… a supporter of Treasury Secretary Steve Mnuchin. In my opinion, he’s another Wall Street hack devoid of any genuine knowledge of the global macro world in which he his sent to do battle on a daily basis. Last week’s decision to label Vietnam and Switzerland as “currency manipulators” is badly timed, badly chosen and badly misinformed. Why would you name Vietnam a currency manipulator when a large part of the Trump administration’s policy is directed toward relocating global supply chains away from China. In addition, labelling Vietnam a “currency manipulator “is an immoral and unconscionable act. Even Bob McNamara is spinning on his “rotisserie in hell.”
The U.S. ought to look away in what would be a silent Marshall Plan and Bretton Woods outcome to aid the Vietnamese for all the pain and suffering delivered by the Americans in an effort to save it from Communism. The U.S. has yet to recover from the damage wrought by the Harvard Brain Trust in its supreme arrogance. It is time to carpet bomb Vietnam with kindness and support a weak currency, which would help Vietnam finally throw off the yoke of subservience to another repressor: China. The Mnuchin Treasury reveals itself to be more inept and self-serving as it should be running out the clock instead of disrupting a needed ally.
In a further effort to stand for SOMETHING, Mnuchin’s Treasury succeeded in naming Switzerland a “currency manipulator.” (It’s about time.) The Swiss National Bank has been brazenly intervening to weaken its currency, or KEEP IT FROM APPRECIATING. It has been such a successful effort on the part of the SNB so much so that we at NOTES FROM UNDERGROUND has presented the Swiss with the Alchemist Award. That’s because the central bank has PRINTED HUNDREDS OF BILLIONS SWISS FRANCS and exchanged them for a basket of global equities–3500 various stocks all over the world–in an effort to keep a ceiling on the CHF, especially versus the EURO.
It has worked as the price of the currency pair has averaged average price of 111.37 over the last 200 months and is currently trading at 1.0826. The SNB has acquired massive amounts of APPLE and other high quality stocks with the sole use of its printing press while watching its currency appreciate slowly versus the DOLLAR and other currencies.
The U.S. Treasury named the Swiss a MANIPULATOR on December 16. And it just so happened that the SNB happened to have a meeting the following morning. The Swiss response was terse: “The SNB is keeping the SNB policy rate and interest on sight deposits at the SNB at -0.75%. In light of the highly valued Swiss franc, the SNB remains willing to intervene more strongly in the foreign exchange market.”
The SNB is concerned about an overly desirable Swissie having a continued deflationary effect on the Swiss economy. This is the same RATIONALE used by all central banks as they keep interest rates lower for longer. The FED is “guilty” of using the same rationale to embark on a continued its ZIRP in an effort to meet its inflation target. Could the Treasury be more DISINGENUOUS? The only concern for markets is that this use of the LABEL will keep continued downward pressure on the DOLLAR as there are some central banks that fear being so labelled with all the negative effects, possible financial repercussions.
This sums up the negative aspects that fiat currencies find themselves. Bitcoin and precious metals, anyone?
Tags: currency manipulator, Euro, Swiss Franc, Switzerland, U.S. Dollar, U.S. Treasury, Vietnam
December 22, 2020 at 2:00 am |
IMHO it’s the pot calling the kettle black. Likely even more so after the Queen of market manipulation, Mother Yellen, takes over the US Treasury.
Not all fiats are the same, which has created other, less volatile investment opportunities than PM and BTC. As one of the few countries currently not wishing to debase its currency is China. Some other small countries in EM feel the same if you listen to their head of state or central bank publicly acknowledge the undesirable inflationary impact on their people that currency debasement causes. Because they and the Chinese communists (who aren’t actually “communist” anymore except in name) deeply understand from history that currency debasement a la the US Fed-Treasury today is the seed of revolution and/or civil war.
Whatever else its rationale, China has clearly implemented “a change in renminbi policy” as China “blasts its own policy path” with positive real interest rates and a non-expansionary current, in stark contrast to the West’s embrace of MMT this year, as described at length by the always-brilliant macro researcher Louis Gave of Seattle-based Evergreen Gavekal (points #3, #4):
https://blog.evergreengavekal.com/the-10-important-changes-of-the-past-year/?pdf=11127
Thus in 2020, Chinese gov’t bonds are the only sovereign paper from a major country to offer positive real interest rates while CNY has enjoyed double-digit percent appreciation against the greenback since the March madness. Issued by the only major country to have real growth for the year 2020. There continues to exist similar opportunities in some other local currency EM bonds issued by the relatively stronger EM countries. Additionally, given the backdrop described above, the carry trade is back and has done well and should continue to perform positively as long this macro-environment persists.
December 22, 2020 at 9:09 am |
Dave–beautiful addition and especially from our window in Asia–even the JGBS offer a better investment relative to everything you point out.
December 22, 2020 at 9:36 am
Yes, that’s another actionable investment idea. Re Japan – also reference “Japan’s Quiet Bull Market” beginning on page 17 in the PDF that I linked in my last post above.
December 22, 2020 at 9:40 am
Dave–thanks and the podcast done with Louis back in May proved to be one of the best and enjoyed the back and forth with him
January 5, 2021 at 3:12 am
Yra, yes I agree that your podcast with Louis Gave in May was one of the best. And I think so was your podcast with Marc Faber in October, who is always interesting but infrequently speaks. The discussions about history were as interesting as they were valuable. https://yragharris.com/2020/10/13/wow/ Wow, a fantastic one, thanks!
December 23, 2020 at 4:35 am |
David, thanks for the link! It was very informative. I now understand why Taiwan is so important.
With my last stimulus check I bought silver, :I’m thinking now of buying Yuan with this next one.
“Mongo only pawn in game of life”.
January 5, 2021 at 3:09 am
Pierre, then I think you will also find Louis Gave’s latest interview very interesting, published in a Swiss journal, which further discusses Taiwan, USD, bonds, tech, EM, covid and more: https://themarket.ch/interview/louis-gave-inflation-will-come-back-with-a-vengeance-ld.3307
December 22, 2020 at 8:00 am |
[…] LINK HERE to the Blog Post […]
December 24, 2020 at 4:30 am |
Hello, its clear that the FED would not accept that its carrying out currency manipulation, but my question is why was the CHF one of the strongest currency this year, JPY and USD have been weak most of the time but CHF has been ripper strong even with the foreign exchange intervention program.
December 27, 2020 at 2:18 pm |
cmatrix—-you raise the penultimate point and something I have written about several times over the last two years.How can the FRANC remain so strong?If I was going to write a doctoral dissertation now this would be my preferred topic.The SWISS keep “manufacturing” currency and then convert it to hard paper assets such as Apple.The fact that unlike many other central banks which prefer to buy their own sovereign debt although the BOJ does buy Japanese equity the Swiss are acquiring assets—it seems investors in Swiss Francs believe they are buying the greatest hedge fund ever—-presently it appears that those investors are correct—-the .8803 weekly close in the Dollar/Chf looms so large going back to the third /fourth week of January ,2015–this will be discussed more but it is a critical element in the world of global macro finance
December 31, 2020 at 8:55 am |
They look comical to me but I’m curious, has anyone actually taken either Mnuchen OR Kudlow seriously?
January 2, 2021 at 6:43 pm |
What would the price of gold have to be for it to be economically feasible to mine gold below ocean? Does anyone know those economics?