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Post by jeffolie on Feb 7, 2013 11:48:40 GMT -6
" ... “This is setting up to be an epic battle, with plenty of spoils for the victors and catastrophic losses for the vanquished,” he said. “Investors must pick sides early.” Japan has created a giant jump for their stock market with its intended 'wealth effect' by its currency war action: NIKKEI 225 Index 11,652.29 52 week high 11,768 www.marketwatch.com/investing/index/100000018?countryCode=JP===================================== Currency Wars Return, 1930s Style: Who Will Lose Out? 7 Feb 2013 As countries try to weaken their currencies to boost exports, the risk of a currency war similar to events seen in the 1930s has heightened and policymakers are making sure they are on the winning side, according to Morgan Stanley. The balance of power now rests with Japan, according to the bank, as Japan's policy-makers' more dovish approach looks set to bring the world a step closer to a currency war. The Bank of Japan doubled its inflation target to 2 percent in January and made an open-ended commitment to continue buying assets from next year. This follows a leadership change, with new Prime Minister Shinzo Abe openly calling for aggressive monetary stimulus from the country's central bank. (Read More: Land of the Falling Yen: Japan Cheers Sliding Currency) This move, Morgan Stanley said, is a "game changer" as Japan tries to invigorate its stagnating economy . "If a weaker yen is an important pillar of the strategy to make this export-oriented economy more competitive again, it brings into the picture something that was missing from earlier interactions among central banks of the advanced economies – competitive depreciation," it said in a research note. "This, in turn, takes us one step closer to a currency war." Manoj Pradhan, an economist at the bank details the 1930s war and highlights the lessons that we can learn from the past. The U.K. was the first to leave the gold standard on September 19, 1931 due to painfully high unemployment. Sterling depreciated, setting off a volatile chain of events with the U.S., Norway, Sweden, France and Germany all following suit.
Those countries that moved early benefited at the expense of others on the gold bloc, a "beggar-thy-neighbor" outcome, according to Pradhan.
"Similarly, it is the domestic agenda that could drive competitive depreciation today," he said.
"Since global demand is likely to remain sluggish, a revival of Japan's export sector on the back of yen weakness is likely to eat into the market share of other exporters – something that could well invite measures to curb significant weakening of the yen."(Read More: What Could Really Spark a Currency War) In a detailed scenario of what could follow, Pradhan highlights that the European Central Bank and the Federal Reserve would ease further, using quantitative easing to dampen euro strength and debt ceiling fears. Capital controls could be brought in by Latin American and other Asian economies, he said, which could be transaction taxes or even some sort of verbal interaction. "In the particularly interesting cases of Korea and Taiwan, our economist Sharon Lam believes that verbal intervention (already under way to some extent), intervention in the foreign exchange markets and capital controls represent the most likely policy reactions," he said, adding that the emerging markets of Colombia, Mexico, Peru and Chile have even u-turned towards a more dovish stance. (Read More: Why Currency Wars Might Be Coming) "While a currency war is not our base case, the new-found commitment of Japan's policy-makers does raise the risk of retaliatory action to keep the yen weak," he said. "The experience of the 1930s suggests to us that such large currency crises are likely triggered by domestic issues, and that they do create distinct winners and losers. EM (emerging market) policy-makers are already gearing up to make sure they remain on the winning side, but the balance of power for now rests with Japan." www.cnbc.com/id/100441340
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Post by jeffolie on Feb 7, 2013 11:52:27 GMT -6
Draghi Signals Euro Strength May Hurt ECB’s Recovery Efforts Feb 7, 2013 European Central Bank President Mario Draghi signaled policy makers are concerned that the euro’s strength will hamper their efforts to pull the economy out of recession. Feb. 7 (Bloomberg) -- European Central Bank President Mario Draghi speaks at a news conference in Frankfurt about the bank's decision to keep the benchmark interest rate unchanged at a record low of 0.75 percent. (This is Draghi's opening statement only. Source: Bloomberg/European Central Bank) “The exchange rate is not a policy target, but it is important for growth and price stability,” Draghi said at a press conference in Frankfurt today after the ECB kept its benchmark rate at a record low of 0.75 percent. “We want to see if the appreciation is sustained, and if it alters our assessment of the risks to price stability.” The comments pushed the currency down more than a cent against the dollar. While latest data show the 17-nation euro economy is starting to stabilize after the sovereign debt crisis drove it into recession last year, the euro’s gains could stymie a recovery before it has begun by curbing exports and pushing inflation too low. Draghi noted that the ECB will publish new economic projections next month and stressed that officials will “maintain our accommodative monetary stance.” “ This was a verbal intervention,” said Joerg Kraemer, chief economist at Commerzbank AG in Frankfurt. “Draghi reinforced multiple times that the ECB will keep up its accommodative policy stance and he indirectly suggested that the ECB may revise its inflation projections downward next month.” Euro Drops The euro fell as Draghi spoke, dropping to $1.3393 at 4:43 p.m. in Frankfurt. It reached a 14-month high of $1.3711 this month and a three-year high against the yen. “The market is reading the comments as generally downbeat,” said Adam Cole, head of global foreign-exchange strategy at Royal Bank of Canada in London. “That and the comments about the risks to inflation have pushed the euro down.” The ECB, which aims to keep inflation just below 2 percent, currently forecasts the rate of annual consumer-price gains will drop to 1.4 percent next year from 1.6 percent this year. A stronger euro damps prices on imported goods. Draghi said economic weakness will prevail only “in the early part” of this year and “later in 2013, economic activity should gradually recover, supported by our accommodative policy stance.” Still, risks to the economic outlook remain on the downside, he said. Rate Outlook “Draghi subtly talked down expectations of higher interest rates and the euro,” said Nick Kounis, head of macro research at ABN Amro in Amsterdam. Indeed, “euro strength, if sustained, could eventually trigger a rate cut,” he said. The euro has climbed 11 percent on a trade-weighted basis since Draghi pledged on July 26 to do whatever is needed to preserve Europe’s monetary union, a comment that eased the turmoil raging through the region’s bond markets. Fueling the euro’s rally, banks have started paying back the ECB’s emergency three-year loans early, shrinking its balance sheet just as the Federal Reserve and Bank of Japan expanded theirs. That’s prompted talk of a “ currency war” between central banks trying to boost growth through lower exchange rates. Draghi dismissed that speculation and said the euro’s value broadly reflects economic fundamentals. Still, he said if monetary policies produced “consequences on the exchange rate that do not reflect the G-20 consensus, we will have to discuss this.” G-20 Meeting Central bankers and finance ministers from the Group of 20 nations convene in Moscow next week. “The euro is a little bit too strong,” Bernard Charles, chief executive officer at the French software maker Dassault Systemes SA, said in an interview with Bloomberg Television today. This will “have an effect this year” on the economy and its “capacity to export,” he said. The Bank of England kept its target for bond purchases at 375 billion pounds ($589 billion) today and left the key rate at a record low of 0.5 percent. “Draghi’s biggest challenge was to show his magic skills of verbal intervention and to talk down the euro exchange rate,” said Carsten Brzeski, an economist at ING Group in Brussels. “He succeeded. Adding the stronger euro to the downside risks for price stability opened the door for new policy action if the euro strengthens further and starts to weigh on the growth and inflation projections.” www.bloomberg.com/news/2013-02-07/draghi-says-low-rates-should-fuel-economic-recovery-this-year.html
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Post by jeffolie on Feb 7, 2013 12:21:49 GMT -6
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Post by jeffolie on Feb 8, 2013 15:00:10 GMT -6
(MarketWatch) -- Venezuela devalued its currency, the bolivar, the country's Finance Minister Jorge Giordani said Friday. President Hugo Chavez ordered the move from Cuba, the minister said. Venezuela pegged the official bolivar/dollar rate to 6.3 bolivars per U.S. dollar, from 4.3 bolivars per U.S. dollar, according to media reports. Venezuela relies on imports such as crude oil to keep its economy afloat, and the devaluation will help the South American country to balance its books. Chavez is in Cuba recovering from a fourth surgery to treat an unspecified cancer www.marketwatch.com/story/venezuela-devalues-its-currency-2013-02-08-1791934?link=MW_home_latest_news=================================== www.zerohedge.com/sites/default/files/images/user5/imageroot/2013/01/20130208_VEF.jpgVenezuela Launches First Nuke In Currency Wars, Devalues Currency By 46%02/08/2013 While the rest of the developed world is scrambling here and there, politely prodding its central bankers to destroy their relative currencies, all the while naming said devaluation assorted names, "quantitative easing" being the most popular, here comes Venezuela and shows the banana republics of the developed world what lobbing a nuclear bomb into a currency war knife fight looks like: •VENEZUELA DEVALUES •VENEZUELA DEVALUES FROM 4.30 TO 6.30 BOLIVARS •VENEZUELA NEW CURRENCY BODY TO MANAGE DOLLAR INFLOWS •CARACAS CONSUMER PRICES ROSE 3.3% IN JAN. And that, ladies and gents of Caracas, is how you just lost 46% of your purchasing power, unless of course your fiat was in gold and silver, which just jumped by about 46%. And, in case there is confusion, this is in process, and coming soon to every "developed world" banana republic near you. and just as we (and Kyle Bass) have warned - this is what happens to the nominal price of a stock market as currency wars escalate... how do those US investors who flooded Venezuela with cash feel now? bringing back those VEF gains is going to hurt... www.zerohedge.com/sites/default/files/images/user3303/imageroot/2013/02/20130208_VEF1.jpgThe chart above is a free lesson in nominal vs real: the hardest lesson for some 99.9% of the world's population to grasp. www.zerohedge.com/news/2013-02-08/venezuela-devalues-its-currency-32
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Post by jeffolie on Feb 10, 2013 12:04:00 GMT -6
Metals are leveraged, held by hedge funds, subject to massive derivatives.
The result of the investment vehicles for metals includes selling these when the investors lose money inorder to raise cash. If the usual bullish bias persists, then metals will decline in the upcoming major stock market decline.
The saving grace will be if the Dollar crisis develops as many expect and remains my jeffolie view for starting in 2015. If the Dollar crisis develops, then safe haven seekers will bid up metals in terms of metals.
A Dollar crisis can be from non inflationary start, origin. Most likely, the origin will be a lack of confidence from debts, deficits rather than wage push inflation. This lack of confidence would resemble the failure of the economy from external failing demand in the EU and its primary supplier which is China. After the crisis starts, inflation would be from a devaluing currency among sellers to America such as Japan, China, Mexico, Canada, the EU, etc.
Competitive Devaluations often become complex situation. Capital Controls, wage & price freezes, selective trade moratoriums banning sales of selective items/commodities all have been tools historical and now in use. For examples of these in current use please review the current economic actions in Venezuela, Argentina, etc. The IMF in the last 6 months changed to allow for Capital Controls.
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Post by jeffolie on Feb 10, 2013 13:38:47 GMT -6
As Egypt Runs Out Of Dollars, Is It Next On The Devaluation Bandwagon? 02/10/2013 Late on Friday Venezuela shocked the world when instead of reporting an update on the ailing health of its leader, as many expected it would, it announced the official devaluation of its currency, the Bolivar by nearly 50% against the dollar yet still well below the unofficial black market exchange rate. By doing so, it may have set off a chain reaction among the secondary sovereigns in the world, those who have so far stayed away from the "big boys" currency wars, or those waged by the Big 6 "developed world" central banks, in an attempt to also "devalue their way to prosperity" and boost their economies by encouraging exports even as the local population sees a major drop in its purchasing power and living standards. So in the game, where the last player to crush their currency inevitably loses, the question is who is next. The answer may well be America's latest best north African friend, and custodian of the Suez Canal: Egypt. As Reuters reports, in the ongoing underreported counterrevolution against the Muslim Brotherhood's US-backed regime, the local population is increasingly scrambling to preserve their local-denominated paper wealth by converting it into the same currency that Bernanke is hell bent to crush some by some $85 billion per month. Problem is - Egypt is out of dollars. A run on Egypt's pound has left foreign currency in short supply and driven some dealers into the streets in search of people with U.S. dollars to sell, spawning a new black market. The currency's decline was triggered by a political uprising that swept Hosni Mubarak from power in 2011 and it has officially lost 8 percent of its value since Dec. 30. Black market rates are even weaker, a sign that although the central bank managed to stem the slide in official trade last week, Egyptians are nervous about holding on to pounds. "There are no dollars. Everyone that walks in asks for dollars but supply is scarce," said one of the dealers. The central bank took steps last week to manage the rate including narrowing the pound's trading band. It was last bid at 6.71 to the dollar on Sunday in interbank trade. That is 13.4 percent weaker than its level on the eve of the uprising that led to Mubarak's downfall, pitching Egypt into two years of turmoil that has scared off tourists and investors. It is the fear that the weakness in the EGP will only get much worse, that has citizens rushing to hit any USD bids, even if it means black market rates that are drastically higher than the official exchange rate: "On Cairo's streets, one dealer offered to sell dollars at a rate of 6.95 on Thursday - 3.5 percent weaker than the official price. Another asked for 6.89 pounds to the dollar." Yet where it may get much worse, is that the nation itself may soon run out of dollars. As we reported last week, Egypt's foreign currency reserves have plunged to just $13.6 billion, some 60% less than the $36 billion held at the bank on the eve of the uprising against Mubarak, and below the $15 billion required to cover three months imports. And while the government itself is at risk of having its foreign trade ground to a halt, the bigger risk is that very soon Egypt will have no choice but to follow in Argentina's footsteps and order a price freeze, or else risk a run on the supermarket: One senior executive at an Egyptian company that imports goods from abroad said companies were able to source their dollar needs from the black market, but forecast that supply would tighten further in the coming weeks. "Corporates are not having problems arranging for U.S. dollars from the open market. However, there is a spread that ranges between 16 to 20 piasters between the bank rates and the open market," he said. Speaking on condition of anonymity because he was discussing an illegal market, he forecast that dollar supply would dry up further because of factors such as political uncertainty. "What will happen? Most probably you will start seeing products disappearing from supermarket shelves," he said. "The challenges that we are facing now are nothing compared to what we could be heading to." He could well be speaking about the entire developed world. And sadly, there is no simple resolution, because while the Egyptian government may promptly devalue the EGP overnight by some 20%, 40% or more, as Chavez just did, it will merely accelerate the scramble to procure hard assets (in lieu of a hard currency), and further destabilize an economy already on the bring of a second civil war. And the worst news is that should Egypt indeed devalue just as Venezuela did, it is assured that everyone else in the "less than developed" world category will suddenly scramble to be the next just so they are not the last. What happens then is anyone's guess. www.zerohedge.com/news/2013-02-10/egypt-runs-out-dollars-it-next-devaluation-bandwagon
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Post by jeffolie on Feb 10, 2013 17:23:24 GMT -6
Strong Dollar warning:" ... As the U.S. economy recovers, a strengthening dollar might cause the next financial crisis, warns Singapore-based economist Andy Xie. If America's economy surprises to the upside, then the Dollar would become stronger. my jeffolie view: that will NOT happen I predict into the seasonality period for March through the end of May when assets, interest rates, the euro should go the other way from the Dollar ... they will gain as the Dollar weakens during the seasonality ... a politic event late in 2013 will reverse this as overseas investors seek the Dollar as a safe haven ... competitive devaluations are political policy decisions as are moves to put currency into the hands of consumers creating inflation========================================== Andy Xie: Strong Dollar Could Cause Next Global Financial Crisis 08 Feb 2013 As the U.S. economy recovers, a strengthening dollar might cause the next financial crisis, warns Singapore-based economist Andy Xie. “The first dollar bull market in the 1980s triggered the Latin American debt crisis, the second the Asian Financial Crisis. Neither was a coincidence,” Xie writes for Caixin Online, a website specializing in China’s financial and business news. When the dollar is in a bear market, liquidity flows into emerging markets, causing their currencies and asset prices to appreciate, which supports domestic demand. “When the dollar changes direction, so does liquidity,” according to Xie, a former Morgan Stanley economist who predicted the economic bubbles like the 1997 Asian financial crisis and dot-com bubble. “The virtuous cycle on the way up becomes a vicious one on the way down. The emerging economies already suffer inflation. The liquidity outflow leads to currency depreciation, which worsens inflation.” When the dollar’s value falls, dollar debt tends to rise in emerging markets, as the weak dollar lowers debt service and encourages overborrowing. But when the dollar reverses course and strengthens, the debt burden becomes unsustainable. “Hence, no lenders want to roll over the loans anymore,” Xie explains. “A liquidity crisis ensues. This is what occurred in Latin America in the 1980s and Southeast Asia in the 1990s.” The BRIC countries (Brazil, Russia, India and China) are bubbles ready to pop, he warns. “Whenever there is a hot concept like BRIC, there is a bubble. There has never been an exception,” Xie writes. “The BRIC countries exhibit all the symptoms of binging on cheap credit: high levels of indebtedness, inflation and strong currencies.” The BRIC countries have seen inflows of foreign capital dissipate, and they are much like Southeast Asian countries just before the 1996 crisis. A wrong policy move could prompt a “full-blown financial crisis.” The right move for the BRICs is to raise interest rates to tighten money supply now. But don’t count on that. They seem more interested in sustaining short-term growth, Xie says. “Some emerging market turbulence is quite likely within the next 24 months.” Emerging markets like the BRICs, fueled by hot money from abroad, are bubbles waiting to collapse, agrees Jesse Colombo, an independent analyst and trader. “Global investors, seeking to diversify away from the post-bubble heavily-indebted Western world, have inadvertently created a massive ‘hot-money’ bubble in emerging market nations, causing overheated economies and property bubbles everywhere from Brazil to Israel to the Philippines,” he writes in an article for Seeking Alpha. www.moneynews.com/Economy/Andy-Xie-strong-dollar-crisis/2013/02/08/id/489498?s=al&promo_code=125FC-1
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Post by jeffolie on Feb 10, 2013 17:51:35 GMT -6
brucekrasting.com/wp-content/uploads/2013/02/eurjpy.pngRate of Change Say you’re a Doc, working out of NYU Hospital on 1st and 34th, and on October 29 you park your car in the lot next door. Sandy rolls in, and the next morning your car is 20 feet underwater. You’ve got insurance, so a week later, check in hand, you look at new cars and narrow it down to two. A decked out Lexus LS460 and very nice Audi A8. The walk out price on both cars comes to 8o grand. Which one do you choose? That was just three months ago. At that time the relative value of these cars was equal. If you assume that 80% of the cost of the car was the imported value, then you were “paying” 50,394 Euros for the Audi and 5,12o,000 Yen for the Lexus. At the exchange rates in early November, the Euro component of the Audi was $64,000 (80,000 X 80% X EURUSD 1.27). The Yen cost was also $64,000 (80,000 X 80% /80.00). The EURJPY exchange rate was 102. Today the EURJPY FX rate is 1.2650. The dollar cost of those Euros and Yen have changed substantially. $68,900 is now the Euro component of the Audi (+3,900). The dollar cost of the imported Lexus has fallen to $55, 350 (-$8,649). Looking at just the FX rate changes, the cost of the Lexus is down to $71,350, the Audi is up to $84,910. In three months there is a $13,560 price gap. Now which one do you choose? I bring this up to make the point about how very rapidly the terms of trade have turned against Germany (all of the EU) and in favor of Japan. What is striking, is how quickly the adjustment has been. Consider this 15 year chart of the EURJPY: What jumps out in the chart is the huge drop in the FX rate that occurred staring from July of 2008, and ending in February 2009. I discount that period of extreme volatility as it was marked by global instability. During those same months the S&P fell 50%. Everything was going wild. If you exclude (or diminish) the 2008-09 experience, then you could could say that the movement in the EURJPY over the past six months is the most violent (vertical lines) in recent history. The period from 1999 to 2004 is notable as an “up” period for EURJPY. The trend for that period was driven by steady currency intervention by the Bank of Japan. So the spikes higher for the EURJPY are quite different than what we are witnessing today. The Yen is not weakening because of a forceful Central Bank. If anything, the BOJ has “disappointed” on what it has promised to do. What we are witnessing is Yen weakness (yes, coupled with Euro strength vs the $). The rate of change has been very substantial, arguably, this is the most volatile period in FX over the past 15 years. Compare the prior periods of FX upheaval to today. In many ways, what has happened of late with the Yen versus the major currencies is unique to history. What is also amazing (to me) is that this FX violence is happening at a time when equity markets are soaring. From 1999 – 2003 NASDAQ fell 70%, the S&P got clipped for 40%. 2008 – 2009 was a horror show. Today, the equity markets are thriving on the FX instability. Are we in one of those “New Paradigm” things with markets again? A financial world that can go through a very turbulent period in FX, while there is no fallout anywhere else? For what it is worth, I didn’t believe in the New Paradigm in 2000, I don’t believe in it today. brucekrasting.com/rate-of-change/
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Post by jeffolie on Feb 11, 2013 17:59:59 GMT -6
2/10/2013 Asian Currencies Tumble. Yes, This Is A Global Currency War. The renminbi fell slightly against the dollar in China on Friday. The yuan, as the currency is informally known, began the day up over the greenback but weakened as trading progressed. The reason for the afternoon decline? Chinese enterprises entered the market and bought the American currency in large amounts late in the day. “It just seems so odd that companies would choose this particular time to buy such big amounts of dollars,” an unnamed Shanghai trader in a local bank told the Wall Street Journal. Who Will Win The Currency Wars? James GruberContributor Market participants naturally suspect that the People’s Bank of China, the central bank, was behind the surprising accumulation of greenbacks. Traders also believe that recent dollar purchases by China’s state banks are really on behalf of the central bank. Since early December, the meddling of the People’s Bank in the currency market has been evident but not, in the words of Reuters, “overwhelming.” Stephen Green, the well-known analyst from Standard Chartered, estimates that the intervention last quarter was “to the net tune of $34 billion.” Central bank operations do not have to be large to be effective, however. Traders, despite strong corporate demand for the renminbi, saw the signals from Beijing and have reined themselves in. China’s dollar-buying is understandable in the context of the downward movement of the yen, which has fallen against every major currency in recent months. It has, this year, lost 7.09% of its value against the dollar and fallen 8.57% against the euro. Newly installed Prime Minister Shinzo Abe has made the depreciation of the currency one of the centerpieces of his controversial economic program, so there are expectations of aggressive tactics from the Bank of Japan, especially now that Masaaki Shirakawa announced on Tuesday his intention to step down early as its governor. “I can’t recall a move in currencies that has been so deliberate and so linear without any apparent real change in fundamentals,” said ANZ’s Richard Yetsenga on CNBC Asia’s “Squawk Box.” “The yen’s move has largely been on the basis of an apparent move in government policy and the market is front-running that.” Of course, everyone has noticed Tokyo’s new currency policy. Europe and South Korea in particular have complained, but China by and large has not. Why complain when you can engineer the value of your currency? Beijing has been manipulating the yuan downward, and Seoul has been fiddling with the won. The South Korean currency is down 2.53% against the dollar since the end of December. At the same time, the Taiwan dollar is off 2.37% against the greenback. From all outward appearances, countries in Asia are now engaged in competitive devaluations. So far, Beijing has escaped blame for starting the race to the bottom. “Has China Quietly Joined the Currency War?” CNBC asked on Thursday. That is not the right question because it is not possible for China to join the conflict. China, unfortunately, started it, at least a decade ago in fact. For years, policymakers thought it was not worth trying to get Beijing to stop manipulating the renminbi, yet that view was mistaken. They ignored the fact that the Chinese were undermining the consensus that the market should determine currency values. Now it seems it is too late to rescue the system of free-floating currencies. Abe’s plan to cheapen the yen, otherwise inexcusable, is a defense against the fixed yuan and the falling greenback. Ben Bernanke’s dollar-weakening moves, which hurt America, are in retaliation against Beijing. Beijing will not relax its grip on the renminbi even though it claims the currency is “pretty much close to the equilibrium level.” Of course the yuan is not, because the Chinese central bank is continuing to determine exchange rates. We are, in fact, seeing the beginning of a currency war, which will not be confined to Asia. Governments see short-term advantage in intervening in the market, but in the end everyone will be hurt. www.forbes.com/sites/gordonchang/2013/02/10/asian-currencies-tumble-yes-this-is-a-global-currency-war/?google_editors_picks=true
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Post by jeffolie on Feb 16, 2013 16:24:05 GMT -6
G-20 moves to allay fears of 'currency war' February 16, 2013 WASHINGTON -- Top finance officials of the Group of 20 largest economies sought Saturday to allay fears of a "currency war," pledging not to target exchange rates to gain a competitive advantage in trade. But the joint statement, issued at the end of a G-20 meeting in Moscow, did not single out any country, essentially giving a pass to Japan to keep pursuing its economic policies despite a dramatic slide in the yen since last November. Japan's new government under Prime Minister Shinzo Abe, who will meet with President Obama next week in Washington, had been talking down the yen and has pressed its central bank for more expansive monetary stimulus to break out of its deflationary trap and boost the nation's stagnant economy. A cheaper currency helps a country's exporters sell their goods to foreign markets. Some analysts said they now expected the yen to dip further, a prospect that could stoke more contention over exchange rates and present some complications for the U.S. in its long-running efforts to influence China to make more rapid adjustments in its currency. "The U.S. could tolerate the yen depreciation, but clearly this is a potential problem in so far as China could interpret it as a possible green light to make its currency weaker," said Domenico Lombardi, a senior scholar at the Brookings Institution in Washington. American officials were careful not to fault Japan, an important ally in Asia. What's more, the Federal Reserve also has taken extraordinary measures to stimulate its domestic economy, for which the U.S. has come under similar accusations from some G-20 nations that it was aiming to cheapen the dollar to boost exports. Federal Reserve Chairman Ben S. Bernanke, in remarks Friday at a G-20 session with finance ministers and central bankers, said the U.S. was simply "using domestic policy tools to advance domestic objectives." The Fed has been aggressively buying Treasury bonds with the aim of pushing down long-term interest rates to stimulate investment and reduce high joblessness, but that has contributed to a weakening of the dollar. Many economists believe that currency manipulation occurs when a government intervenes, for example by buying up dollars, specifically to devalue its currency. This, they say, is different from what may be an unintended byproduct of large-scale monetary stimulus to support one's domestic economy. Intended or not, other analysts say the distinction is not so clear when the end result is the same. Aiming to make that clearer, the G-20 statement said that monetary policies should be directed at price stability and domestic growth. "We will refrain from competitive devaluation," it said. The statement said the G-20 would "monitor and minimize the negative spillovers on other countries of policies implemented for domestic purposes," but it did not set any benchmarks or enforcement mechanism. For the U.S., a higher Japanese yen isn't likely to have a major effect on its economy, and certainly not anytime soon. American officials are far more interested in the politically sensitive issue of the Chinese currency. Although the Chinese yuan has risen significantly against the dollar in recent years, many in the U.S. still consider it overvalued and harmful to American exporters. Besides currency fluctuations, G-20 finance officials also took up budget austerity. The Eurozone's debt crisis and deepening recession have prompted some in Europe to rethink the idea of setting tough budget deficit targets. The Obama administration, fighting at home to avert stringent fiscal cuts that could hurt the recovery, has long pressed the G-20 to put more emphasis on pro-growth policies and less on austerity, but Germany and some others have insisted on fiscal consolidation and debt reduction as key pathways to recovery. A debt-cutting agreement forged at the G-20 in Toronto in 2010 will expire later this year, and officials in Moscow made no new announcement on this issue. Reflecting a reduced sense of urgency as the Eurozone's troubles have eased somewhat and the global outlook has moderately improved, the joint statement noted that risks to the world economy had receded. Still, it said, growth remained too weak and unemployment too high. "A sustained effort is required to continue building a stronger economic and monetary union in the euro area, and to resolve uncertainties related to the fiscal situation in the United States and Japan, as well as to boost domestic sources of growth in surplus economies." The G-20 represents the largest industrialized and developing nations, with about 90% of the world's economic output. It was designated in 2009 as the primary international forum for world leaders to address global financial issues and coordinate economic policies. The finance ministers' gathering that ended Saturday was the first with Russia's President Vladimir Putin as chairman of the G-20 this year. Additional sessions are scheduled in the spring and summer before Obama and other heads of G-20 economies meet in September in St. Petersburg, Russia. www.latimes.com/business/money/la-fi-mo-g20-currency-war-20130216,0,743889.story
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Post by jeffolie on Feb 16, 2013 16:58:40 GMT -6
Hedge Funds Gone Wild by Doug Noland February 15, 2013 I posited that Mario Draghi this past summer “singlehandedly” altered the global financial landscape. This miraculous feat was made possible with his bold guarantee of unlimited ECB bond purchases to backstop troubled euro-zone bond markets and system liquidity more generally. As soon as the marketplace became comfortable that his backstop was credible, the “Draghi Plan” fundamentally altered the risk vs. reward calculus for holding and shorting European periphery debt. This abrupt change in debt market perceptions then worked to reverse the crisis of confidence imperiling the soundness of Europe’s banking conglomerates, the region’s economic prospects and the euro currency. Importantly, the global leveraged speculating community was forced to cover short (bearish) positions in Europe - and many reversed course and established long holdings. Illiquidity and capital flight risk were transformed into liquidity abundance and major financial inflows. An impending catalyst for a problematic bout of global de-risking/de-leveraging (“risk off”) was quashed. For “global macro” and global risk markets, this proved a game changer. During bouts of acute financial stress over the past few years, European officials repeatedly protested that they were under the attack of the hedge fund community. It is, then, ironic that the Draghi Plan incentivized leveraged player purchases that boosted marketplace liquidity and dramatically lowered market yields in Spain, Italy, Portugal, Greece and Ireland. Following in the footsteps of the Federal Reserve, to stem Europe’s deepening crisis Draghi had to create an enticing backdrop for leveraged speculation. Last summer’s crisis was rapidly becoming a global systemic issue. The global move to more open-ended quantitative easing – especially by the Federal Reserve and Bank of Japan – was part and parcel to a concerted global central bank response to systemic fragilities. And I recall clearly how the Mexican bailout in 1995 emboldened the speculator community and spurred dangerous Bubble excess in South East Asia, Russia and the developing markets throughout 1996. The late-1998 LTCM bailout and Fed reliquefication emboldened the speculators and played an integral role in the 1999 Bubble melt-up in technology stocks and the U.S. equities more generally. I’m monitoring for indications that the “European” bailout might spur a major bout of speculative excesses in 2013. Granted, a billion dollars just isn’t what it used to be. But according to The Wall Street Journal, George Soros’ hedge fund “has scored gains of almost $1 billion” shorting the yen over the past few months. From the WSJ (Gregory Zuckerman and Juliet Chung’s “U.S. Funds Score Big by Betting Against the Yen”): “Some of the biggest U.S. hedge-fund investors have made billions betting against the yen, exploiting Japan's determination to weaken its currency and boost its economy. Wagering against the yen has emerged as the hottest trade on Wall Street over the past three months… The growing trade has itself helped pressure the yen, which has slid almost 20% in about four months. That, in turn, is helping fuel what could become a world-wide currency war. Countries such as Germany and France have criticized Japan's policies, while others have threatened to take action to reduce the value of their own currencies to remain competitive with Japan.” And from the Financial Times (Sam Jones and Dan McCrum’s “‘Abe Trade’ Revives Macro Hedge Funds”): “Shorting yen and buying Japanese equities, inspired by the dovish monetary bent of Japan’s new prime minister, Shinzo Abe, has been one of the most successful hedge fund wagers in years. And many believe it is a harbinger of greater macroeconomic dislocations and greater opportunities. Since 2010, the blue-bloods of the world’s $2tn hedge fund industry – so-called global macro managers – have been cowed by rangebound markets that have been dominated by choppy ‘risk on, risk off’ movements. Global macro stars, who specialise in trading interest rates, bonds and currencies to play the ups and downs of the world economy have not just struggled to make money, they have struggled not to lose it.” I posed the question last week, “New Bull or Bigger Risk On, Risk Off?” Europe fragilities were instrumental in the “choppy ‘risk on, risk off’ movements” throughout global markets over the past two years. This highly unsettled backdrop forced the big macro hedge funds – and traders/speculators more generally – to keep trades on short leashes (risk control measures that chipped away at performance). We now see indications that the big players have been unleashed, at least as far as taking – and winning – huge bets against the yen. More from the FT: “For many of them, the prospect of ‘currency wars’ and a breakdown in the international economic consensus will make for the kind of investment opportunities they have been desperate for since 2008. The next few months are rich with potential opportunities, they believe, whether shorting sterling in anticipation of laxer monetary policy…; buying up equities to trade on institutional investors’ rotation away from bonds; or investing in commodities such as palladium to capitalise on a race for devaluation among the world’s big currencies. ‘I think it’s the rebirth of global macro,’ says the head of one of the world’s top five global macro hedge funds. ‘For the last three years we have had this rangebound environment, and now it looks like individual currency actions, individual countries acting, are going to start to dominate.’” The “rebirth of global macro”? “Greater macroeconomic dislocations and greater opportunities”? There are different angles of the analysis to contemplate. First of all, we’re seeing important confirmation in the thesis that heightened global fragilities and aggressive policymaker responses have incited only more aggressive risk-taking. There is, as well, support for the view that currency markets have become a key battleground for the speculator community. Policy measures have been unprecedented – and I would argue Bubble excesses have been commensurate. With the euro situation seemingly stabilized in the short-term, the backdrop became ripe for a big bet against the yen. And with the new Abe government supportive of aggressive Bank of Japan money printing and a weaker currency, some of the “community” of big funds pounced. The bearish yen trade has been a big winner. Will the speculators pile on? Will proceeds from yen selling provide liquidity for bullish “risk on” market bets globally? Could indiscriminate selling potentially risk inciting a freefall in the yen? If yen weakness turns disorderly, could this negatively impact Japan’s vulnerable bond market? Or could developments elsewhere (Europe?) shift the backdrop away from today’s global “risk on,” in the process inciting an abrupt reversal in the yen and another painful short squeeze? This yen situation has potential to be an integral facet of a “Bigger Risk On, Risk Off” global market dynamic. From a “risk on” perspective, the big macro funds holding onto gains would ensure that they’d be on the receiving end of fund inflows. They would enjoy greater firepower – and confidence – for which to pursue bigger macro bets. And their success would have the leveraged speculating community and global traders alike determined/desperate to participate in the next big trade. The big win on the yen could have important financial and psychological ramifications for an expanding global Bubble backdrop. Lurking Big Risk Off is a potential consequence of unfolding Big Risk On. The Europeans today have no qualms with the global leveraged speculators actively buying their bonds. But many are increasingly frustrated by the strong euro - and they’ll be mad as hell again when the speculators start liquidating and shorting their debt. The Japanese are these days fine with the hedge funds pushing the yen lower. Yet with Japan’s stupendous debt load, it brings to mind the old “be careful what you wish for.” An attack on Japanese bonds would be problematic. Meanwhile, much of the world is increasingly fretting “currency wars” and “competitive devaluations.” No one seems to have an issue when speculators bid up stock and bond prices. Increasingly in the currency markets, however, countries are looking at the situation as a zero sum game. “Developing” policymakers, in particular, are about fed up with “hot money” inflows inflating their currencies. Yet global central banks have created such abundant liquidity conditions that currency speculation seems likely to gain further momentum. In our unstable financial and economic worlds, policy measures have come to dictate currency and risk market behavior. This plays right into the hands of a global pool of speculative finance that – bull market, bear market, crisis or recovery – only seems to inflate larger by the year. And Friday from Bloomberg: “Billionaires Soros, Bacon Cut Gold Holdings as Price Slumps.” The big hedge funds have been major operators in the gold market. As “risk on” has gained momentum, so-called “safe haven” assets have lost some luster. Gold, Treasury bonds and German bunds have all stumbled in early-2013. And in this trend-following and performance chasing financial landscape, funds are compelled to sell the underperformers and buy what’s inflating in price in order to survive. With safe havens out of fashion and cash a total loser, “money” flows freely to the inflating riskier assets. Funds aggressively playing “risk on” attract strong inflows and greater financial power, while those cautiously positioned lose assets and are forced to liquidate lower-risk assets. Meanwhile, buoyant risk markets work wonders on bullish market sentiment. At the same time, there is also ongoing confirmation that the incredible global policymaking and liquidity backdrop is much more successful in inflating asset markets than it is in boosting economic performance. In particular - and especially considering policy environments - economies in Europe, Japan and the U.S. continue to un-impress. This bolsters the view of a widening global gap between inflating financial asset prices and underlying economic fundamentals. This begs the question: how might the emboldened “global macro” community play this divergence? Will they play policymaking and the inflating Bubble for all it’s worth? Or will they begin to approach speculative markets with a more contrarian bent? With some funds emboldened and still so many others desperate for performance, it seems reasonable to assume that markets become even more speculative – a game of trying to catch folks on the wrong side of trades (i.e. Apple, gold, etc.), underexposed to outperforming sectors (i.e. homebuilders, high-beta and “short” stocks) and overexposed to the underperforming (i.e. “defensive”). Most call it a “new bull market”. I’ll stick with “inflating speculative Bubble”. prudentbear.com/index.php/creditbubblebulletinview?art_id=10761
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Post by jeffolie on Mar 2, 2013 17:37:12 GMT -6
02 March 2013 China "fully prepared" for currency war: banker Yi Gang, deputy governor of China's central bank, delivers a speech at a seminar in Tokyo, on October 14, 2012. Yi said Beijing is "fully prepared" for a currency war as he urged the world to abide by a consensus reached by the G20 to avert confrontation, state media reported on Saturday. AFP - A top Chinese banker said Beijing is "fully prepared" for a currency war as he urged the world to abide by a consensus reached by the G20 to avert confrontation, state media reported on Saturday. Yi Gang, deputy governor of China's central bank, issued the call after G20 finance ministers last month moved to calm fears of a looming war on the currency markets at a meeting in Moscow. Those fears have largely been fuelled by the recent steep decline in the Japanese yen, which critics have accused Tokyo of manipulating to give its manufacturers a competitive edge in key export markets over Asian rivals. Yi said a currency war could be avoided if major countries observed the G20 consensus that monetary policy should primarily serve as a tool for domestic economy, the Xinhua report said. But China "is fully prepared", he added. "In terms of both monetary policies and other mechanism arrangement, China will take into full account the quantitative easing policies implemented by central banks of foreign countries." South Korea's incoming president Park Geun-Hye has also signalled her willingness to step in to stabilise the won and protect exporters battling a stronger Korean currency and a weaker yen.www.france24.com/en/20130302-china-fully-prepared-currency-war-banker-0
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Post by jeffolie on Mar 4, 2013 14:40:05 GMT -6
" ... “This is setting up to be an epic battle, with plenty of spoils for the victors and catastrophic losses for the vanquished,” he said. “Investors must pick sides early.” ===================================== Currency War Turns Stimulus War as Brazil Surrenders Mar 4, 2013 C urrency wars declared by Brazilian Finance Minister Guido Mantega are proving more a battle to salvage economic growth than a spiral of competitive devaluations. While the yen and pound slide on the prospect central banks will intensify stimulus and South Korea’s won and Chile’s peso strengthen, volatility in the currency market is below its average of the past decade and global stocks have gained $2.15 trillion since the start of 2013. Policy makers reduced intervention over the past 12 months as foreign reserves grew at the slowest pace in four years, data compiled by Bloomberg show. Feb. 27 (Bloomberg) -- Brazilian Finance Minister Guido Mantega talks with Bloomberg’s Andre Soliani about Brazil’s financial markets, inflation and meeting investors in New York. Mantega told investors yesterday Brazil will offer high rates of return for its infrastructure projects as it seeks to carry out a $235 billion investment plan. (This report is in Portuguese. Source: Bloomberg) Pedestrians walk past a currency exchange store in Narita City, Chiba Prefecture, Japan. Nobel Prize-winning economist Paul Krugman calls the currency war a “complete misconception” and says the monetary expansion is in keeping with the mandates of central banks and should benefit global growth. Even Mantega, who used war terminology in 2010 to criticize industrialized nations for policies that weakened their exchange rates, says he is abandoning efforts to push down the real. Federal Reserve Chairman Ben S. Bernanke and other policy makers signaled last week that currencies are a corollary, not a cornerstone, of policies to boost growth from unacceptably low levels, paving the way for what Morgan Stanley calls a third round of “Great Monetary Easing.” “Central banks are going to throw the kitchen sink at reviving growth and spurring inflation because the alternative to that is deflation,” Neil Williams, head of economic research at London-based Hermes Fund Managers, which oversees about $42 billion, said in a phone interview on Feb. 27. “The countries that have overall loosened their policies most have had the weakest currencies. It’s not a blatant attempt to out-grow others, it’s just a case of all countries trying to do the same thing at the same time.” More Stimulus As the central banks of Japan, the U.K. and euro area all hold policy meetings this week, demand for more stimulus is increasing. Capital Economics Ltd. calculates the Group of Seven major economies contracted on average in the last quarter for the first time since early 2009. The International Monetary Fund predicts growth in advanced nations of 1.4 percent this year, half the average pace of 1994 to 2003. Nobel Prize-winning economist Paul Krugman calls the currency war a “complete misconception” and says the monetary expansion is in keeping with the mandates of central banks and should benefit global growth. “It’s not a currency war,” the Princeton University economics professor told “Bloomberg Surveillance” with Tom Keene and Sara Eisen on Feb. 15. “This is monetary policy.” No 1930s At the same time, a growing number of leaders are concerned that central banks and governments will repeat policies of the 1930s, when countries devalued their way to expansion through exports, compelling trade partners to match the declines and triggering tariffs that contributed to the Great Depression. “Not all currencies can depreciate by definition,” Adrian Lee, the president of foreign-exchange manager Adrian Lee & Partners, which oversees more than $5 billion from London and Dublin, said in a Feb. 27 telephone interview. The election in December of Shinzo Abe as Japan’s prime minister heightened speculation the nation would manipulate its currency, with the yen weakening 17 percent in six months, according to Bloomberg Correlation-Weighted Indexes. The likelihood of the U.K. and Japan increasing stimulus that will dim their currencies’ allure has analysts cutting year-end forecasts for the yen and the pound at the fastest pace among more than 50 currency pairs tracked by Bloomberg. ‘Ultimate Losers’ Sterling has weakened 5.2 percent and the yen fell 5 percent this year, the Bloomberg indexes show. “The ultimate losers will be determined by the relative fundamentals,” Valentin Marinov, head of European Group of 10 currency strategy at Citigroup Inc. in London, said by phone on Feb. 26. “The currencies where the central banks actively engage in monetary easing should be the biggest losers, and, for the time being, that’s sterling and the yen.” What’s stimulus to one nation amounts to an economic attack to others. Currencies in Chile, Malaysia, the Philippines and South Korea have strengthened against the dollar, with the won gaining the most of the group by posting a 3.7 percent gain in the past six months, threatening growth and eroding corporate profits. The won has strengthened 23 percent against the yen in the past six months. Seoul-based Hankook Tire Co. (161390) said last week that its exports will be hurt as a weaker yen gives Japanese rivals such as Tokyo-based Bridgestone Corp. (5108) a pricing advantage. Samsung Electronics Co. (005930), based in Suwon, South Korea, said Jan. 25 that currency gains could reduce its operating profit by 3 trillion won ($2.7 billion) this year. Smoothing Operations South Korea buys or sells foreign currencies in so-called smoothing operations and has also implemented restrictions on currency-forward positions to reduce the risk of speculative capital flows. China is “fully prepared” for a currency war, should one happen, central bank Deputy Governor Yi Gang said in Beijing on March 1, the official Xinhua News Agency reported. The nation will “take into full account the quantitative-easing policies implemented by central banks of foreign countries,” Yi was quoted as saying by the agency. Industrial economies that depend on commodities and exports, including New Zealand and Norway, have said they may intervene in foreign-exchange markets or cut interest rates to weaken their currencies. Switzerland already caps the level of its franc against the euro at 1.20. New Zealand’s dollar, known as the kiwi, has appreciate 8.6 percent from last year’s low in May, while the krone has strengthened 5.7 percent from its 2012 low on July 30, Bloomberg Correlation-Weighted Indexes show. Kiwi Pressure “When the New Zealand dollar is coming under upward pressure, we want investors to know that the kiwi is not a one- way bet,” Reserve Bank of New Zealand Governor Graeme Wheeler said in a Feb. 20 speech. The rhetoric is less heated than in late 2010, when Mantega said developed nations had debased their currencies at the expense of healthier economies such as Brazil. At the time, the real had strengthened more than 40 percent versus the dollar from its lows in 2008. A year later, Russian leader Vladimir Putin said that the Fed’s strategy of printing dollars to buy Treasuries to inject cash into the financial system was evidence the U.S. was “being parasitic with the dollar’s monopoly position.” “We neutralized, softened the currency war issue that other countries are facing,” Mantega said last week in an interview at Bloomberg’s headquarters in New York. “I didn’t invent the currency war, I just pointed out a problem that can be overcome with an accord among countries.” Slowing Intervention The real has weakened more than 14 percent since Mantega’s 2010 war claim, trading at 1.9809 per dollar as of 12:01 p.m. New York time. Brazil has even sought measures to strengthen its currency this year after it depreciated to 2.1384 in December. Central banks slowed the pace of intervention as foreign reserves grew 6.9 percent the last 12 months to about $11 trillion, according to data compiled by Bloomberg. Except for the global financial crisis in 2009, when reserves rose 6 percent in the year through February, it was the smallest increase since at least 2004. The accord Mantega referred to came when Group of 20 finance chiefs met in Moscow on Feb. 15-16 amid rising tensions over the yen’s decline. All-night talks beside the Kremlin ended with officials pledging for the first time not to “target our exchange rates for competitive purposes.” ‘Good Understanding’ Currency war talk “has run further than the reality,” Singapore Finance Minister Tharman Shanmugaratnam said in a Feb. 28 interview. “There might have been a little bit of clumsiness in public statements, but there’s now I think a very good understanding amongst all the major players as to what’s appropriate.” Alan Ruskin, the global head of Group of 10 foreign- exchange strategy at Deutsche Bank AG in New York, said the statement marked a “peace agreement” allowing countries to boost stimulus regardless of whether they weaken exchange rates so long as they don’t intervene in markets, target specific currency levels or buy foreign assets. Central bankers are embracing the G-20 rulebook as a green light for more stimulus. Bernanke said last week that he backed Abe’s campaign for more stimulus even as it weakens the yen, saying it’s “mutually beneficial” if major economies that need to buoy growth take steps to do so. “We are not engaged in a currency war,” the Fed Chairman told the Senate Banking Committee in Washington on Feb. 26. “Our monetary policies, which are being replicated in other industrialized countries, are increasing demand globally and helping not only our businesses, but also the businesses in other countries that export to us.” King’s View Bank of England Governor Mervyn King said in Tokyo the same day that the global economy will benefit if central bankers pursue policies to boost growth, even if a byproduct is a weaker exchange rate. “Domestic monetary policy is taken for domestic reasons, and if we do that then the world as a whole will expand and grow more rapidly,” King said. “It may push down the exchange rate a little bit, which makes life more difficult for other countries, but it increases total domestic spending, which will increase the demand for imports from emerging-market economies.” The pound rose 0.3 percent to $1.5079 today, from as high this year as $1.6381 on Jan. 2. It touched $1.4986 on March 1, the weakest level since July 2010. Against the euro, it has depreciated to 86.17 pence, from 81.19 on Dec. 31. 100 Yen While neither the Fed, European Central Bank nor Bank of Japan sold their currencies to influence exchange rates in the past year, some policy makers have commented publicly on what levels would be desirable. In Japan, Deputy Economic Minister Yasutoshi Nishimura said on Jan. 24 that it wouldn’t be a problem if the exchange rate weakened to 100 yen to the dollar. It was at 93.32 today, from as strong as 77.13 on Sept. 13. Ruling-party lawmaker Kozo Yamamoto said in a Feb. 14 interview it would be “appropriate” for the yen to trade at about 95 to 100 per dollar. While the Bank of England’s King denies targeting sterling, he and his colleagues have highlighted the benefits of a drop in the pound. Comments by ECB President Mario Draghi on Feb. 7 that the euro’s gains may affect the economic outlook led to its biggest drop in seven months. Declining Volatility “If you’re a central bank, you don’t mind if the currency goes down, but you can’t say it’s their goal,” said Roberto Perli, a managing director at International Strategy & Investment Group Inc. in Washington and a former Fed economist. “Central banks are just doing what they have to do.” There are few signs of panic in the currency market. At 9.25 percent, JPMorgan Chase & Co.’s Global FX Volatility Index is below the average of 10.65 percent over the past decade. The index, which measures currency fluctuations, fell to 7.05 percent on Dec. 18, the lowest level since 2007. Rising stocks suggest a broader stimulus story rather than a targeted devaluation effort, according to Kamakshya Trivedi, a London-based strategist at Goldman Sachs Group Inc. In Japan, the yen’s slide has been accompanied by a 15 percent rally in the Topix Index (TPX) this year. It touched 1,000 for the first time since 2010 today and closed at 992.25 in Tokyo, the highest level since April 27, 2010. The result is “more consistent with a bout of monetary easing than with a currency war,” Trivedi said in a Feb. 19 report. United Co. Rusal, the world’s largest aluminum producer, said today that Japan’s stimulus and the yen’s depreciation will be positive for exports and consumption of the metal. Round Three The sluggish pace of global growth sets the stage for central banks to extend their five-year-old monetary easing into a third round after they beat back recession and then sought to spark growth, according to Morgan Stanley chief economist Joachim Fels. The need to avoid excessive currency appreciation means central bankers are likely to be “indicating that rates could stay lower for longer, or even be cut further,” Fels’s London- based team wrote in a Feb. 20 report to clients. “Gear up for great monetary easing three.” Abe is relying on Haruhiko Kuroda, his choice to serve as governor of the Bank of Japan, to pursue more aggressive monetary policy. The bank has already adopted a 2 percent inflation target and agreed to buy unlimited amounts of bonds from next year to meet that goal. Kuroda said today that the BOJ will do whatever is needed to end 15 years of deflation should he be confirmed as governor and indicated that open-ended asset purchases may start sooner than next year. Negative Rates In the U.K., three out of nine policy makers, including King, voted for an increase in the bank’s target for bond purchases by 25 billion pounds to 400 billion pounds last month. More recently, some of King’s colleagues have discussed open- ended bond buying or introducing negative interest rates. Bank of Canada Governor Mark Carney, who will succeed King in July, has said central banks aren’t “maxed out.” Draghi signaled Feb. 27 that the ECB has no intention of tightening monetary policy anytime soon with inflation set to “significantly” undershoot its 2 percent target next year. Although some Fed officials have begun to express concern bond purchases may fuel asset bubbles or become tougher to unwind, Bernanke said last week that the central bank’s $85 billion of monthly purchases are supporting expansion, with little threat of inflation or overheating markets. Further Easing Elsewhere, central banks in Australia and Sweden haven’t ruled out easing further, while those of Hungary, Poland, Colombia and India all cut rates this year. “This is not a currency war -- it’s a growth war,” said David Zervos, a managing director at Jefferies & Co. in New York, who served as a visiting adviser to the Fed in 2009. Investors should buy stocks as part of a “reflation trade” and be wary of inflation in the longer term, he said. “This is setting up to be an epic battle, with plenty of spoils for the victors and catastrophic losses for the vanquished,” he said. “Investors must pick sides early.” www.bloomberg.com/news/2013-03-04/currency-war-turns-stimulus-war-as-brazil-surrenders.html
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Post by unlawflcombatnt on Mar 5, 2013 12:57:36 GMT -6
And most of these "easy money" policies are implemented by pouring money in at the top--to the banks. This results in an upward redistribution of wealth in every country that uses the Bernanke-esque approach.
The non-affluent--unlike the banks--receive NO additional dollars. Meanwhile, the buying power of the dollars the non-affluent possess is reduced in value due the inflation induced by monetary expansion.
Now this phenomenon is taking place on a Global scale. It's basically a global upward redistribution of wealth. Worse still--it is from those who'd spend the highest % of the money (the non-affluent) to those who spend the lowest % (the banks & the rich)
What a great way to destroy the world economy by reducing the aggregate spending power of the world's consumers.
What a great way to further impoverish Americans and all the other people of the world.
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Post by jeffolie on Mar 23, 2013 16:37:08 GMT -6
The media has ignored Monday'sJapan summit with the EU 3/25/2013 " ... Japan Is The Real Crisis ... " " ... Currency wars to begin in earnestTalk of currency wars has been on the backburner for a few months. Expect that talk to heat up and become a reality as Japan ramps up stimulus in the next two weeks.The likes of South Korea and Taiwan are already suffering from the sharp fall of the yen. They, and many others such as Germany and emerging countries, aren't going to sit by and watch their exporters get priced out of the market by the Japanese. They'll retaliate with currency depreciations of their own and the currency wars will be on in earnest. But the question is whether these countries will be able to keep up with a hyper-inflating Japan. I highly doubt it. ====================================== Forget Cyprus, Japan Is The Real Crisis by Asia Confidential on 03/23/2013 Forget Cyprus. A much bigger story in the coming weeks and months will be in Japan, where one of the greatest economic experiments in the modern era is about to begin. A country where government debt even dwarfs those of Europe's crisis-ridden nations, Japan will attempt to inflate its way out of a 23-year deflationary spiral. The overwhelming consensus among the world's economists is that quantitative easing (QE) has saved the day in the U.S. and that Japan needs to follow suit, on a larger scale. I beg to differ and suggest this policy will almost certainly lead to a hyperinflationary disaster in Japan. If that's right, it will have serious ramifications for other countries, dragged down by an acceleration of the so-called currency wars. More broadly though, it is likely to destroy the myth pushed by today's economists that QE is a cure-all for downtrodden economies. It isn't and Japan will become the template to prove it. Monster stimulus on the wayThe new Bank of Japan (BoJ) Governor, Haruhiko Kuroda, started work on Thursday and his first day on the job disappointed investors. At a press conference, Kuroda pledged to do whatever it takes to defeat deflation and reiterated the government's target of 2% inflation. But he provided little in the way of specifics and investors promptly bought the yen and sold stocks. More concrete measurers will almost certainly come by the central bank meeting on April 3-4. There are good odds that they may come even earlier via an emergency meeting of the bank. It's widely expected that the BoJ will expand its 101 trillion yen (US$1.06 trillion) asset buying program by more than 10 million yen. Also, it will start buying Japanese government bonds with remaining maturities of up to five years by scrapping the upper limit of three years by the end of April. The idea behind the strategy is that you create money out of thin air, use that money to buy government bonds off private institutions and others, thereby increasing money supply and possibly inflation. Also, the institutions will start lending the money out, thereby kick-starting spending and the economy. That's the theory anyhow. What was fascinating to watch was the verbal sparring between the outgoing and incoming BoJ governors. In Japan, where group consensus rules, this was almost an outright brawl. Outgoing Governor Masaaki Shirakawa has never been a believer in the inflationist policies of the new government and he didn't mince his words in his final days in office: "Even if prices rise 2% and wages do the same, that won't mean an improvement in people's living standards ... what we want to achieve is an increase in real economic growth... ... Past figures in Japan as well as in Europe and the U.S. show that the link between monetary base and prices has been broken." The latter refers to the fact that printed money in the U.S. and Europe hasn't flowed through to economies as banks have sat on the money rather than lent it out. And if Shirakawa wasn't clear with the above, he was with the following: "If there was one single measure that would have resolved the problem, just like clearing a fog, then we wouldn't have been in this state for the past 15 years." The new BoJ chief, Haruhiko Kuroda, wasted little time trampling on his predecessor's legacy. Though couched in economic jargon, his statements were clear enough: Shirakawa was part of a failed era of central banking and something new needed to be done: "It's very important for the BoJ to make itself responsible for the 2% [inflation] target by a certain period ... We should not make excuses that it wasn't our responsibility if we fail to achieve it." And: "In the long term, the correlation between money supply and inflation is high." In other words, if we print enough money, inflation will come. And we'll do whatever it takes to get the job done. Is it the right path? The sparring between the two central bankers isn't just an arcane discussion. It's part of a much larger debate about the effectiveness of stimulus policies. And it matters because Japan is the world's third-largest economy and it's about to pursue these policies on a grander scale. What's amazing is the extent to which those advocating stimulus in the slow-growth developed world now dominate public debate. Consider a recent article by Financial Times columnist Martin Wolf, entitled "The sad record of fiscal austerity". In it, Wolf takes Europe to task for enforcing spending cuts while their economies were in dismal shape: "By adopting [outright monetary transactions], the [European Central Bank] could have prevented the panic which drove the [credit] spreads that justified the austerity. It did not do so. Tens of millions of people are suffering unnecessary hardship. It is tragic." He goes on to recommend a mix of stimulus, increased public spend and structural reforms to help Europe's plight. And he finishes with this: "In the long run, the fiscal deficit must close. In the short run, the UK has the chance to pursue growth. It should take it. So should the US." The arguments of Wolf and others of his ilk can be crudely summarised by three facts, which most of them would regard as beyond dispute. Fact 1: The U.S. recovery proves stimulus works and the recovery will happen faster if there's more aggressive QE. Fact 2: Europe remains in the doldrums because it's pursued spending cuts which have failed to repair economies. Fact 3: Japan has never tried aggressive stimulus to overcome its long-term deflation problem and it needs to follow in U.S. footsteps immediately. Given these are "facts" beyond dispute, let me dispute them. Fact 1: It is far too early to tell whether U.S. stimulus policies have worked. They have propped up the economy in the short-term, but whether that's sustainable in the long run is open to question. Even in the short-term though, the recovery has been slow and unimpressive. Consider: 2012 GDP growth of 2.2% vs a post World War Two average of 3.2%, a current unemployment rate at 11.3% if you include that have dropped out of the workforce since 2008, real household incomes are still 10% below levels in 2000 and the velocity of money (M2) is the lowest in more than 50 years (indicating printed money hasn't circulating into the real economy). Fact 2: Europe hasn't pursued austerity. Anyone who says it has is lying. But it makes for a nice political argument in favour of stimulus. European total debt has kept climbing, now at 390%, as the private sector hasn't paid down any debt, while governments have increased their debt portions. No cutbacks here! And for the curious, unlike QE, there is some historical evidence that austerity can actually work. In my neighbourhood of Asia, the financial crisis of 1997-1998 brought tremendous pain to many Asian countries, but through austerity and sweeping economic reforms, they recovered relatively quickly and in much better shape. Fact 3: Those that claim that Japan has never pursued aggressive stimulus are talking rubbish. But again, it's nice propaganda for Keynesian advocates. From 2001-2006, Japan embraced large-scale stimulus, with its monetary base increasing by a mammoth 36% year-on-year at its peak. During the period, the monetary base rose 82% in total. But economic growth was never revived, the currency rose rather than fell and inflation continued to decline. QE in Japan was dropped because it was seen as failing. So the question must be asked: will the conventional wisdom advocating enormous stimulus be Japan's saviour or its noose? Why Japan will failThe subtitle indicates where I stand on the matter. Given its over-indebtedness, Japan has few good options left. But the policies being pursued by Shinzo Abe will fast-forward a major debt and currency crisis. It's a matter of when, not if. Government debt to GDP in Japan is now 245%, far higher than any other country. Total debt to GDP is 500%. Government expenditure to government revenue is a staggering 2000%. Meanwhile interest costs on government debt equal 25% of government revenue. There's no way that Japan will ever repay this debt. It has two main options: either go through extraordinary pain by cutting back on government expenditure or print substantial money to inflate some of the debt away. Japan is choosing the second option, as are most governments around the world. It would rather print money than cut spending and doom the economy to a substantial contraction. The choice to print money though will result in an even more painful and drawn-out outcome. It's inevitable that the yen will fall further from here, potentially much further. I've previously said that the yen at 200 or 300 on the dollar would not surprise. This could prove optimistic. It also seems inevitable that Japanese interest rates will rise and bonds will sell off. Yields have to rise to just 2% for interest costs on government debt to take up 80% of government revenue. The jig will be up well before that though. Those that argue this won't happen as 91% of Japanese government bonds are held by domestic investors are missing some key points. Foreign ownership of bonds is rising as domestic investors need more money to fund their retirements (Japan's rapidly ageing population). Foreigners will demand higher yields for the risks that they're taking on. And even domestic investors aren't going to sit by earning 0.6% on a 10-year bond as hyperinflation takes hold and the currency tanks. Currency wars to begin in earnestTalk of currency wars has been on the backburner for a few months. Expect that talk to heat up and become a reality as Japan ramps up stimulus in the next two weeks.The likes of South Korea and Taiwan are already suffering from the sharp fall of the yen. They, and many others such as Germany and emerging countries, aren't going to sit by and watch their exporters get priced out of the market by the Japanese. They'll retaliate with currency depreciations of their own and the currency wars will be on in earnest. But the question is whether these countries will be able to keep up with a hyper-inflating Japan. I highly doubt it. www.zerohedge.com/contributed/2013-03-23/forget-cyprus-japan-real-crisis
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Post by unlawflcombatnt on Mar 28, 2013 11:38:16 GMT -6
Printing money to buy assets helps only those who are selling the assets, at the expense of everyone else.
Expanding the money supply reduces the buying power of all non-recipients of the money.
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Post by jeffolie on Apr 11, 2013 15:55:17 GMT -6
" ... “This is setting up to be an epic battle, with plenty of spoils for the victors and catastrophic losses for the vanquished,” he said. “Investors must pick sides early.” Japan has created a giant jump for their stock market with its intended 'wealth effect' by its currency war action ===================================== Welcome to the Currency War, Part 7: The Zero Sum Game April 11, 2013 Based on the past few weeks’ stock market action, Japan’s decision to flood the world with yen looks like a raging success. It’s not of course. Here’s a cogent take on the subject from ex-hedge fund manager Bruce Krasting: Japan’s Gains Are Losses For Everyone Else My daughter called last night, she’s made her reservations for a honeymoon in Japan. Six months ago she was leaning on going to Thailand, but the cost of a trip to Japan has fallen so sharply, that she was able to afford the cost of a visit to beautiful Tokyo. She’s delighted. The dollar cost of a hotel in Tokyo has fallen by a very significant 25% in just a half-year. I’m sure that many other tourists around the world will now consider Japan as a destination for a vacation. The devaluation of the Yen is working! While I’m happy for my daughter (and those hoteliers in Tokyo) I’m frustrated by the enthusiasm that financial markets have demonstrated by the major devaluation of the Yen. To me, this is a zero sum game. The gains in Japan, are just losses everywhere else. I see the big losers as Korea, China and the rest of SE Asia. America is going to get hit fairly hard as both tourism and trade react to the cheaper currency. Europe is so screwed up today the consequences of the Yen devaluation will be masked, but the German car exporters will get beat to pieces as the exchange rate adjustment flows through on car prices. Places like Brazil will feel the consequences as well, liquidity out of Japan will leak into local capital markets, it will be the source of unwanted inflation. A lot of my readers resent the fact that big money gets bigger because it is big. The Yen devaluation is a classic example. It’s my understanding that some folks have gotten spectacularly rich from the plunge in the Yen. (not just those who made it to the papers) The beauty of the Yen short trade is that there was very little risk. The government telegraphed its intentions perfectly. Damn near every speculator in the world was able to profit from what has happened. The gains are measured in the 100drs of billions of dollars. Once again, the central banks have made market players rich. The vast majority of the speculative currency gains will never get taxed. The rich and powerful just got richer and more powerful Who will pay for the speculators gains? The Japanese citizens will be forced to kick in a huge chunk. The cost of everything that is imported into Japan is now 25%++ higher than a half year ago. The US economy will surely play a price. How much of a drag to US GDP is the Yen devaluation going to cause? I think the number starts with 1/2 percent. China is going to get thumped. I don’t think China is just going to roll over and give Japan a free ride. Some retaliation is in the offing. “Things” between China and Japan have been very rocky over the past half-year; they are going to get worse. Japan has created an enemy with China, this will not end well. In my years of watching FX, I’ve never seen a soft landing from a devaluation. I don’t think Japan in 2013 will be any different. Japan Inc. may be happy to see the 100/dollar exchange rate, but I doubt that the Bank of Japan can achieve equilibrium at this level. The risk is that the USDJPY overshoots (they always do). There is a very real possibility that things get out of control and a move to USDJPY 120 is in the cards. I see a near zero chance that the BOJ is going to step into the currency market and do reverse intervention to contain Yen the weakness. If enough speculators believe as I do, then we are in for a hell of a ride in the coming months. Japan is desperately seeking to export its deflation – I think they will succeed. But when the deflationary consequences hit Japan’s trading partners, a global slowdown will be the result. Japan’s trash is being passed around the globe. I wonder how long the rest of the world is going to stand for it. Give it six months (or less) for the damage to be felt in the USA, and then the backlash will start. That, or China does something ugly. Either way, those who are singing praise for Japan and it’s effort to undermine its currency are going to be singing a different tune. There is a perception that Japan’s monetary policies are directed inward. People like Bernanke are saying that any monetary stimulus is good stimulus, nothing bad can come of it. I don’t see it that way. I see Japan as a global aggressor, the country doesn’t give a damn about where the chips fall outside of its borders. And here’s a different but complimentary take from Daily Bell : Is Japan’s Devaluation an Attack on China? Japan stimulus will start currency war, say Chinese economists … Plan to buy bonds will open liquidity floodgates and spells doom for other nations, observers say … The Bank of Japan will double its monetary base to 270 trillion yen (HK$22.1 trillion) by March 2015. Many of China’s top economists are livid at what they view as an effective currency devaluation by Japan and are calling on the People’s Bank of China to retaliate by weakening the yuan to defend itself in what they see as a new currency war. – South China Morning Post Dominant Social Theme: Japan is doing what it has to do. Free-Market Analysis: In an article yesterday we suggested that the reason Japan was embarking on a massive attempt at Keynesian-style stimulation was to promote the efficacy of Keynesian economic “cures.” But there is another possibility as well. Perhaps the idea is to start a currency war aimed at least in part at China. Japan is a longtime ally of the US, which defeated it in World War II. It is certainly possible that Japan has allied itself with the US to serve Anglo-American interests in this regard. This would tend to contradict a hypothesis we offered yesterday having to do with Japan’s monetary intentions. We suggested that the Keynesian (neo-Keynesian actually) recipe of printing debt-based paper currency was going to be declared a success in the West no matter what. We suggested that this high-profile Keynesian approach was being implemented in Japan with the intention of declaring it a success no matter what. Japan, after all, is far away from Europe and the US. It is easy for a state-controlled media to massage statistics and economic performance so as to make the case for Keynesian efficacy. And there is no doubt that printing money “works” when it comes to economic stimulation within certain parameters. Printing paper money and depositing in bank coffers provides banks and then the corporations they lend to with increased liquidity. Often this liquidity finds its way into the stock market that is then used as a barometer to declare that the economy is “on the mend.” But it is indeed possible to hypothesize that Japan’s current policy is intended to confront China and therefore is being used as a monetary “weapon of war.” Here’s more from the article: ANZ Bank’s Liu Ligang see Japan’s plan to double its monetary base within two years as “blackmail” and have criticized the Japanese central bank’s decision to open the liquidity floodgates to bump up the economy. Liu said Japan’s unprecedented easing programme, aimed at ending more than two decades of deflation, was “a monetary blackmail” targeted at other export-driven Asian countries such as China and that the central bank should sell more yuan and buy the US dollar to push down the yuan. He also called on authorities to guard against a fresh wave of hot money into China’s fragile financial markets, warning that Japan’s move would reignite the so-called carry trade, under which investors borrow in low-interest yen and invest in high- interest markets. “The massive monetary stimulus by the Japanese central bank could spell doom for other nations in the region,” said Tsinghua’s Li, a former adviser to the People’s Bank of China. “China could accelerate the freeing up of its capital account by boosting outbound investment in overseas equities markets, which could be an effective way of coping with the latest round of the global currency war.” We can see from the above perspective that the Chinese are alarmed about the idea of a currency war because it affects their exports. China’s economy is in a delicate state right now and policymakers have depended on monetary stimulation to keep exports at a high level. Not only that but US pleas for China to raise the yuan against the dollar have not swayed Chinese monetary policy at all. However, if the Japanese begin to print aggressively, the Chinese might have no choice but to retaliate by printing more yuan. This would cheapen the yuan against the yen, and presumably also against the dollar. It is no wonder that Chinese economists – presumably at the behest of the party itself – are voicing displeasure over Japanese moves. Perhaps, then, the Japanese policies have several objectives. One is to stimulate the economy (doubtful) and another to illustrate the efficacy of such state-implemented policies. Perhaps the third is to unbalance the Chinese monetary policy of keeping the yuan low against the dollar, thus encouraging Chinese exports. Conclusion: Money should not be a political or industrial weapon. Unfortunately, in this era of central banking, it certainly is. Some thoughts From Krasting: “Japan is desperately seeking to export its deflation – I think they will succeed.” This perfectly sums up the purely economic part of the story. Now that the yen is down by 30% or so versus the dollar, euro, and yuan – just in time for earnings season – watch the results of big US and European exporters. If they’re weak, and especially if local stock markets begin to reflect this weakness, political pressure will build on the Fed and ECB to recover the advantage of a weak currency. The result: QE, instead of scaling back, will expand aggressively. China is already mad at Japan over those islands in the China Sea, and now has a more tangible reason to lash out. How it will do this is yet to be seen, but none of the choices – stepped up military pressure, aggressive monetary ease, trade sanctions of some sort, cyber-attacks – are recipes for stable, sustainable growth. And none of the above will fix anything. This year Japan exports deflation to its major trading partners, pushing them closer to the debt-collapse that their balance sheets say is imminent. Next year we send the deflation back, with interest, pushing Japan closer to the edge. This currency war ends, apparently, with one or two combatants imploding, though it’s not at all clear which will go first.
dollarcollapse.com/inflation/welcome-to-the-currency-war-part-7-the-zero-sum-game/
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Post by jeffolie on May 9, 2013 12:07:20 GMT -6
" ... “This is setting up to be an epic battle, with plenty of spoils for the victors and catastrophic losses for the vanquished,” he said. “Investors must pick sides early.” Japan has created a giant jump for their stock market with its intended 'wealth effect' by its currency war action: NIKKEI 225 Index 11,652.29 52 week high 11,768 www.marketwatch.com/investing/index/100000018?countryCode=JP===================================== Currency Wars Return, 1930s Style: Who Will Lose Out? 7 Feb 2013 As countries try to weaken their currencies to boost exports, the risk of a currency war similar to events seen in the 1930s has heightened and policymakers are making sure they are on the winning side, according to Morgan Stanley. The experience of the 1930s suggests to us that such large currency crises are likely triggered by domestic issues, and that they do create distinct winners and losers. EM (emerging market) policy-makers are already gearing up to make sure they remain on the winning side, but the balance of power for now rests with Japan www.cnbc.com/id/100441340 New Normal: Currency Wars Return, 1930s Style The saving grace will be if the Dollar crisis develops as many expect and remains my jeffolie view for starting in 2015. If the Dollar crisis develops, then safe haven seekers will bid up metals in terms of metals. A Dollar crisis can be from non inflationary start, origin. Most likely, the origin will be a lack of confidence from debts, deficits rather than wage push inflation. This lack of confidence would resemble the failure of the economy from external failing demand in the EU and its primary supplier which is China. After the crisis starts, inflation would be from a devaluing currency among sellers to America such as Japan, China, Mexico, Canada, the EU, etc. Competitive Devaluations often become complex situation. Capital Controls, wage & price freezes, selective trade moratoriums banning sales of selective items/commodities all have been tools historical and now in use. For examples of these in current use please review the current economic actions in Venezuela, Argentina, etc. The IMF in the last 6 months changed to allow for Capital Controls. ================================ Mission Accomplished: Abe Celebrates USDJPY 100 Breach 05/09/2013 New Normal The morning started off with the ubiquitous JPY-carry spike pre-US-open and has now extended (post the 30Y auction) to the new normal 140 pips rise to break the magical 100 JPY level to the USD. It has been seven months since Shinzo Abe first hinted at his extreme policy prescription for his ailing nation. Since the start of October 2012, the JPY has lost 30% of its value and the FX-carry market's holy trinity of Aso-Kuroda-Abe can wave their initial "mission accomplished" banners this evening. Fifth time was the charm it seems as after four times trying and failing in the last month, USDJPY has just passed the 100 level for the first time since April 2009 - and while Abenomics lives on, it was initially 'designed' to bring the JPY back into line after its massive strengthening post the crash lows in 2009. Interestingly, USDJPY risk-reversals (from the FX option market) suggest traders are less confident that the devaluation continues apace. We shall see... www.zerohedge.com/sites/default/files/images/user3303/imageroot/2013/05/20130509_JPY.jpgwww.zerohedge.com/news/2013-05-09/mission-accomplished-abe-celebrates-usdjpy-100-breach
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Post by jeffolie on May 10, 2013 12:01:54 GMT -6
May 10, 2013 Nikkei up another 3% as Yen Breaks .99; Japanese Bonds Halted; Be Careful of What You Ask The Yen continued its plunge Wednesday evening (Thursday in Japan) dipping below the .99 level after having busted the 1.00 level to the downside for the first time since April 2009. 2.bp.blogspot.com/-zIPJcLvVp_s/UYyJuvQ-TgI/AAAAAAAAV1Y/Vgpoo9StATk/s1600/Yen-Daily.pngIn response, the Nikkei rose as much as 3%, now up a "modest" 375 points (2.65%) as of 1:00AM Central. Zerohedge reports Japanese Government Bonds Halted Limit Down; Yields Spike To 10 Week High; Worst Day In 5 Years. Prime Minister Shinzo Abe is playing not with matches but with dynamite with his 2% inflation mandate widely known as "Abenomics". So far, Abe's policies are popular (at least from exporters), yet I caution once again "Be Careful of What You Ask, You May Get It". There is no reason at all to believe Japan can easily contain this mess should inflation get out of hand. A mere rise in interest rates to 3% would consume Japan's entire tax revenue just on interest on its national debt.This will not end well for Japan. Mike "Mish" Shedlock globaleconomicanalysis.blogspot.com/2013/05/nikkei-up-another-3-as-yen-breaks-99.html
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Post by jeffolie on May 10, 2013 12:12:11 GMT -6
Welcome to the Currency War, Part 9: What’s Wrong With These Pictures? by John Rubino on May 10, 2013 Japan’s currency devaluation has worked beautifully. The yen is plunging, Japanese stocks are soaring, and the current account surplus — the main measure of a country’s ability to trade effectively — is way up: Japan Current-Account Surplus Climbs as Abenomics Sinks Yen
Japan’s current-account surplus rose in March to the highest level in a year as a depreciating yen boosted repatriated earnings and brightened the outlook for the nation’s exports. The excess in the widest measure of trade was 1.25 trillion yen ($12.4 billion), the Ministry of Finance said in Tokyo today. That exceeded the 1.22 trillion yen median estimate of 23 economists surveyed by Bloomberg News. Prime Minister Shinzo Abe’s revamp of Japan’s central bank to focus on ending deflation paid off when the yen today slid past 101 for the first time since 2009, helping exporters such as Toyota Motor Corp. (7203), which now sees its highest annual profit in six years. Sustaining a current-account surplus may help to maintain confidence in the nation’s finances as Abe wrestles with a debt burden more than twice the size of the economy. “The currency’s depreciation is buoying Japan’s income from overseas investment at a pretty solid pace,” said Long Hanhua Wang, an economist at Royal Bank of Scotland Group Plc in Tokyo. “A weaker yen provides support for Japanese exports.” The dollar versus the yen over the past year: dollarcollapse.com/wp-content/uploads/2013/05/Dollar-yen-may-2013.jpgHere’s where it gets interesting: Measures like exchange rates and trade balances are relative, so Japan’s gains must by definition come at the expense of its trading partners. That is, the flip side of a weaker yen and rising Japanese trade surplus is a stronger dollar and deteriorating US trade balance. This hurts corporate profits, so to the extent that a cheaper currency and rising current account balance makes Japanese stocks go up, you’d expect US stocks to be doing the opposite. But that’s not the case; both stock markets are way up (S&P 500 blue, Japan’s Nikkei 225 green). dollarcollapse.com/wp-content/uploads/2013/05/SP-vs-Nikkei.jpgWhat does this mean? Either currency exchange rates and trade flows no longer affect national economies, or they still do and US companies are looking at a sudden, sharp deterioration in their ability to sell abroad and compete at home. This is consistent with the general currency war script: One country devalues, reaps some short-term rewards at the expense of its trading partners, who then retaliate by devaluing their currencies. Which means, probably, that the US and Europe are about to follow in Japan’s footsteps dollarcollapse.com/currency-war-2/welcome-to-the-currency-war-part-9-whats-wrong-with-these-pictures/
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Post by jeffolie on May 11, 2013 12:11:52 GMT -6
Currency Wars Return, 1930s Style Japan's currency war approved ... some losers roll overWhile asian countries and other retaliate with actions to devalue a 1930s slow motion competive devaluation of currencies has startedso far the safe haven remains the Dollar and Treasuries as I predicted for 2013 " ... a Dollar crisis after the EU crisis first and most likely the EU crisis will start late in 2013 or in 2014 because Germany has elections in Sept 2013. the FED has not yet changed policy ... 'don't fight the FED, don't fight the tape' ======================== G-7 Signals Tolerance of Yen Drop for Now as Japan Debated May 11, 2013 www.bloomberg.com/news/2013-05-11/g-7-signals-tolerance-of-yen-drop-for-now-as-japan-debated-1-.html===================================== Velocity, Slow Money & inflation, next 2 years « Thread Started on Mar 10, 2013, 1:35pm » -------------------------------------------------------------------------------- Velocity, Slow Money & inflation, next 2 years Why has inflation as published by the lying govt and repeated across the world remained so tame, low in America? The below piece states an often published fear of upcoming high inflation which well published John Williams of Shadowstats has warned often will become hyperinflation by the end of 2014 revised from his prior warning that hyperinflation would start THIS YEAR. Below, Bruce Krasting warns that when velocity ... money turnover ... jumps, then inflation will explode. my jeffolie view: low or no inflation during 2013 & 2014 in America... inflation will come from a Dollar crisis after the EU crisis first and most likely the EU crisis will start late in 2013 or in 2014 because Germany has elections in Sept 2013. Read more: www.unlawflcombatnt.proboards.com/index.cgi?board=general&action=display&thread=12220#ixzz2T0feKtdAso far the safe remains the Dollar and Treasuries as I predicted for 2013 the FED has not yet changed policy ... 'don't fight the FED, don't fight the tape' ======================== G-7 Signals Tolerance of Yen Drop for Now as Japan Debated May 11, 2013 www.bloomberg.com/news/2013-05-11/g-7-signals-tolerance-of-yen-drop-for-now-as-japan-debated-1-.html
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