On Tuesday, Rick Santelli and I spoke, and, as usual it was way too short as we couldn’t cover anything in the depth we would’ve liked. Regardless, it allows us to get out front of many investment ideas. Rick has a stable of high quality guests: Bianco, Boockvar, Biderman, Trichet, Lazear … the list goes on and sometimes I wish my readers would let CNBC know how important Rick is for a larger discussion about ideas besides the most recent Apple price and latest Trump tweets.
Now, there are certain issues that must be watched:
1. The EUR/YEN and the YEN/YUAN crosses are important for barometers on global trade. The Chinese YUAN has strengthened against the YUAN over the last two years trading at 17.15 YEN to a YUAN. The Chinese are always aware of a “cheap” yen as it makes Japanese exports far more competitive on a global scale. The EUR/YEN fits that category also as the Germans compete directly with so many Japanese corporations for quality, high-end products. The Chinese currency is presently trading at two-year highs and should deflect some of the criticism about unfair trade practices tweeted out by the Trump White House. The euro is also on multi-year highs while the YEN languishes as the BOJ’s Kuroda maintains the stance of easy money as a progenitor of higher inflation. Beware of some of the G-7 concerns raising the issue of a relatively weak yen.
2. On Wednesday, the Bank of Canada announces its rate decision. Consensus is for the BoC to raise rates by a quarter point to 1.25%. In light of the recent employment data it would be wise for the BoC to raise rates but recent fears about NAFTA have prompted some analysts to suggest that the Canadians will keep rates steady at 1%. If the BoC fails to raise rates the Canadian dollar will fall but again I would look for technical support to buy the Loonie because I continue to believe that the Canadian economy is receiving a boost from the commodity reflation story.
3. Japanese bank stocks are finally getting some upside rally for the first time in many years. Even when the NIKKEI has joined the global stock surge the Japanese banks have been laggards. Now Mitsubishi is making nine-year highs and even the supreme laggard Mizhuho is finding some life. Can this point to a much stronger Asian growth story than markets have anticipated? The Japanese banks have been an absolutely dead money investment for nine years but it is something to watch as animal spirits latch on to the global economy.
4. There was a very important story released on Bloomberg, titled, “TWEETS BY THE ANONYMOUS OKASANMAN ARE CRUCIAL FOR TRADERS,” (emphasis mine). It appears that a very heavily followed micro blogger from Japan has been the source of many of the early released headlines that have fed volatile reactions from algo-driven headline readers. The Bloomberg story notes that on January 29, 2016 the day that the BOJ surprised the markets by going to NEGATIVE INTEREST RATES, Okasanman tweeted the headlined story 15 minutes early, which sent the Nikkei rallying and the YEN into a quick, severe drop. This is what I have warned my readers about for eight years. It is why I always urge caution and wait for headlines to drive markets to levels that provide much lower risk points for investments and trades.
5. SNB Chair Thomas Jordan delivered a speech Tuesday that failed to live up to its headline: “How Money Is Created By the Central Bank and the Banking System.” Jordan had a section in his speech subtitled, “Why the Image of ‘Creating Money Out of Thin Air’ Is Misleading.” While that piqued my interest it revealed nothing. Jordan was debunking that “money out of thin air” cannot be created by commercial banks. OF COURSE NOT that was nothing but a straw man discussion. But Jordan does conclude with the following: “The idea of ‘creating money out of thin air’ is more applicable to banks. Since the demise of the gold standard, central bank money can no longer be exchanged for gold. This means that central banks really are in a position to simply print money, as the expression goes, which enables them to meet their obligations in their own currency anywhere and at anytime.” Mr. Jordan, this is all we have discussed. It is not commercial banks that are the liquidity creators, it is the SNB. So stop criticizing those who have attacked the SNB on solid grounds. I’ll be back next week. Enjoy.