughed at Secretary Geithner’s response that the U.S. was in favor of a strong dollar. Two years later we now have Biden reading from the same script in a much more volatile financial environment. Good Luck Mr. Vice-President as it is a tough sell with the FED pledged to ZERO INTEREST RATES FOR TWO YEARS, THE PRESIDENT ON THE CAMPAIGN TRAIL AND THE CLARION CALL OF JOB CREATION BEING THE MAIN 2012 ELECTION ISSUE. 

Does anyone really believe that a STRONG DOLLAR is the key issue for the OBAMA ECONOMIC TEAM? The Chinese have to be more than concerned that the DOLLAR cannot find a bid even amongst all the global financial turmoil. The U.S. DOLLAR seems to be the mainstay of the CARRY TRADE and no longer the beneficiary of HAVEN STATUS.

The big story today was to be the news from the SNB and the SWISS Finance Ministry about the elevated value of the FRANC. The market had evidently believed that the SNB was going to announce some type of PEG to the EURO and when that  failed to materialize the SWISS FRANC became BID in a relief rally. The SNB did announce a further add to bank reserves resulting in the short-term rates (EURO SWISS FUTURES) rallied to 100.25, resulting in 3-month deposits yielding a negative 25 basis points.

It seems that the Swiss believe that adding reserves in an effort to penalize money entering Switzerland is the easiest tool to use as it will be the least onerous to unwind, for when the FRANC finally stabilizes it will be able to withdraw the reserves. The SWISS closed fairly strong as the finance minister announced that the government will provide support funds to businesses and citizens adversely affected by the huge rally in the FRANC. Providing short-term economic relief was deemed by the markets to be a very soft response. Investors are nervous about the Swissie but at some point the markets will move to test the resolve of the Swiss authorities, especially as GOLD continues its climb as being one of the few havens remaining.

In a further testimony to the weakness of the U.S. DOLLAR, the British released two key pieces of economic data: the unemployment report and the notes from the BOE meeting. In the U.K., the jobless rate climbed to 7.9% from 7.7% as the market was expecting  no change from the previous month. The claimant number also increased as more Brits went on unemployment relief. It was also revealed that the MPC of the BOE voted unanimously to leave interest rates unchanged versus the previous 7-2 in which two dissenters wished to raise rates.

These two releases would have previously been deemed very negative for the POUND. In fact, the British currency did initially drop but snapped back quickly. By New York’s close, the British POUND had put in its highest daily close since April. Let’s see … very weak economic data and a previous week of riots by a lower middle class citizenry growing disillusioned by the economic malaise of the past three years … and the POUND still gained in strength. It may be related to the EURO but it may be more closely tied to the DOLLAR–certainly something to be paying close attention to.

MR. BIDEN, I DON’T ENVY YOUR TASK, but as Henry Wotton said back in the early 17th century, “A DIPLOMAT IS AN HONEST MAN SENT ABROAD TO LIE FOR HIS COUNTRY.”

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6 Responses to “Notes From Underground: BIDEN GOES TO CHINA–“YOUR MONEY IS SAFE WITH US””

  1. Michael Greenberg Says:

    Yra….good article on the Swiss….

  2. Danny Says:


    You haven’t mentioned Russia in a while. How do you feel about Russian assets? Do you think they are holding their own with the dramatic declines in crude?

  3. JediTrader Says:

    If only I had a fund to manage over the last 2 years…. I still remember people doubting the strength of the gold rally pre $1200. And now the flight to safety has shown resolve all the way to $1850. Although it wasn’t a perfectly smooth ride (Paulson’s Gold Fund) it is still one of the most outperforming asset’s out there.

    IMO the Euro and USD have so much uncertainty that I wouldn’t touch them directly until a clear trend forms within the price action. I still like the Swiss Franc and think the Swiss officials will be tested like you say Yra, and the market will decide they still like it. Would definitely not be in the S&P500…. what are you thoughts on running any kind of position in a US equity index? If I had to I would have been long just to stay with the trend for the lsat 12 months, although my concerns of instability were proven valid this past month.

    Markets cease to fascinate and interest me…..

  4. yra Says:

    Danny–am thinking Russia after the large wash out last week and Putin on the move in Eurasia–the roulbe is under stress because of oil prices but will write a piece soon as much happening and it is off the radar screen–Putin was today again referring to the U.S. as parasites

  5. yra Says:

    Jedi–at some point the equities will become a repository of safe haven as people have so little choices to go with their capital in a global zero rate environment–more to come but that is worth contemplating.If you believe that the U.S. is Japan redo that will be proven wrong–but as I have consistently maintained,the U.S. is not japan.We have too much debt relative to savings and out socio-politcal system will not tolerate that

  6. JediTrader Says:


    Thanks for the feedback. Also, saw an article that company insider buying reached new highs during the selloff through August…. so if executives are bullish on the intrinsic value of their company’s compared to the current market price, then I think that would go with your point.

    I also meant to say “markets never cease….” Haha if I wasn’t interested in markets then I wouldn’t be reading this blog

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