Notes From Underground: Gee, What’s the G-20 Thinking About?

The Japanese leave Washington with no support for alleviating one-sided currency moves. For China it is all about respect for growth, wherever it may be. The Chinese GDP was released on Thursday and it came out exactly as forecast at 6.7% (shocking, I know). There was virtually no criticism of the Chinese as the nations are watching closely while China commences its transition from an export-dominated economy to a more balanced growth model, where domestic consumption takes on increased importance. In contrast to the G-20 view on Japanese currency intervention, SNB President Thomas Jordan announced that the Swiss would increase its balance sheet through currency intervention “… to prevent an already ‘significantly overvalued’ franc from strengthening.”

So it seems the Swiss heard a different policy outcome then the Japanese. Yes, Japan has a far greater impact on the global economy than Switzerland but it seems there is a lack of consistency in policy. What will be important is this: If the Japanese were to actually intervene in the currency markets in direct fashion, it would signal that the “currency wars” are on, G-20 be damned. If Japan cuts interest rates further will it be deemed currency intervention? Does it call to question the ECB’s efforts? Will the same criticism apply to them? The IMF and G-20 expressed their concern about BREXIT and warned about the negative economic impact for the U.K., Europe and possibly the global financial system.

The Davos crowd is raising the fear of economic contraction to warn the Brits against leaving the EU but I will state emphatically: A NO VOTE will lead to the contagion of referenda across Europe if the Brits vote to exit. That is the greatest fear for the European elites. The outcome of a NO vote is conjecture and there can be no definitive measure of outcomes except a high probability of political turmoil. The best synopsis of a Brexit seems to be that of Olivier Blanchard’s view in the Ambrose Evans-Pritchard piece: “Professor Blanchard refuses to join the apocalyptic chorus on Brexit but advises the British people to enter these uncharted waters with open eyes. Divorce will not be a short shock followed by swift recovery.”

We will continue to hear the established elites raise the level of fear on the U.K. voting to leave. President Obama arrives in the U.K. this week, offering his support to Cameron and the YES to EU movement. This drama will play out over the next nine weeks causing volatility for currencies, debt and equity markets. Again, trade accordingly, but don’t invest in any long-term outlook.

***Two pieces of financial media to watch: Wall Street Week on Fox Business had a full half-hour with Kyle Bass.This is an enlightening interview as Bass lays out his views on China and the global equity markets. On Friday morning, me and Rick Santelli covered themes familiar to readers of Notes From Underground. We  discussed the IMF and raised the issue of the IMF gold hoard was brought to light.

My view is  consistent: The IMF does need increased funding but should be forced to monetize the GOLD by creating GOLD-BACKED IMF BONDS. This is becoming ever more relevant in light of James Rickards’ new book on gold. Rickards emphasizes gold is money so the IMF GOLD should be monetized by using it as collateral for debt. Watch the two pieces  to generate important discussions for trading in the coming period of great political uncertainty.

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10 Responses to “Notes From Underground: Gee, What’s the G-20 Thinking About?”

  1. Richard H Papp Says:

    Readers maybe interested in a note from Lombardodier.com entitled a “Swiss Perspective on Brexit”. It is found under investment insights

  2. Chicken Says:

    Elites will remain sufficed as long as government keeps streaming mega tax dollars into military equipment. In the name of terrorism on or off shore, as need be.

  3. Johnson, Robert S. Says:

    USD/JPY – It used to matter when a country cut rates. Today, if a country cuts rates it’s viewed as that they are actually doing something to help their economy, so the currency initially strengthens in many cases. Fundamentally this doesn’t make sense. Plus, the JPY is a different animal, the market buys it as a safe haven currency during risk off times. All I know is that I do not want to own JPY below 108.00, especially with the BOJ lurking around.

    Bob Johnson
    Managing Director
    BMO Capital Markets
    115 S. Lasalle Street, 37th Floor | Chicago, IL 60603
    Office: 312-845-4083
    [cid:image001.png@01D19972.53E96060]
    [cid:image002.jpg@01D19972.53E96060]

    • yra Says:

      Robert—I think the bigger issue for Japan is similar to Britains years ago.The huge amount of invested capital abroad leads to huge inflows for Japan as money gets repatriated.The BOJ would like to stem the inflow but in a world of fast money flowis it is not as easy as advertised.The amazin g thing is that Japanese citizens keep purchasing their bonds for deflation is not the same as in the late 90’s and with inflation positive the real yields have turned negative but it seems that Japan is the prime example of the Paradox of Thrift—money comes home to patch over income shortfalls–just another opinion

  4. Chicken Says:

    Banks are honest criminal enterprises….

    “The accused Deutsche Bank, HSBC, and Scotiabank of a similar conspiracy of manipulating roughly $30 billion of silver and silver financial instruments annually.”

    • yra Says:

      Chicken–I am wondering where they will send my check as I have traded many comex contracts over the last ten years—it was easy to see the manipulation as dramatic price moves int eh last 30 minutes of trading were frequent–have to wonder how many times theses TBTF banks set off their own customers stops and pocketed the difference

      • Chicken Says:

        “my check” curb your enthusiasm, more likely the fine shareholders pay will wind up in insider pockets as bonus for a job well done?

  5. Chicken Says:

    GS used cheap money to but 7 tons of gold. I guess they’ll need to sell that eventually, perhaps as a tax loss.

  6. Chicken Says:

    Silver, wow….

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