Last night’s blog contained some of the key sparks to watch this year, but I left some for today so as not to overwhelm. While we slept, the Chinese borrowed a page from the French National Bank. In an effort to curb the arbitrage of trading the YUAN in Hong Kong versus the mainland levels under the direct auspices of the PBOC, the Chinese Government raised overnight borrowing rates for those short the yuan in Hong Kong. The rate is only on overnight borrowings so it is intended to make being short against the PBOC cost prohibitive.
The French central bank would do this back in the early 1990s when speculators would try to pressure the French to devalue the franc against the D-Mark. Then-Bank of France President Jean-Claude Trichet called this his “fort franc” policy and would maintain that the French currency would remain as solid and firm as the German mark. When the franc was under attack, the Bank of France would elevate overnight rates to above 100% in order to punish the evil speculators. It didn’t matter what the short-term economic effects were or the costs, the French were going to remain tied to the D-Mark.
The Chinese will not be as forceful but a message will be sent that the YUAN is not a play toy for global investors. Will it have a market impact? It’s too early to tell but it will calm the Chinese currency markets. This will play out over many months but it is certainly a new variable to be aware of as the algos will be reacting through previous correlations that will become defunct once the new Chinese efforts are better understood.
***The Shameless Sycophant of the Ruling Classes Award: In the January 8 Financial Times, Martin Wolf, mouthpiece of the “Keep Britain in the EU” campaign, wrote an op-ed article titled, “A Vote For Brexit Is A Leap Into the Abyss.” Wolf rehashes the damage that could be done to the British economy if the Brits vote NO on the referendum to remain in the EU. But he raised an issue in his fourth point: “While the choice is strategic, the detailed ISSUES ARE TOO COMPLEX FOR THE PUBLIC TO JUDGE.” The issue for Wolf is that the voters are too stupid to understand the complexities of the EU that the ELITES have crafted, therefore democracy OUGHT not be allowed to function. This is the ultimate backstop for the entire European Union: No democracy because the voters cannot possibly comprehend how the man behind the curtain pulls the levers. Karl Marx had so poignantly referred to Thomas Malthus as a “shameless sycophant of the ruling classes” and it seems that it is an apt fit for the arrogant Martin Wolf. Long live the self-anointed philosopher king! What makes this thinking so dangerous is that it plays well to the anti-status quo political movements on the rise in Europe.
Also, the gambit played by David Cameron, the dumbest ruler of England since 1776, in calling the referendum is now at a loss on how to proceed. The present elite ruling England wants to be in the EU because it provides a larger stage on which to perform. The British have been searching for a larger role in the world after they were cast aside by President Eisenhower for the ill-designed Suez Canal debacle of 1956. It was right for Cameron to call a referendum so as to get the support of the British voters. The problem with the EU is that the elites don’t want the citizens to decide. Cameron called the referendum so as to undermine the Tory euroskeptics as well to prevent the rise of UKIP. Prime Minister Cameron is hoping to get Brussels to placate Cameron on certain key issues thus getting public support to remain in the EU. But if Merkel and Hollande are not in the appeasing mood at the EU meeting in February then the referendum will be delayed until 2017 or if the vote is held this summer then Cameron will lose.
The SPARK to ignite the fires will be that if Britain leaves the EU the German voters will push for a similar referendum. If Chancellor Merkel’s popularity continues to fall the German euroskeptics wills demand a greater say in the policies of Brussels. For the financial markets: What will the sovereign debt of Spain yield without the German checkbook? The Martin Wolf article reflects the thought of the European elites but when the public grows restive because of disillusionment with the Davos crowd politics will TRUMP economics. The British pound has been under pressure as markets are beginning to question the decision and governing abilities of David Cameron.
The POUND has been weak on the EUR/GBP cross as the markets have also come to accept what I wrote months ago: Regardless of what the FED does the Bank of England will be reticent to raise interest rates until the referendum attains greater clarity. Even if the Brits vote YES to the EU, the EUR/GBP cross will have to go higher because it is too low to satisfy British manufacturers. If Britain adopts the euro it will be with a much weaker POUND relative to its largest trading partner. But remember, if Cameron believes he was born to rule, it is a reflection that is intelligence has been harmed by aristocratic inbreeding. GOD save the Queen.
Tags: Britain, British pound, China, David Cameron, EU, EUR/GBP, PBOC, referendum, Yuan
January 12, 2016 at 5:09 pm |
FIRST a giant “FRACK YOU” to WOLF
“ISSUES ARE TOO COMPLEX FOR THE PUBLIC TO JUDGE.”
my arse! I’m a member of the public and when I hear people say things like this my consideration is that we should have a policy where if they can’t prove their point adequately then a part of their body, to be specified later, is surgically removed from their body. I’m thinking a variant of brit milah Yubitsume.
January 13, 2016 at 4:34 am |
Limey–you are killing me and it seems you are quietly going thru conversion process—readers of NOTES are going to raise funds for paying for the MOIEL—like the evil speculators a pound of flesh will be taken.We will also send Ricky Gervais home as we now have American Limey humor
January 13, 2016 at 2:09 pm |
Limey–which chapter in particular????
January 13, 2016 at 4:35 pm
pages 135 to 148 the whole book is a narrative of EVERY silly thing we did!!! AND they are still doing them. Just got out of a meeting with VC’s and they are STILL asking the same silly questions about “reading” the markets… WOW
January 12, 2016 at 6:53 pm |
I recently heard *Davos* described as BURNING MAN for Billionaires.
“Burning Davos.”
January 12, 2016 at 10:12 pm |
The shell is slowly gliding through the water but most members of the crew have their oars out of the water….except for the stroke, wearing a black, red and yellow shirt who is pulling hard to keep the boat moving forward. The coxswain, who in private life is a journalist for the FT, shouts his rhythmic commands to the other rowers who somehow aren’t listening to him. And the Thames Rowing club this summer may cancel this team’s participation in future events.
January 13, 2016 at 4:35 am |
Asherz—the picture has been painted and the crowds will be watching no doubt from the RIGHT bank
January 13, 2016 at 1:27 am |
The French did the same, only much much higher, with short-term, off-shore franc rates in about 1980, give or take a couple of years (the mind grows foggy).
January 13, 2016 at 7:01 am |
The Euro migrant problem isn’t going away any time soon and that’s going to really focus some minds of the UK voters re the Euro exit. It basically couldn’t have happened at a worse time for the EU-British vote.
As or Cameron being ‘dumb’ I don’t know about that but he’s certainly a snake and the worst kind, one that’s charming. I refer to him as Damian, not from the Omen, but that was the name of Jake the Snake’s pet python for any wrestling fans from the 1980s.
January 13, 2016 at 7:01 am |
Ciga fred– I cited the French and i refer to the policy of le fort franc—it was an answer to the attempts of George Soros and others to break the ECU mechanism and force a revaluation of the D-MARK like they did with the Pound,Peseta and Italian Lira.The problem for the Italians is that when it came to re-entering the EURO later the French forced the Italians to enter a too high valuation because Milan was using the devalued Lira in making in-roads in taking the fashion industry to Milan from Paris
January 13, 2016 at 7:22 am |
Note to Martin Wolf. No institution can possibly survive if it needs geniuses or supermen to manage it. It must be organised in such a way as to be able to get along under a leadership composed of average human beings. (Peter Drucker).
January 13, 2016 at 8:54 am |
Hubris: “Hubris is usually perceived as a characteristic of an individual rather than a group, although the group the offender belongs to may suffer consequences from the wrongful act. Hubris often indicates a loss of contact with reality and an overestimation of one’s own competence, accomplishments or capabilities, especially when the person exhibiting it is in a position of power.” (see Wikipedia) Forgotten by all of these elite engineers of this magnificent “globalization” is that benefits have attendant costs. Sneeze in China, Cough across the EU, Vomit in the Mideast, South America and Africa. So much for diversification. Welcome to the world of correlations approaching 1.0 it’s as perverse as 2 + 2 = 5
January 13, 2016 at 9:49 am |
Waspi–glad you are back at the podium.I see you were reving the engines over break
January 13, 2016 at 11:46 am |
You’re a good egg, Yra, and I thank you for your friendship. My New Year’s resolution for 2016 is to distribute even more copies of “The Rotten Heart of Europe” than I did last year.
January 13, 2016 at 12:23 pm |
I’m sorry to be an annoyance, but I’m a beginner, where could I start to learn about economics, to the scale that y’all are talking on, I know it’s going to be a long journey but I would love to be at your level in a few year of really learning… Web sites… books… magazines? Would love your directions.
January 13, 2016 at 3:16 pm |
Apply for employment at Federal Reserve, ask to be Chairman!
January 13, 2016 at 5:36 pm |
Pedro—stay with us here and many will teach you—go back and scroll thru 6 years of blogs to get an idea and then you will be better equipped—-welcome aboard and let’s enjoy the ride
January 13, 2016 at 1:35 pm |
I guess the public only needs to consider results and who wins to determine where the complexities lie. The rare case where a rear-view mirror approach works well.
January 13, 2016 at 1:52 pm |
Professor maybe we can get them in the U OF I bookstore
January 13, 2016 at 2:13 pm |
Wow, that looks ugly…. the good ol’ Ivy League college try is flopping..
January 13, 2016 at 3:44 pm |
two of my favorite mentors agree!!! (note the missing ‘U’ almost house trained)
A tip of the hat from Art Cashin to our own trotsky!!! Well deserved Yra you are the man. Breakfast on me soon.
January 13, 2016 at 5:34 pm |
I didn’t hear that when did that take palce
January 13, 2016 at 6:34 pm
try and keep up trotsky 🙂 you sent it to him!!! He called you the sage of CME in his comments from 1/13/16
http://financialservicesinc.ubs.com/staticfiles/faw/adobe/all/cashin_comments.pdf
Well done oh wise sage
January 13, 2016 at 7:20 pm |
Yra the 2/10 spread tonite is now 1.16. The Rubicon has been crossed and the game is afoot or as the sage of the CME predicted- all hell is breaking loose. Even old man gold is stirring.
January 13, 2016 at 9:58 pm |
Isn’t it about time some of last year’s M&A debt begins to appear in the market, and gets priced? The investment banks will be underwriters of this flood of new bonds and someone will be carriers of bond insurance, right?
January 14, 2016 at 5:11 am |
Chicken–that is right which is why many are watching the INBEV deal so closely because price is the key —just remembered when several IPO s were pilled back after the August debacle—think Safeway—sillly because a strong business OUGHT not to care about bullish or bearish market sentiment but of course the underwriters need their take and that is paramount
January 14, 2016 at 12:11 pm
Pretty sure BAC and friends. took one in the shorts over the CG debt raise during the Symantec deal, not sure how well that resolved for everyone involved.
January 14, 2016 at 9:20 am |
If there’s one lesson to be learnt so far this year with these markets is if they spike and you’re on it – COVER!
January 14, 2016 at 12:15 pm |
Upward spikes are rare this year most likely at support levels. I guess the FED represents underwriters best interests, that’s what they’re paid to do despite losing credibility?
January 15, 2016 at 8:31 am |
I can’t comprehend the employment figures considering what looks like increased businesses lining up for bankruptcy.
Doesn’t look like even Wal Mart is creating jobs this month, who’s creating them?
January 15, 2016 at 9:31 am |
Chicken,
The answer to your question on who is creating the jobs which resulted in a robust 292,000 NFP number is……. The Bureau of Labor Statistics or the BLS (you don’t need that middle letter). The seasonal adjustment was 281,000 jobs producing a net number of 11,000. December retail generally is quite strong giving the estimators an historic set of data. We know how great the brick and mortar retail was this past shopping season.
The doubting Thomases will survive the bubble burst. The CNBC bulls if they put their money on the line won’t.