Mish's Global Economic Trend Analysis |
- Japan Intervenes, Yen Plunges; What's Next?
- Bailout of Italy on Tap; ECB to Become Buyer of "Only" Resort; Expect Failure of Thursday's Italian Bond Auction; Who Will Bail Out the ECB?
- Quantitative Easing Begins in Switzerland to Counteract Soaring Swiss Franc, Central Bank "Aims to Bring 3-Month LIBOR to 0%"; Gold Soars
- ISM says "Business Conditions Flattening Out"; Why Services Number Worse Than It Looks; Unsustainable Conditions
- Durable Goods Orders Sink 2.1%, Non-Defense Orders Sink 4.1%
- Italy Holds 2 Hours of Emergency Meetings with Juncker; EU says "Euro Area's Systemic Capacity in Doubt"; Italy Banks Have Difficulty Securing Funding
Japan Intervenes, Yen Plunges; What's Next? Posted: 03 Aug 2011 09:42 PM PDT No major country or central bank wants a strong currency, not Japan, not the ECB, not Brazil, not Bernanke, not the Fed. The central falsehood is that every country and every central bank seems to think they can export their way out of this malaise if only their currencies would sink. History has proven time and time again that intervention does not work, but that never stops countries from trying. Bloomberg reports Yen Slumps After Japan Intervenes to Curb Rise; Most Asian Stocks Advance The yen dropped the most in about five months against the dollar after Japan intervened in the foreign-exchange market to weaken its currency. Most Asian stocks rose, paced by exporters, and metals rebounded.Yen Intraday Chart click on chart for sharper image A Look at Prior Interventions Flashback December 18, 2008: Japan Announces Currency and Stock Market Intervention It is absolutely not clear that Japan needs to do anything here. In fact, it is absolutely clear that Japan should not do a thing. It has been proven time and time again that currency intervention does not work.Flashback March 17, 2011: Coordinated G-7 Yen Intervention in Progress; Currency Interventions Never Work Inquiring minds are once again watching central banks intervene in the forex markets.Care to change your mind Mr. Hardman? This is what I said ... Currency Interventions Never WorkYen Weekly Chart The chart above from today looks ominous. A weekly chart puts things in better perspective. click on chart for sharper image The currency intervention in March gave the appearance of working for 4 weeks or so. However, it is not clear it did anything ever. There is often a correction following a new spike high. At best, the intervention increased the strength of the correction for a few weeks. The same applies to Greece, not with currency intervention, but interest rates. The ECB stepped in on multiple occasions to support Greece by buying Greek government bonds. The first time it worked for a couple months, the second time intervention lasted a month, and the latest effort lasted about a week. Simple Math Mathematically it's impossible for every currency to sink vs. each other. However they can all sink against something. That something is gold and there should be no doubt that gold is reacting to competitive currency devaluation schemes of central banks. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List |
Posted: 03 Aug 2011 12:32 PM PDT A critical Italian government bond auction is coming up Thursday, August 4. That bond auction is highly likely to fail. However, if it does fail, don't expect results to be reported that way. The chief economist at Citigroup says ECB to Revive Bond-Buying to Protect Italian Auction This Week Former Bank of England policy maker Willem Buiter said the European Central Bank will revive its bond-buying program to safeguard this week's auction of Italian bonds.Nonsense from Citigroup Buiter's statements are of course complete nonsense. If the ECB steps in it will be because the auction failed. The act of intervention will not turn a failed auction into a successful one. What the hell is the matter with chief economists who do not understand simple economic principles? Protection? Really? Here is another ridiculous headline on the same subject from The Telegraph: ECB to protect Europe by buying bonds The European Central Bank is expected to signal it is stepping into the eurozone debt crisis on Thursday by reopening its purchases of government debt, amid fears the turmoil will claim the economy of a nation that is "too big to bail".Buyer of Only Resort The idea the ECB can "protect" Italy by buying Italian bonds is as silly as the idea the ECB could protect Greece by buying Greek bonds. We all know how the Greek purchase turned out. Market forces will overrule anything the ECB can do. Worse yet, the ECB is exacerbating the problems. If the ECB misprices bonds and does so repetitively, other participants will eventually step to the sidelines and the ECB will become the buyer of only resort, with a balance sheet full of garbage and obvious implications. Who Will Bail Out the ECB? Who pray tell will bail out the ECB? The correct answer is no one, and this is one of the driving forces of gold. For more on nonsensical central bank actions driving the price of gold, please see Quantitative Easing Begins in Switzerland to Counteract Soaring Swiss Franc, Central Bank "Aims to Bring 3-Month LIBOR to 0%"; Gold Soars Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List |
Posted: 03 Aug 2011 10:23 AM PDT It's official. Quantitative easing has begun, just not where you might have expected. QE is underway in Switzerland, by the Swiss National Bank, not the US by the Fed. Swiss National Bank Targets LIBOR "Close to Zero as Possible" The Swiss National Bank Press release says Swiss National Bank takes measures against strong Swiss franc The Swiss National Bank (SNB) considers the Swiss franc to be massively overvalued at present. This current strength of the Swiss franc is threatening the development of the economy and increasing the downside risks to price stability in Switzerland. The SNB will not tolerate a continual tightening of monetary conditions and is therefore taking measures against the strong Swiss franc.Emergency Central Bank Cut Outside Scheduled Quarterly Meetings Via email (no direct link) Barclay's Capital reports "SNB moves to QE to counteract appreciating CHF, and cuts official rates" This morning the Swiss National Bank (SNB) announced that it will, over the coming days, increase the Swiss monetary base (that is, banks' sight deposits held with the SNB) from currently around CHF30bn to CHF80bn - a measure that we argue can rightly be described as "quantitative easing" (QE). In effect, the bank will repurchase outstanding SNB Bills. The measure aims to bring the 3-mth Swiss Libor target rate to "as close to zero as possible", and the bank will also narrow the target range for the 3-mth Libor from 0.00-0.75% to 0.00-0.25% - so the bank has therefore also cut official rates today (thus outside of a regular quarterly meeting). The increase in the monetary base is not necessarily going to increase the SNB's balance sheet; rather, we believe it is more likely to result in a restructuring of its liabilities: banks' sight deposits held with the SNB increase, while liabilities in the form of, say, SNB Bills decline.Is it any wonder gold is soaring? Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List |
Posted: 03 Aug 2011 09:38 AM PDT In the July 2011 Non-Manufacturing ISM Report On Business®, the ISM offered this interesting thought: Respondents' comments remain mixed; however, for the most part they indicate that business conditions are flattening out." Why Services Number Worse Than It Looks Here is a table from the report, with annotations in red, green and blue by me, that suggests things are weaker than they look. click on table for sharper image The NMI/PMI is an equal weighted index of four components.
Unsustainable Conditions Production is +2.7 while new orders, employment, and deliveries are down. Also note that backlog of orders has plunged over the past two months. Meanwhile new export orders is not only in a free-fall, but also in contraction for the first month as the global economy cools. Supplier deliveries are on the verge of contraction, and inventories were +3 points to 56.5. In short, one of these numbers does not make sense in relation to the others, in relation to the manufacturing ISM, in relation to the financial industry, and in relation to the global economy. That 56.1 production reading at +2.7 simply does not fit in, and is not sustainable if the other conditions remain in current "slowing" condition. The possibility of a much bigger decline next month seems very real. In fact, that is my call in advance. Slowing Global Economy Links
Soft Patch? Those are just a few of the economic stories from the last 3 days. Is this a "soft patch" or is it "soft thinking" by those who believe the former? Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List |
Durable Goods Orders Sink 2.1%, Non-Defense Orders Sink 4.1% Posted: 03 Aug 2011 08:33 AM PDT Manufacturing continues its slide as one might expect in the wake of the latest ISM reports. Please consider details from the Advance Report on Durable Goods Manufacturers' Shipments, Inventories and Orders for June 2011. New OrdersIn general, orders were down and shipments were up. Nondefense was hammered. Unfilled orders are on the verge of contraction. This set of data does not bode well for employment. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List |
Posted: 03 Aug 2011 08:02 AM PDT Congratulations (of sorts) to Jean-Claude Juncker for not lying about what was said in emergency meetings with Italian Economy Minister. Juncker did not lie for the simple reason he did say anything of substance about the meeting. Credit Crunch European Style Inquiring minds are noting various details in a Reuters report EU says Euro area's systemic capacity in doubt European Commission President Jose Manuel Barroso said a surge in Italian and Spanish bond yields to 14-year highs was cause for deep concern and did not reflect the true state of the third and fourth largest economies in the currency area.Spanish and Italian bonds yields shot up to new record highs but are now a few basis points above yesterday's close. Both remain above 6% with Italy 10-year bonds currently at 6.09% and Spain at 6.25%. The highs were 6.26 and 6.42 respectively. Gold hit another new high and currently sits up $29 at $1672 and silver surged a whopping $1.76 to $41.85. No Reason for Alarm?! In a clear use of the Jean-Claude Juncker theory to "lie when it gets serious", a "German government spokesman said Berlin saw no reason for alarm over the selloff of Italian stocks and bonds and was focused on implement the latest euro zone summit decisions." Does anyone believe that? Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List |
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