Never has such money been made by so many fools on a HILL. Does anybody else wonder how many members of Congress and their hangers-on, inside trade on information that is discussed in the caucus? Remember, it is not “criminal” to trade on privileged political information. Oh well, maybe Bart Chilton can confiscate the dollars to keep the CFTC on the job. It’s risk on, risk off as each policymaker takes to the microphones. RO/RO is getting old as the ship of state continues treading water and moving in circles.
***Back to reality: The Central Bank of Brazil raised its overnight lending rate to 9.5% as it attempts to stem the recent rise in inflation, now at 7.5 percent. The language of the Brazilian bank was very terse and investors are now expecting the bank to raise rates to 10% at its next meeting. The REAL has performed well as the real yield on Brazilian deposits is now one of the highest of the emerging markets.
***The Bank of England (BOE) today held its interest rate steady and kept its QE program at the 375 billion. All was expected so the POUND held very steady.
***This weekend is the IMF and G-20 meetings in Washington. This is a scheduled event and it is important to pay attention to the Saturday communique for last year this was the meeting that brought the sea change of the global financial community in regards of the YEN. The Japanese announced that they would be willing purchasers of European debt and as reported in NOTES this may have been the quid pro quo for the G-7 to allow YEN weakness. Washington is in turmoil so very little is expected, but it is important to search for clues to some nuanced policy change. Today, it was reported that IMF Director Christine Lagarde tweeted that the IMF had gained approval from its members to distribute the proceeds of previous IMF gold sales to needy nations.
Be attentive to any noted discussion for further gold sales in order to raise capital for some developing nations. Again, Ms. Lagarde: Issue IMF GOLD-BACKED BONDS and the global financial backstop could raise hundreds of BILLIONS of currency and provide immediate financial support. The IMF was also busy opining on the FED’s tapering by releasing a report that the FED’s move to a quick tapering could lead to $2.3 trillion in global bond losses. Now the IMF is attempting to set FED policy by raising the fears of a global calamity.The IMF should stay focused on how to recover its European loans.
***More articles about the financial and political fragility plaguing Europe. The FT had an article ,”Europe Asset Back Securities At Risk.” Previously, European banks could bundle auto loans, mortgages and other types of loans into an ABS and sell “ABS on to fixed-income investors, thereby freeing up more capital for lending.” Because of the LTRO and other cheap central bank lending programs European banks are in no hurry to relinquish the high yielding loans. This is a very grave problem for President Mario Draghi. The ECB has wanted the European ABS market to grow in order for capital pressed banks to bundle loans into securities and free up bloated balance sheets, but continued cheap ECB loans is keeping banks from offloading the higher yielding loans. If Draghi pulls back the cheap funds, short-term lending rates will rise and banks will become even more stressed.
Also, removing cheap money will also cause the EURO to rally which will not aid the very tepid European recovery. Also in the FT, editor Tony Barber had an op-ed piece, “Fixing the Eurozone.” Barber spends the thrust of the article outlining the severe problems facing Europe and its banks and offers a four-step plan to help to resolve its existential issues. These four steps are: “To set up a comprehensive banking union; to ensure hard-pressed companies in recession-hit Southern Europe receive credit at interest rates comparable to those enjoyed by their competitors in the north; to reduce mass unemployment, especially among youth; and to make sustainable the public debts of Greece and other states deep in hock.” Nothing new in these proposals but it continues to fascinate how all these issues went unmentioned for the eight weeks leading up to the German elections. The American political uncertainty is keeping the focus on the RO/RO of the U.S. equity and bond markets.This has led to investor and policymakers complacency about the continued problems burdening the banks and peripheral economies.The global financial markets seem to resemble a three-card monty game in Central Park. It’s all slight of hand.