Global Market Commentary, Analysis and Investments
Big news out of the gate today is that the central banks of the world are about to do more. More what, you ask? More of what central banks do best, of course…more money printing!
They don’t call it that, obviously. They call it “swapping” or “easing” or “recapitalizing” or “saving us from the abyss.” Or they call it “bolstering financial markets,” as The New York Times breathlessly explains…
[Read more...]The dollar continued on its decline through most of the trading day yesterday, but fell off a cliff in very early European trading. A coordinated central bank action to lower swap rates was the reason for the dramatic moves in the currencies this morning. The FED, ECB, BOJ, SNB, BOC, and BOE all agreed to cut the cost of providing dollar funding via swap arrangements. They also agreed to make other currencies available as needed, but the primary function of these swap arrangements was to push more dollar liquidity into the markets. Swap agreements give the banks US dollars today for euros or other currency payments at some future date. It effectively pumps fresh US dollars into the markets which will be pulled back out at some point in the future. The move was seen as necessary in order to prop up the European banks which have been hard hit by the euro financial crisis. The additional liquidity was welcomed by the markets, with the European stock markets and early US markets up nicely.
[Read more...]Last week produced nothing but more disappointment. At the center of it was the Europeans’ inability to make their debt disappear. They had hoped that they could just announce a plan to take care of it…and that would be enough.
But then, the Greeks said they wanted to vote on it…and then, they didn’t. ‘Papandenomium,’ the papers called it. If the voters were allowed to give their opinions everybody knew what would happen; the whole fix would be unfixed quix. So, they all got together and twisted Papandreou’s arms…and his arms gave way.
[Read more...]A milestone on the road to economic ruin was reached last week. Total Foreign Exchange Reserves topped $10 trillion. That means central banks have created the equivalent of $10 trillion of fiat money that they have used to buy the currencies of other countries.
That figure does not include the money central banks have created and used to buy assets denominated in their own currencies, such as the $2 trillion the Fed created during the first two rounds of Quantitative Easing.
[Read more...]“Bernanke comments keep equities in check,” says a headline in The Financial Times.
Sure enough. The Dow ended down again – 21 points down. It’s been going down for five weeks. But it’s still above 12,000. So there’s nothing to be alarmed about.
What did Ben Bernanke say? Not much really. He allowed as to how the economy was not as strong as he had hoped. But he said things were getting better. And he didn’t mention QE3.
[Read more...]For twelve years the US trade deficit financed the US budget deficit and held down US interest rates. From 1996 to 2008, the US trade deficit exceeded the government’s budget deficit every year. The dollars sent abroad to pay for the trade deficit were accumulated by the central banks of the trade surplus countries, who then reinvested them in US government bonds. As discussed in earlier posts, those central banks bought up the dollars entering their economies in order to hold down the value of their currencies and so perpetuate their countries’ low-wage trade advantage and their export-led economic growth.
[Read more...]The currency markets did an abrupt shift on Friday, as the dollar turned negative for the first time in a week, giving back most of the gains it had slowly accumulated since last Monday.
But the dominant story in the markets remained the Japanese earthquake and tsunami. My thoughts and prayers certainly go out to the people of Japan. The pictures of the wall of water and debris rolling across the landscape is shocking. And the destruction may not be over, as a couple of nuclear plants are still not under control. As I wrote Friday, the disaster has boosted the Japanese yen (JPY) to trade near its record high. The highest I have seen the yen trade was back in April of ’95 when I worked at Mark Twain Bank and saw the yen trade at 79.75 per dollar. Interestingly, this followed the 6.9 magnitude earthquake that rocked Kobe, Japan in 1995. I heard a couple of reporters using the Kobe earthquake as a basis to predict a sharp appreciation of the yen in the coming months; and I can see why they would make the comparison. The Japanese yen shot up over 20% in 1995 during the three months following the Kobe earthquake, and Friday we saw the yen move up about 1.25% versus the US dollar.
[Read more...]If Treasury bond yields do not currently provide investors with fair, market-determined compensation for the growing risks of inflation and dollar devaluation, what are investors to do? There are several potential options.
First, investors can hold cash instead of bonds. But if price inflation begins to pick up–at present it shows every sign of doing do–sitting in cash for a long period of time begins to look rather unattractive. Moreover, cash does not protect investors from the risk of a weaker dollar which, with an uncertain magnitude and time lag, is going to push up inflation and erode purchasing power.
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Anticipating a Correction in the Global Monetary System
Whoa! The Dow rose almost 500 points yesterday. Whoopee! Hallelujah!
It was like the Second Coming on Wall Street. As if He walked across the East River…and announced it Himself:
“The fix is in.”
But it was not the sacred that spoke yesterday. It was the profane. The world’s central banks, to be precise. They got together. More like a meeting of mobsters than a gathering of the gods. They made it clear.
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