(Larry Summers had to run to his medicine cabinet to take Prozac (not Diazepam as in the Rolling Stones song) after he read the G-20 communique. The finance ministers and central bank heads meeting in Shanghai failed to come to terms with any of the issues concerning the global economy. There was no PLAZA ACCORD and no deep discussions about the need for massive fiscal stimulus. The tone of the Communique was TEPID at best and views the present state of the global economy as slow but steady. There was certainly NO URGENCY about a rise in the prospects of a global recession. The finance ministers downplayed the recent volatility and slide in global equity markets, suggesting by those domiciled in ivory towers and model-based rat holes that the MARKETS ARE MISTAKEN AND THE MODELS ARE CORRECT. The arguments among the participants was such that there were some issues that seem in direct contradiction of any policy response.
1. German Finance Minister Schaeuble: “The debt-financed growth model has reached its limits. We therefore do not agree with a G-20 fiscal package as some argue …. There are no short cuts that aren’t reforms.” So the German voice of austerity was heard loud and clear to counter the desire for some for IMF and G-20 support for opening up the spigot of fiscal stimulus.
2. Idiot George Osborne raised the specter of the U.K. embarking on a new round of austerity to meet the promises of shrinking its budget deficit. In a speech prior to leaving for the G-20 Chancellor Osborne said they may “… need to undertake further reductions in spending because this country can only afford what it can afford.” Following Osborne’s ill-timed speech were the results from Saturday’s Irish election. “Popular” Enda Kenney was not reelected. Fine Gael and Labour, the current coalition partners, were delivered a setback as Fianna Fail received newly revived support as the Irish voters seem to have voted against further bouts of austerity.
3. Much was made of the G-20 not laying the currency blame on Chinese efforts of devaluing the YUAN. But in reports coming from Reuters and Bloomberg, Dutch Finance Minister Djisselbloem was pointing the finger was pointed at Japan, noting the slippery slope of intervention. It seems the reference was to the recent efforts by the BOJ to impose three-tier structure for its negative interest rate policy, which would lead to large deposits leaving Japan, thus putting downward pressure on the YEN. The problem with all the criticism directed at Japan is that the YEN has appreciated 5% since the surprise move by Kuroda so Djisselbloem must have been speaking about Japan’s policy since October 2012, which the G-7 sanctioned.
4. Overall, the G-20 failed to deliver the BOLD ACTION that the IMF had called for. This was indeed another photo-op for the top financial minds in the world. In this case pictures do not speak louder than words and the result is the ultimate selfie. The market’s response will be key. Will equities retrace their recent rally as lack of fiscal stimulus is seen as market deflating since the G-20 seemed to agree that monetary policy is proving ineffective? Will the yield curves begin to flatten again as Schaeuble and Osborne reignited talk for renewed AUSTERITY?
Remember the 80 BASIS POINTS LEVEL on the U.S. 2/10. The currency markets OUGHT to be a mixed bag because politics is beginning a dominant theme in many places. The uncertainty OUGHT to aid the GOLD but SILVER‘s miserable close on Friday provides a note of caution. (SILVER closed well under the 200-day moving average.) The EUROPEAN SOVEREIGN DEBT MARKETS should see the BUND and German assets outperform as the Irish election and Schaeuble’s comments about debt-financed growth should make investors leery of Italian, Spanish and French debt. Of course since it’s the last day of the month we don’t know how much debt the ECB has to buy to meet its 60 billion euro monthly target. Hey Larry, pass the PROZAC. What a drag, it is getting old.
Tags: 2/10 yield curve, Bund, central banks, G-20, Germany, Gold, IMF, Japan, silver, U.K., Yen
February 28, 2016 at 3:24 pm |
The ratio of “Commercials” for gold’s long/short position on the Comex has recently become very negative I.M.O. It is a complete flip from 2-3 months ago when gold was $180 lower. The current value of the ratio was last seen in Dec 2014-Jan 2015 when gold was in the $1280’s. So, is silver suggesting that gold will also go lower?
February 28, 2016 at 4:57 pm |
Richard it is one of the things I am watching for historically all precious metals have silver really taking charge –but the gold /silver ratio is trading at 20 year highs
February 29, 2016 at 1:58 pm |
GDXJ doesn’t impress me as outperforming GDX by a wide margin. Aside from “The New Normal”, for gold to catch serious wind I’m anticipating obvious treasury 10yr weakness, Banks, energy, PMs up and down in that order has been the historic correlation, no?
The “expert” sales guys are well paid for their opinions, it’s their job to put retail on the wrong side of the trade. What are THEY telling us?
February 29, 2016 at 11:23 am |
Yra-I had a slightly different take from the G-20: 1) It seems fiscal policy (both demand and supply targeted) is getting more attention everywhere one looks these days even from the G20 in it’s statement to use “all policy tools-monetary,fiscal, and structural…” The lead story in The Economist was very much in favour of fiscal over monetary in it’s recent addition. William White has been quite vocal about this as well. 2) It just seems to greater weakness in the US which would thus cause greater concern than shown present, would be the required impetus to act, especially collectively. In other words, equities would have to break more severely than recently, especially US equities to give countries the political will to act. Even then, the obstacles are high. The world may have to sell Britain on supply side stimulus and Germany will be a hard sell no matter how you slice and dice it with political fragility lurking around every corner. It will be tough, but I think several countries with which clearly have debt capacity will likely act, in time, if we get further confirmation of things breaking down. But, of course even if things break down, it will be hard for the monetarists to give it up that the only problem simply is that monetary stimulus hasn’t been “large enough.”
February 29, 2016 at 3:22 pm |
Dustin —You raise important issues but I disagree with you about waiting for a full blown crisis .The ugly politics of statism is on the rise and waiting for the crisis to explode will negatively impact politics that is causing angst—the U.S. economy is tepid and while I don’t often agree with Larry Summers the issue of fiscal stimulus in lieu of failed central banking has credibility—leadership is not waiting for crisis it is forecasting its probability and putting policy in place to preempt it—the world financial chiefs just told you markets have misread the real economy similar to ben bernank telling us that sub-prime was contained;or jean Claude Trichet raising rates twice in 2011.And while waiting for the crisis to unfold the central banks will keep on keeping on—
February 29, 2016 at 4:14 pm
Well said, and this has certainly impacted my thinking, so thank-you. But, I’m still not sure all of the world’s financial elite have bought into William Martin’s idea of taking away the punch bowl just as the party really gets going and it’s inverse of which we are here concerned. I still think there are enough Greenspan’s in the world that prefer being reactive as opposed to proactive. In this case I will not clearly choose sides, but given my Hayekian bent and concern with information problems, I’l let you figure out my bias. This leads me to wonder if the bar is still too high for those who prefer reacting to get on board with clear collective action on the fiscal front which might leave others who would prefer to be proactive into worrying how capital might react to individual action and thus constraining their aggression? It’s a tough game for these policy makers, especially when rocket scientists armed with the pretence of knowledge disagree. 😉
February 29, 2016 at 4:30 pm
Duatin–thanks for your very thoughtful response and just kncked the Road to Serfdom on the floor with Schumpeter’s Business Cycles –actually Schumpeter’s essays are a great read but I can’t find my copy—but your post very insightful
February 29, 2016 at 1:31 pm |
““I guess there’s a bit of a bearish tone…coming from the press…I’m pretty bullish about our position in the marketplace…So the glass is half full, and I don’t see the doom and gloom that a lot of people are and I guess your question kind of leads us towards.” —Fluor CEO David Seaton (Engineering and Construction)”
Additional:
Buffett – “US will continue laying eggs” ha, ha!
Trump – “US can/I will work to bring jobs back” Oh my, the policy of subsidized export of opportunity for the benefit of a few insiders might reverse? My dream!
February 29, 2016 at 3:24 pm |
chicken–which is why I am waiting for the market to tell me the time has come rather then me telling the market what it ought to do
February 29, 2016 at 8:32 pm
Right, I kinda think there are only a few honest people remaining in the world. Naturally, they have a place reserved for them on the Ark 🙂 And the rate pumpers are short given the global economy is piping hot. Someone knows more than I, that’s certain.
March 1, 2016 at 10:36 am |
The daily blathering of useless dribble and utter nonsensical garbage mixed with disclaimers by those who pretend the have a brain is the garbage we trust our future to?
Today’s gift from the all unknowing or most cunning thief ever to grace himself in others riches and master motor mouth financial rapper himself, Greenspan:
‘In My Experience, I’ve Never Seen This Many Unknowns’
March 2, 2016 at 11:04 am |
Moody’s cut China’s outlook to negative.
March 2, 2016 at 6:37 pm |
Gee–they want to get ahead of the crowd