In what was a very slow new weekend the most significant story is that Spanish PM Rajoy’s political party held on to power in the PM’s home state of Galicia. This was considered to be an important test for Rajoy for if his support in his traditional support base had turned against him, there would be no chance that the PM would have proceeded down the road of further austerity. Now Señor Rajoy may be emboldened to surrender to the demands of German-imposed CONDITIONALITY so as to receive the proposed bailout from the ESM. This should be short-term bullish for the EURO as it will remove one of the obstacles that was blocking a massive dose of liquidity into the Spanish financial system. The trade-off game of financial support for enacting more austerity should help the markets as near-term fears of a Spanish collapse should be postponed.
Posts Tagged ‘CNOOC’
Notes From Underground: Rajoy’s Party Retains Power in Galicia
October 21, 2012Notes From Underground: Schaeuble Proves Why 2+2=5
July 25, 2012In the realm of loving and promoting the irrational over the rational expectations of the MODEL BUILDERS, there is no better poster child than German Finance Minister Wolfgang Schaeuble. As I warned Mario Draghi to unpack his speedo, today BLOOMBERG NEWS ran an article, “SCHAEUBLE DECLARES MARKETS WRONG AS EUROPE COASTS INTO VACATION.” This is the German finance minister who has the audacity to proclaim that the markets are wrong and head off for vacation. It seems that the German hierarchy is convinced that all is well because the BUND market is healthy. Is Schaeuble so naive as to think that strong BUNDS reflect the health of Europe? Don’t German policymakers understand that the BUNDS and SCHATZ are at absurdly low levels because many other Europeans are “packing their suitcases” with EUROS so as to transfer their wealth to the perceived safety of the German financial system and thus for its haven status? It is astounding that the EUROCRATS believe that the markets will wait for the decision makers to return before any further market action will take place.
Notes From Underground: January was the cruelest month for the DOLLAR bulls
January 31, 2011The weather outside was frightful, but it was nothing compared to the frostbite that all the DOLLAR bulls were subjected to as analyst after analyst laid out their bullish DOLLAR scenario. U.S. assets are very attractive so the foreign buyers are going to be pouring money into the U.S equity markets and all sorts of other investment venues. Today was a perfect example as CNOOC announced it was taking a small stake in Chesapeake Energy projects in Colorado and Wyoming. Foreign companies are searching for U.S. assets as are the sovereign wealth funds, but the inflow of cash into what could be perceived to be strategic assets is much smaller than it ought to be because of the fear of CFIUS.
Money that would be coming to the U.S. economy is fearful that many possible deals will be blocked under the guise of national interest as we saw in 2005 with the CNOOC -UNOCAL deal and then again with Huawei-Palm. Dollar bulls have not gotten the burst that they have hoped for because of “regulatory” interference. It seems to have gone unnoticed but the President’s SOTU address made no mention of reining in the CFIUS group and its nefarious effect on the use of foreign capital to aid U.S. competitiveness. It will be interesting to see if the oversight committee that is under the authority of the TREASURY DEPARTMENT moves to block CNOOC‘s small stake in Chesapeake’s energy projects.
If Treasury continues to block certain foreign acquisitions, lobal investments will find other opportunities in more welcoming environments. DOLLAR bulls need all the help they can get for it is hard to be bullish while the FED is actively maintaining QE2. Every fundamental bit of positive news in the U.S. still has to overcome a historically steep curve and its implications.
Tonight we will hear from the RESERVE BANK of AUSTRALIA on its interest rate decision. The consensus is for no change in rates, leaving it at 4.75 percent. As always, the Bank’s statement will be an interesting read as Governor Stevens provides the markets with his view on the global economy. Also, we will wait to see if the bank discusses the economic impact of the flooding in Australia and hopefully removes some of the present uncertainty that is overhanging the market.
One of the most interesting moves today was the strong rally in the BRITISH POUND. Readers of NOTES FROM UNDERGROUND know that I don’t believe in fighting market action. After reading Mervyn King’s speech again today, I find it difficult to see how the market thinks the BOE is going to raise rates. I’m struggling to ascertain if POUND strength is indicative of overall DOLLAR weakness as the market is searching for all alternatives. If the previous weakness in the POUND is correcting due to rising exports? Or, is the market providing us with a selling opportunity as it tests some level of resistance? I’m not a technician so I advise for all those as skeptical of the POUND to do your work and find the trade that provides the lowest level of risk. If the POUND is rallying on the back of expected rate increases, I must have read a different Mervyn King speech, for I fail to see the possibility of a rate rise in the near term. And, the fact that the 10-YEAR GILT is near its recent lows just does not provide a bullish backdrop for the POUND.
The U.S. 10-YEAR NOTE has added 70 basis points since Jackson Hole and yet the DOLLAR is 7 percent to 8 percent lower, the argument of a rise in long rates supporting a currency doesn’t hold. Again, let the market be your guide and be prepared in your work.