With quarter end now behind us,
I am watching for signs of:
The gold bubble bursting
Equity sell off after quarter end window dressing
Crude leveling off after quarter end window dressing
Dollar strength with lingering Eurozone problems and global concern about losing US market share
Post clunker and post first time home buyer credits softening those series
BMA and rates curves flattening
Accelerating M and A
More political unrest as real terms of trade continue to deteriorate
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Appreciate it if anyone can get me a meeting with him.
This policy is a major threat to our standard of living, and he apparently doesn’t know it:
Geithner Sees G-20 Consensus, Supports Dollar’s Reserve Role
By Rebecca Christie
September 25 (Bloomberg) – Treasury Secretary Timothy Geithner said he sees a “strong consensus†among Group of 20 nations to reduce reliance on exports for growth and defended the dollar’s role as the world’s reserve currency.
“A strong dollar is very important in the United States,†Geithner said in response to a question at a press conference yesterday in Pittsburgh, where G-20 leaders began two days of talks.
Geithner predicted agreement on an Obama administration proposal to foster a global recovery that avoids lopsided flows of trade and investment. He said a higher U.S. savings rate this year is an “encouraging sign,†and he indicated that government support for markets will be withdrawn gradually.
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> (email exchange)
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> On Tue, Jul 14, 2009 at 11:10 AM, wrote:
>
> Why do you think Germany is looking at issuing dollar bonds?
>
Good question!
They think the odds of the Fed bailing them out in a pinch are better than the ECB?
They have banks with dollar debt who need to repay the dollar swap line advances from the ECB?
The dollar interest rate is lower?
They are concerned about borrowing so many euro?
They want to bet the dollar will go down?
Some investment banker has talked them into believing there is some advantage to diversify their borrowings by currency?
None of these possible explanations make any sense so it must be something else.
Germany ‘Closely Monitoring’ Dollar Bonds for Sale
By Anchalee Worrachate
July 10 (Bloomberg) — Germany is “closely monitoring†the dollar-denominated bond market for a possible sale, the head of the nation’s debt agency said.
“Dollar bonds are looking more attractive now from the issuer’s perspective than a couple of months ago,†Carl Heinz Daube, head of Germany’s Federal Finance Agency, said today in an interview from Frankfurt. “Nevertheless, there’s still no cost advantage for us at this point. If the price is right, we won’t say no.â€
Selling dollar bonds would allow Germany to appeal to a wider range of investors, including money managers in the U.S. who don’t want to take on foreign-exchange risk. The agency issued five-year dollar bonds in 2005, the only time it sold debt denominated in the U.S. currency.
A meeting with U.S. investors suggested there’s “strong†interest in the debt, Daube said.
“I met investors in the U.S. last week and a number of institutional investors seemed to be keen to invest in Germany’s dollar bonds,†he said. “The final decision is with the Ministry of Finance.â€
Germany hired banks to sell the five-year securities that come due in 2010 and may do so again should it proceed with a dollar-bond sale, Daube said on June 23.
“We tend to do less funding in the summer because of the holiday season,†Daube said. “But I might not say no if there’s a great cost advantage next week.â€
Record Sales
The German debt agency will sell an unprecedented 346 billion euros ($481 billion) of government securities this year, 157 billion euros of which are bonds, with the remaining 189 billion euros in shorter-dated money-market instruments.
Bank bailouts and economic stimulus packages are swelling budget deficits in some of Europe’s largest economies, forcing governments to compete for cash. Poland last week sold $2 billion of dollar bonds after getting about $8 billion of investor orders. Spain sold $1 billion of three-year securities in dollars in March. Greece said in April it may sell debt denominated in either Japanese yen or the U.S. currency during the latter half of the year.
“Governments are diversifying their issuance as there’s so much funding to be done,†said Harvinder Sian, a senior bond strategist at Royal Bank of Scotland Group Plc in London. “There’s a cost element that needs to be looked at. At the moment, it’s relatively attractive to issue dollar bonds.â€
The German government is looking at overall costs, including hedging fees against the dollar’s appreciation, before deciding whether to offer the bond, Daube said. The dollar rose more than 13 percent versus the euro in the past 12 months.
“We are not allowed to carry any currency risk,†he said. “The whole package will have to be good because we must be able to save taxpayers money to issue such bonds.â€
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Wonder if our administration will go after them the way it is going after China for doing same.
Bad to buy dollars and US treasury securities vs your currency to support your exports — currency manipulation.
Good to buy dollars to buy treasury securities to, in the words of Secretary of State Clinton, enable the US to buy your products.
US policy could not be more confused and contradictory.
SNB Attention May Have ‘Shifted’ to Targeting Dollar, RBC Says
By Daniel Tilles
July 10 (Bloomberg) —The Swiss National Bank may target the franc’s appreciation against the dollar more than the euro, according to RBC Capital Markets.
“Since the SNB started intervening in March, euro-franc is up 2.2 percent, but dollar-franc is down over 9 percent,†Sue Trinh, a senior currency strategist in Sydney, wrote today in a report. “If the SNB’s attention has now shifted to dollar- franc, it would be consistent with the SNB’s change in tactics from intervening via euro-franc to dollar-franc in their most recent round of intervention and suggests dollar-franc may now be the better way to express the threat of SNB intervention at current levels.â€
The dollar rose 0.5 percent to 1.0842 francs as of 8:10 a.m. in Zurich.
SNB to Maintain Currency Purchases, Roth Tells Handelsblatt
By Simone Meier
July 10 (Bloomberg) —The Swiss central bank will continue to buy foreign currencies if needed to weaken the franc and prevent deflation, President Jean-Pierre Roth told Handelsblatt.
“We stick to our policy in a decisive manner,†Roth told the newspaper in an interview published today. “We don’t announce an exchange-rate target but observe that the franc hasn’t appreciated further.â€
While the Swiss National Bank is “relatively well prepared†to withdraw its stimulus measures, the bank is “still far away from a change in rate policy,†Roth said.
The Swiss economy could return to “slightly positive†growth rates in 2010 after shrinking between 2.5 percent and 3 percent this year, according to Roth. He called it a “good sign†that UBS AG, the country’s largest bank, managed to find private investors. “It shows that the market has regained confidence in the bank and that there’s light at the end of the tunnel,†Roth told Handelsblatt.
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> (email exchange)
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> Warren, Seems like we’ve seen a tiny repeat of what happened during
> the ( Mosler coined) Mike Masters inventory liquidation last summer.
> That is, crude oil drops and takes everything else down with it all driven
> by the fear of increased scrutiny regulation on commodity speculation.
> Do you agree? NY Times article a few days ago.
>
Yes, also the fact that it’s done it for the last few years about this time gets the specs going in that direction as well. If there’s nothing ‘fundamental’ going on this year it could quickly reverse as Saudis hold price and let quantity adjust.
Also, lower crude makes dollars harder to get overseas (our oil bill goes down) which tends to firm up the dollar.
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Higher crude prices will make USD easier to get overseas:
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On Fri, Sep 19, 2008 at 9:44 AM, Scott asks:
These moves HAVE to be bad for the dollar, no?
Not much effect per se.
Immediate effect is higher interest rates/stronger stocks which very near term helps the USD.
But it seems saudis are hiking price which, if it continues, will again send the dollar down.
Also, the Fed showed some concern about exports softening, which they probably attribute to the recent USD strength.
So seems the Fed and Treasury probably don’t want the dollar to get too strong.
Major equity short covering rally in progress.
When it runs its course, the US economy will still be weak and higher crude prices will be problematic as well.
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This is an extension of credit to those CBs which functionally allows them to borrow (and thereby also get ‘short’) USD, presumably to fund their local USD needs for their institutions short USD, and presumably to cover losses on their USD financial assets and to finance the remaining balances.
The ECB has no USD to fund its member banks, and is not inclined to sell euros and buy USD as, at a minimum, a matter of ideology.
This is not a good sign for the eurozone banking system solvency, though the size is modest, at least for now.
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My current assessment is that the crude sell-off has caused the USD’s strength.
Lower crude prices make the USD ‘harder to get’ as oil producers get fewer USD for the same volume of crude (and product) exports to the US.
Likewise, this also brings down the US trade gap which is about half directly related to oil prices, so nonresidents have fewer USD to meet their USD financial asset savings desires.
Crude has been brought down by technical selling, which also brought with it technical buying of USD as trend following trading positions were unwound.
The crude market has gone into contango as would be expected with a futures sell off and tight inventories.
Tighter US credit conditions made the USD ‘harder to get’ while increased deficit spending makes the USD ‘easier to get’ resulting in GDP muddling through at modest rates of growth.
The Russian invasion probably helped the USD today.
Eurozone credit quality erosion with the onset of intensified economic weakness may be triggering an exit from the euro. The lowest risk euro financial assets are the national governments which carry similar risk to US States, and are vulnerable in a slowdown that forces increasing national budget deficits that are already in what looks like ‘ponzi’ for credit sensitive agents.
Eurozone bank deposit insurance is not credible and therefore the payment system itself vulnerable to an economic slowdown.
With the Russian army on the move, public and private portfolios may not want to hold the debt of the eurozone national governments that they accumulated when diversifying reserves from the USD.
I expect the Saudis to resume hiking crude prices once the selling wave has passed. I don’t think there has been an increase in net supply sufficient to dislodge them from acting as swing producer. And I also expect them to continue to spend their elevated revenues on real goods and services to keep the west muddling through at positive but sub-trend growth.
And the Russian invasion will linger on and help support the USD as a safe haven in the near-term
Comments about this post from email:
MIKE:
Again, its very likely you have permanently damaged demand at prices that are still over 100-
It’s possible the growth of crude consumption has slowed, but I still think it’s doubtful if consumption had declined enough to dislodge Saudi price control. July numbers still not out yet.
in addition asset alligators around the world are actually or synthetically short the dollar after 8 years of dollar selling…
Agreed. The question is the balance of the technicals, and if the CBs no longer buying USD has been absorbed by others.
For now, yes, short covering has mopped up the extra USD sloshing around from our trade gap, but it’s still maybe $50 billion per month that has to get placed. Not impossible for non-government entities to take it but it’s a tall order.
The Russian invasion helps a lot as well. That could be a much more important force than markets realize. Looks like a move to further control world energy supplies. A middle-eastern nation could be on the bear’s menu. I doubt the US could do anything about a Russian takeover of another neighbor. Certainly not go to war with Russia. and they know it.
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> European demand for $ funding has increased and surpassed the US demand
>
Pat, this is most problematic as it indicates the eurozone is strung out on $US debt.
At least the US banking system doesn’t have a problem with euro debt.
This compounds the systemic risk over there.
Warren