It was nice to be away, playing some golf and visiting with friends. And now it’s back to work. (Confession: I was engrossed in reading for part of my days.) There two key issues before us: BREXIT and this weekend’s G-20. (Side note: I did a radio interview yesterday with Anthony Crudele on #FuturesRadio. Anthony did a great job and we covered a lot of ground. Listen to the piece and it will rehash much of what my blog readers have been reading during the past six years.) Here is my take on the G-20 meeting and it is interesting how the British elites are trying to co-opt part of the G-20 meeting to get support for the British Prime Minister David Cameron and his bumbling sidekick George Osborne.
First: There has been written about the G-20 meeting into a new PLAZA ACCORD as there seems to be an effort to stage some kind of global currency readjustment. THIS IS NONSENSE OF THE FIRST ORDER. What currency would allow itself to be the object of a massive appreciation and why would there be granting an okay for others to DEPRECIATE their currency? IT WILL NOT HAPPEN. This G-20 meeting communique will stress the need for fiscal stimulus on a global basis. Germany and China will be under subtle attack for not doing enough to generate domestic consumption to rebalance their massive current account surpluses. Larry Summers has been on the global punditry circuit for two years, pushing for the developed world economies to pump up fiscal spending on massive infrastructure projects. With interest rates so low Summers maintains that governments are irresponsible in not investing massive amounts for the future.T his is Larry Summers time to shine “again” as GLOBAL CENTRAL BANKS’ credibility has fallen to NIXON LEVEL numbers.
This G-20 meeting is about FISCAL STIMULUS and if my forecast is correct that is the basis behind the recent rally in some commodities, and especially the equity markets. Stock investors need some new sign of hope as the power of monetary policy to elevate financial markets is losing its influence. As I see it, there are three indicators. SPOO/BOND ratio levels going back to March of 2011 for support at around the 1122 level because if fiscal austerity is cast adrift equities OUGHT TO RALLY AND BONDS SHOULD BE SOLD, a similar to the response to QE1. The second trade should see the 2/10 yield curve steepen as the longer-dated debt sovereign debt instruments should suffer while the fiscal spigots are fully opened. Third, the stocks of FLUOR and ABB should gain because they are publicly traded firms of large engineering and construction companies.
I will be looking for FLUOR to close above the 200-day moving average to receive some confirmation. The fact that this is an election year and Paul Ryan is the Speaker of the House, the U.S. may actually be able to find some reasonable spending programs so the Fed is not the only game in town. Of course I know that there is no world government to enact a Summers-type program but the concept will provide some support for a market starving for any positive action on economic stimulus. Be patient and watch for the keys I have put forward for confirmation.
The BREXIT issue: PM Cameron and Chancellor of the Exchequer Osborne are looking for the G-20 to put a statement in the communique against BREXIT and the need for Britain to remain in the EU. This is a sad plea from the Cameron government and reflects how desperate they are to defeat the NO to EU crowd. Yes, Mayor Boris Johnson dented the hopes of Cameron but again I maintain that BREXIT is a sideshow without significance except for the Davos crowd. Once the Brits exercise the referendum tool, this is the question for the EU: What nation will be next to invoke the use of the referendum, whether Cameron wins or loses? MY FORECAST IS THAT MERKEL’S GERMANY WILL BE FORCED TO DIRECTLY CONSULT THE GERMAN VOTERS. Then the problems really begin.
Tags: Angela Merkel, Brexit, David Cameron, EU, G-20, George Osborne, Larry Summers
February 25, 2016 at 10:51 pm |
Did you see this article on Gove, Yra? http://www.telegraph.co.uk/news/newstopics/eureferendum/12172445/Michael-Gove-faces-sack-over-his-opposition-to-European-Union.html
February 26, 2016 at 5:50 am |
Donna–thanks for the link.Hadn’t seen it but it reeks of desperation by Cameron and it is a cardinal error to push out a potential adversary and lose any authority the P.M. may have in keeping him close—Gove is an intelligent man and let loose out side the cabinet room will be a great asset for the OUT group
February 25, 2016 at 11:58 pm |
Makes sense, brilliant perspective once again.
February 26, 2016 at 12:07 am |
I have had FLUOR on my radar screen for some time, without establishing a position. Their 2/16 results were awful. The 10-yr chart – 200 MA held at 42.35 on 8/31/15; the 50 MA at 60.33 is out of reach. The 5-yr chart shows a “w” bottom with a death cross in 6/15 and the present price below the 50 MA of 49.39. The 1-yr and 2-yr charts show the 200 MA at 48, with the present price above the 50 MA of 44.77. Could you please clarify which 200 MA is meaningful to you and why. Thank you – peter For me, the 10-yr chart is the most meaningful. FLR must hold the ascending 200 MA line – if not, it falls into the abyss.
I do not have sufficient confidence to take a position today (Friday) ahead of the weekend meeting.
February 26, 2016 at 3:49 am |
peter–this is good technical analysis which I respect but my work is far more simplistic and looking at my CQG chart a simple straight continuing 200 day .m.a. comes in at 48.08 this morning and for my money i usually rely on a weekly close above that number with a second week of confirmation to establish a very low risk position— but as always I advise doing the work and establishing your parameters for trade risk tolerance—but you are a far more in-depth technician thanI
February 26, 2016 at 6:47 am |
If your thesis of “if fiscal austerity is cast adrift equities OUGHT TO RALLY AND BONDS SHOULD BE SOLD” happens would bonds be sold off as hard as QE1 with all the negative rates around the world??
February 26, 2016 at 9:38 am |
Trader—I would think yes which is why i went back to look at the levels from 2010,2011—remember how the rise in long yields initially caught bond bulls off guard as the Fed buying was overwhelmed by sellers thinking there would be a significant growth story and would bring inflation—and I am glad that you prefaced it as a thesis and implies what OUGHT to occur —as I am anxious to remind people of the quote from Max Planck—Science advances one funeral at a time—like in science disproving a thesis provides its own rewards
February 26, 2016 at 9:17 am |
Lovely comment Yra! I cannot wait to see the German public express themselves. But do tue powers that be have the ability to trample over the electorate a la Greque? Best regards, Costas
February 26, 2016 at 10:35 pm |
Looked like selling into strength to me, probably not many have caught wind of the next global bootstrap attempt (which used to buy weeks of bullishness now just hours).
Or it’s not coming. Seems almost like the FED has become religious, perhaps they’re finding it difficult to sleep at night?
February 28, 2016 at 7:20 am |
[…] A Quickie On the G-20, Or the Summers of Enchantment […]
March 1, 2016 at 1:18 pm |
Yra- Good post.
The other scenario for the yield curve steepening is that world economies weaken, and more QE and ZIRP DOES eventually end up leading to more inflation.
Also people won’t want to hold lo long term bonds for fear of not getting repaid (or getting repaid in worthless currency}.
So far monetary velocity has been low, but I’m guessing it will pick up when people see inflation coming, and figure they better do something with their cash to protect purchasing power.
The Tips breakeven rate has been increasing the last few weeks.
Question- What is the best conservative way to protect purchasing power? You would think a money market that adjusts ton changes in rates, but Central bakers will probably hold down short rates (lower than they should be), no matter what scenario develops.
Speaking of of the Plaza Accord, my impression was that some people got tipped off the week before, and made fortune buying Yen, D-Marks etc. Is that how you remember it?