In an inane study of the world’s countries by the U.N. and released on World Happiness Day (what an absurd concept) the land locked nation with its active printing press was heralded as ranking FOURTH while the U.S. fell to 14th. To paraphrase Tolstoy: Happy countries are all alike; every unhappy country is unhappy in its own way. On March 17 Bloomberg ran a story, “Swiss National Bank (SNB) Foreign Reserves Soar, Signaling Interventions.” In February the SNB’s reserves increased by 3.8% to 668.2 billion francs, “the biggest increase since December 2014.”
Posts Tagged ‘Thomas Jordan’
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.”
You don’t have to be a weather man to know which way the wind is blowing, or so says Bob Dylan. As long as all things are emanating out of China it may be the time to dust off the sayings of Mao for as the talking heads are reminding us daily: “The East Wind Is Prevailing Over the West” in all things financial. THE PROBLEM FOR ME IS I DON’T ACCEPT THAT VIEW AND AM IN THE CAMP OF FORMER DALLAS FED PRESIDENT RICHARD FISHER that all roads lead to the FED and certainly the European Union for providing the tinder for a financial prairie fire. There has been so much volatility during the first six trading days of the year it is difficult to get a handle on what is algo-driven non-fundamental and what may be the commencement of a change in previous momentum trades. Today I will go through a list of POTENTIAL SPARKS TO IGNITE THE FLAMES OF A FINANCIAL FIRE so that we can be aware of what constitutes a genuine change in momentum:
This Sunday begins the Jewish Holiday of Rosh Hashanah, which brings on a very solemn 10-day period of deep introspection as God judges the entire world for the coming year. So a very happy, healthy and prosperous year for all readers of Notes From Underground. Following the Monday and Tuesday’s days of reflection we come to the financial market’s judgement day, the Fed’s decision on interest rates. Let’s be as patient in reacting as the FED has been in raising interest rates. Will the FED act to raise rates and disregard all its fears of market turmoil? The FED has a poor history of making firm decisions in the face of creating violent market reactions. The Bernanke Fed failed miserably in an attempt to end QE, cowering in the face of the “taper tantrum.”
Mao, Deng and Xi, oh my! It seems whenever China releases economic data, the U.S. markets and its developed market cousins either go into an orgasmic paroxysm or a spasm of pain. Readers of Notes know that I have criticized the Chinese economic releases as fiction and my rational was simple. If the Politburo would not allow GOOGLE to operate without restraint within China why should I trust any “official data.” Many times I have referred to GDP and PMI figures hitting the predicted market consensus as a greater feat of financial engineering than Jack Welch’s record of beating Wall Street’s forecast’s for GE earnings by a penny every quarter while Jack was CEO.
Today it was the Danish Central Bank that lowered its interest rates in order to prevent the markets from trying to break the Danish KRONER/EURO peg and lowered the overnight rate to NEGATIVE 0.20% from a NEGATIVE 0.005%. It was unusual that the Danish Bank lowered the rate on a Monday rather than the usual Thursday but some analysts of the Nordic banking system believe the Danes may act again this Thursday after the ECB reveals its QE program. NEGATIVE RATES ARE THE NEW NORMAL! Danish banking authorities maintain that the Danes are not under as much stress as the Swiss were because the reserves at the DCB are 13% below the peak of 2012, the height of the EU financial crisis.
We at Notes From Underground have been pondering the global macro landscape and waiting for the inevitable ECB meeting January 22, and, of course, the Greek elections on Sunday, January 25. While waiting for some sensibility from the EU, the SNB abruptly ended its ridiculous intervention policy, which I have been criticizing for the past 12 months. My readers are well aware–as are followers of Rick Santelli–that I have questioned the wisdom of SNB support of the 1.20 EUR/CHF level.
First, as the clouds of sadness begin to lift I want to thank all of those who took time to send a note to the blog and to me in emails for the condolences on the passing of my mentor and friend. In a tribute to one of the great traders, the markets provided volatility reminiscent of a 21 gun salute, or maybe just 21% vol levels and a VIX to go with it.
In the time of “secular stagnation,” the burden of economic policy has fallen on the world’s central bankers. Whatever the question of economic malaise the answer is to print money and stave off the fear of deflation. This is why Ben Bernanke was the captain of the ’37ers, the cadre of central bankers who learned that the mistakes made by the U.S. Secretary of Treasury and the Federal Reserve would not be repeated. As it goes, it is easier to stop inflation then it is to prevent the pains of a deflationary spiral. The central banks of all the developed world economies are in full stop deflation mode. Thus, when in doubt, PRINT.
It is not often that investors are treated to the wisdom of U.S. Treasury Secretary Jack Lew. I am sure that Mr. Lew is a fine man but he is an example of a political appointment serving in a role beyond his pay grade. If I had a question about my 1040-EZ form I would search him out but on global economics and politics I would hope he wouldn’t answer the phone at 3 a.m. In an well-staged leak of his prepared words to be delivered in Brisbane, Australia at the G-20 conclave this weekend, Secretary Lew warns Europe that it risks suffering a lost decade similar to Japan if it fails to undertake fiscal policies to stimulate growth. In a Financial Times article by Robin Harding, Secretary Lew is quoted at the World Affairs Council in Seattle as saying: “Resolute action by national authorities and other European bodies is needed to reduce the risk that the region could fall into a deeper slump. The world cannot afford a European lost decade.” Mr. Lew suggests the usual actions of monetary, fiscal and structural efforts to lift growth or what has become known as Abenomics three arrows.