Tuesday, November 05, 2013Hitchhiker's VUE

Good Tuesday Morning to everyone who happens to stumble by this. 

US

Yesterday there were three Fed Heads lipflapping (Powell, Rosengren and Bullard).  They all announced that they are comfortable with continuing the current level of QE. 

Summary of Bullard:  http://www.cnbc.com/id/101166475

• QE $85 billion per month is reasonable thing to do to substitute for the fact the Federal Reserve cannot lower the interest rates farther.
• We are not meeting our goals of reaching 6.5% in an acceptable time frame. (Note: this would likely mean he and others would like to increase QE.) 
• However, he says that each .1 tick fall in the unemployment rate will increase the likelihood of tapering. 
• Inflation is low, and there is no hurry to reduce QE.  (This is echoed by the ECB at this point, with the ECB likely to cut interest rates as noted below.)
• Here is something really amazing: ""If you look at the size of the balance sheet relative to GDP, who's got the biggest one, Japan, Europe, U.K., U.S.? We're fourth out of those guys," he continued. "If something bad is going to happen ... with the balance sheet, these other central banks should have passed that and already had that experience and they haven't."
• The Government shutdown will not have a significant (or even medium) impact on economic growth.  He believes the bickering between the Executive Branch and the Congress will go on forever. 

The three Fed Heads all seem to agree that QE is required, and that there is room to add a lot more US debt to the Federal Reserve's holdings. (Can you say?  "create money"?) 

Good grief, it is hard to accept from an educated man with huge experience that "everyone else is doing it, so we should".  Does that not sound like a kid that justifies their actions on what their peers are doing?

Also, Mr. Bullock, your comparison to the ECB is somewhat questionable.  If you had looked yesterday, the ECB balance sheet is shrinking; the opposite direction of yours and what you are suggesting. 

Have you ever considered (I'm sure the Fed Heads have) the Federal Reserve just wiping those trillions of dollars in Bonds they are holding off the list?  In other words, just forgive that debt, and that would solve the debt ceiling problem for a long time.

Is that a good idea? What are the unintended consequences of that?  Comment below!!!

It seems to be this is all play money; not worth anything.  When the Chinese (our wonderful friends that the US business spent trillions building factories there and Clinton selling our most powerful missile technology to) decide they will not accept play money, look out below. 

Then Krugman, lets see if you still say "deficits don't matter" and that debt does not matter either.

Canada

There is not much in the news about Canada.  The dollar index is climbing, and Canadian dollar is falling.  The decrease is not fundamental, as it is hard to believe any major country except Japan is in fundamental danger as the USA is.  From the little we can glean (if we look) about Canada is that it is still doing well, but their currency does not do as well when Oil declines in value.

Oil is down across the world, and it is down substantially from the highs in August when it was $112 per barrel on West Texas Crude.  It is now testing 93.50, and that is a major drop.

If I could show you a chart in the blog (and I have to figure that out if you are to learn from me about currency), you would see that The Loonie's trend direction is in lock step with Oil.  (Not daily, but in the over all trend.) 

While that is interesting, it informs one that Canada is a resource rich country, and Oil is one of the major resources it depends on for International Trade. 

For relationships, however, look to the US dollar.  For the most part there is an inverse relationship of Loonie to US dollar.  US goes up, Canada goes down...  That is really only because of FOREX pricing which is mostly accomplished (irrespective of what you are told) via of the big banks (not central banks per se).  Canada (nearly always) follows inversely several days after the US dollar moves in a trend (when the dollar moves in a trend and is not choppy).

The Question for Investors:  Will Canada be satisfied with their currency value, or will they try to stimulate exports?  How would they stimulate exports?  By lowering the value of their currency in the global market, making their exports less expensive. 

Of course, the downside of that is that every single country except Sweden and Norway are doing the same -  driving the currency down to make exports less expensive.  Well only time will tell what the CCB (Canadian Central Bank) will do. 

Eurozone

Today the Euro is being thrashed.  In general, investors do not want to see the ECB (European Central Bank) stimulate anymore. 

What has gotten the market all in a tizzy (with a fall over into the Western Stock markets), is the announcement of the inflation rate.  The investors have decided (like a bunch of starlings that will change direction in the next two minutes) that a rate cut is in the offering . 

I mentioned that may happen yesterday.  Someone is reading my blog.  Haaa!

Australia:

Last night the RBA (Reserve Bank of Australia) kept rates unchanged. 

However, RBA Gov. Stevens then went on to disk the Aussie dollar (A$).  He said "the currency is uncomfortably high".  In turn, investors (like a bunch of starlings) trashed the A$. 

Good grief, he did not cut rates.  He did not indicate he was going to cut rates.  As my readers know, this is the way the central banks attempt to control the value of their currency.  Through lip flapping and the dirty float they think they can control the value.  As long as they all play the game in a similar way, they are right.  Just let one of the major central banks decided to change the game, and watch out.

Ah, we know.  Free markets are just not going to be allowed in the Western World, even if Aussies are not in the West; they is us.

China

China trade data is heavy this week.  However, be aware, the Chinese Central Bank is intervening every day in the price of the Renminbi.

What will be closely watched by Western Investors this week is the iron ore imports.  The report is expected to be positive, and that would be good for the Communist Party as they begin their celebration this week. 

Everyone in China (especially business people that are not Communists) are looking to what Xi (Chinese leader) is going to announce for economic reforms.  The big headlines are liberalizing interest rates, opening up trade in Renminbi, and let the Renminbi partially float in the Forex market.  These would be accomplished over the next three years. 

Reader: this is good news for the world economy if in fact China announces these things.  It is neutral news for the USA, as a good world economy helps the US, but on the other ledger, prices in China will rise and so will all the exports prices rise into the US.  The trade deficit will likely go in the opposite direction that Timmy Geithner wanted (and that mantra has been taken up by Lew - Secretary of Treasury).  

That is it for today.  I wish I could figure out the editor better, as the fonts go all over the place.  I'm getting better about it I think.  Ha...