It was a terrible week in Euro land. Greek bond spreads broke 10%. A
restructuring can’t be too far away. They are performing a bank stress
test that appears to be a joke. The results will exclude sovereign risk.
Exactly where the risk lies. With this as a backdrop the Euro should
have been slammed. It would have been in the market we had just a month
ago. But not this week. Some charts of the larger reserve currencies
versus the dollar.
The dollar has backed up in a significant way since the first week in
June. Some would say that the Buck is just suffering some indigestion
after a big move up in a short period of time. A very good case can be
made for the Euro to be 10-15% lower than it is today purely on
fundamentals. But that is not what the tape is telling us.
Currencies have two roles. They are a medium of exchange for settlement
of cross boarder trade and finance. All the reserve currencies do a good
job in that function. The other role of a currency is as a store of
wealth. It is not clear to me if any of the major currencies are doing
well in that capacity.
In the long run things like trade imbalances and current account
deficits are determinants in setting exchange rates. In the course of
any given month those influences have almost nothing to do with how
rates are set. In the short term it is all about sentiment.
I see the US losing the sentiment battle. With all the problems in the
UK and the EU at least the governments are attempting to address the
fundamental problem of fiscal imbalances. Even Germany is taking up the
issue. This is probably going to prove to be the kiss of death for
Greece. But a failure of Greece is not by itself the kiss of death for
the Euro.
This weekend’s G20 meeting may give us some clues on the sentiment
issue. We are going to see some battle lines drawn. Both Obama and
Geithner will be pushing for a growth package. It is likely that some of
the other countries are going to give the US a thumbs down on that.
America is going to be the only major country left that is continuing
down the path of fiscal insanity.
The final communiqué will have some nice talk about global coordination
and a big “thank you” to China for stepping up to the plate and
adjusting its FX policy. Behind the scenes it will be less friendly. A
number of countries will attempt to chastise the US for its profligate
ways. No one at the meeting will really be satisfied that China adjusted
its FX rate against the dollar by a measly ½% as a ticket to the show.
Should the US be held up as “the way not to do it” or if we getting some
snotty comments from a finance minister or two then we will see this in
the FX markets on Sunday night. The one thing that no one is thinking
about in the summer of 2010 is a dollar problem. That is probably the
best reason why one might pop up.
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The liar-in-chief has spoken. The real story behind the scenes is escalating to explosive levels. This link helps elaborate http://www.globalanalysis.net/news/294_obama_lies_and_double_crosses_the...
Real attorney, real letters, real happenings. barry soetero is going to go down and we thought Nixon & watergate was bad.
December 16, 2003. The American Dream Downpayment Assistance Act authorizes up to $200 million annually for fiscal years 2004 - 2007. http://www.hud.gov/offices/cpd/affordablehousing/programs/home/addi/ HOME is the largest Federal block grant to State and local governments designed exclusively to create affordable housing for low-income households. Each year it allocates approximately $2 billion among the States and hundreds of localities nationwide. The program was designed to reinforce several important values and principles of community development: http://www.hud.gov/offices/cpd/affordablehousing/programs/home/ Which was part of: HOME is authorized under Title II of the Cranston-Gonzalez National Affordable Housing Act, as amended. Program regulations are at 24 CFR Part 92. Which Daddy Bush pushed thru... Now, after pumping all of these dollars in... Bush cut funding, never mind the shit head idiot dems v. reps... When Bush pumped the housing market, with the magic, un-written Federal backstop clause and then cut the funding... all of that 50 to 1 leverage took on a new sheen... 50 to 1 leverage for an ongoing Federal Program, or as I would call it... The big boys feeding from the public trough of tax dollars... was safe, safe enough that how many absolute return funds bought into the rated, magic Federal funded and back stopped debt machine / vehicles? LOTS! But, when the Federal monies where cut... and the magic backstop was found to be a lie... the domino's fell, one after another... Goldman, being smarter than the rest bought shorts and insurance? how many different ways did Goldman profit from the failure, per deal... in the plainest of terms... for every one dollar in failed debt Goldman earned $2 dollars? Short + Swaps? I am guessing there just for the fun of it... sorry. But the failure was brought on by Bush pumping and then de-stabilizing the Federal dollars (really tax payer dollars) that where assumed to be safe by Bear, Lehman and so on... Don't get me wrong, Barney is an idiot Lobby whore just like Bush... but there is no difference between Barney, Bush, Obama, Clinton and so on... they are all moved by Lobby dollars... the song and dance is strictly for the public's entertainment. Obama is Bush part duex.. he is not a commie, he has taken every Bush program and ran with it... not run from it. Dont get caught up in the public spin machine. I offer... http://www.opensecrets.org/ see who owns your favorite representatives and then for fun look at the dem's side who should be against the reps push... and see how the dollars move the votes, not the party affiliations. John Mcsame spent all of a whole 10 minutes yesterday grilling Goldman, and said he was very disappointed in Goldmans behavior... he spoke less that the girl in Levin's ear... Top Industries John McCain http://www.opensecrets.org/politicians/industries.php?cycle=Career&cid=N... Finance, Insurance & Real Estate $33,457,679 $745,772 $32,711,907 Lawyers & Lobbyists $13,170,368 $307,508 $12,862,860 Other $42,122,454 $8,400 $42,114,054 John McSame spent 100 times less times talking about how we all have been screwed by Goldman for around 10 times more money than the other committee members where Bribed... Oops, I mean Lobbied with. There is no difference between the two parties, the lobby has bought and paid for all the whores inside the beltway, don’t think because of the cute sound bite you like hearing that the two parties are any different.
So what caused the 50 to 1 leverage to be put under pressure? WallStreet!? Shorts!? or was it when the monies where pulled out of the programs that provided the backstop for the 50 to 1 leverage that was until that time backed by Federal or as I like to call them Tax Trough Dollars... Bush pumped 100% more money into the programs and then several years later... he pulled funding from those same programs he pumped...
50 to 1 leverage on Federal monies that had been flowing like a river for 2 or 3 decades? which then got pulled... caused the stresses that lead to Goldman being able to short, which lead to Lehman's collapse and so on… This financial crisis was engineered and is was an Austrian lite thought process that lead us to this collapse… Reigning in any spending, on a broad scale has a ripple effect that spans well beyond what we would choose to see.
Not a story on the first domino that fell anywhere, even here. Bush pulled the backstop away from WallStreet... maybe all of those dollars going the other way pissed him off? http://money.cnn.com/2006/10/31/news/political_donations/index.htm
Holy shit, where do we go?
Dollar is a fraud. Prepare for living without it.
10. Dominican Republic
CPD: 23.37%
Mid Spread: 375.00
S&P Credit Rating:
Foreign Long Term: B
Foreign Short Term: B
9. Greece
CPD: 24.92%
Mid Spread: 341.54
S&P Credit Ratings:
Foreign Long Term: BBB+
Foreign Short Term: A-2
Credit Watch/Outlook: Negative
8. Iceland
CPD: 27.03%
Mid Spread: 476.34
S&P Credit Ratings:
Foreign Long Term: BBB-
Foreign Short Term: A-3
Credit Watch/Outlook: Negative
7. Iraq
CPD: 28.25%
Mid Spread: 475.97
S&P Credit Ratings:
Foreign Long Term: N/A
Foreign Short Term: N/A
6. Republic of Latvia
CPD: 29.13%
Mid Spread: 513.31
S&P Credit Ratings:
Foreign Long Term: BB
Foreign Short Term: B
5. Dubai, UAE
CPD: 32.46%
Mid Spread: 572.92
S&P Credit Rating:
Foreign Long Term: N/A
Foreign Short Term: N/A
4. Pakistan
CPD: 42.17%
Mid Spread: 803.20
S&P Credit Ratings:
Foreign Long Term: B-
Foreign Short Term: C
3. Ukraine
CPD: 44.12%
Mid Spread: 884.91
S&P Credit Ratings:
Foreign Long Term: CCC+
Foreign Short Term: C
2. Venezuela
CPD: 49.76%
Mid Spread: 1013.78
S&P Credit Ratings:
Foreign Long Term: BB-
Foreign Short Term: B
1. Argentina
CPD: 50.14%
Mid Spread: 1081.14
S&P Credit Ratings:
Foreign Long Term: B-
Foreign Short Term: C
Credit Watch/Outlook: Stable
Highest Default Probabilities
Entity Name
Mid Spread
CPD (%)
Greece
1103.75
67.93
Venezuela
1278.05
57.97
Argentina
964.79
48.06
Pakistan
713.20
38.80
Ukraine
622.26
35.69
Iraq
480.50
29.31
Dubai/Emirate of
488.27
29.20
Illinois/State of
359.63
27.35
California/State of
346.10
26.99
Portugal
332.45
25.11
Sovereign Tighteners
Entity Name
5 Yr Mid
Change (%)
Change (bps)
CPD (%)
Panama
124.99
-3.81
-4.95
8.61
Colombia
148.49
-3.07
-4.71
10.17
Brazil
131.31
-2.27
-3.05
9.03
United Mexican States
128.50
-2.21
-2.91
8.86
Denmark
41.56
-2.17
-0.92
3.67
Peru
128.81
-2.16
-2.84
8.85
Greece
1103.75
-2.05
-23.10
67.93
Argentina
964.79
-1.14
-11.09
48.06
Sovereign Wideners
Entity Name
5 Yr Mid
Change (%)
Change (bps)
CPD (%)
Romania
394.63
+7.65
+28.06
24.81
United States of America
40.42
+6.81
+2.58
3.54
Korea, Republic of
127.11
+6.72
+8.00
10.87
Thailand
133.81
+5.91
+7.46
11.37
Bulgaria
347.83
+5.60
+18.44
22.32
Estonia
122.19
+4.40
+5.15
8.43
Poland
156.14
+3.81
+5.73
10.66
Qatar
91.61
+3.69
+3.26
6.38
re g20,
if the current US administration wants an out for what they know is imminent economic doom, maybe they should just go ask europe to commit economic suicide to prevent it... then when europe is rational and refuses, and the economy ultimately collapses...
i wonder what the history books will say.
doubtless something involving pooga poooga.
get ready for pooga pooga.
Weakened dollar => resumption of carry trade => risk assets surge ? Is this another argument to buy buy buy?
You don't need to export more. You can do just fine by lowering the cost of government, giving big incentives to small business, and making those on welfare and retirement take at least part-time work, getting them off the dole. US economy is plenty big enough to expand on our own. Also, no one mentions that the cost of solar power per watt is dropping so fast, that within 5 years, all incremental energy use might be entirely of domestic generation, not becauase of cap n trade, but because solar will be cheaper for many jobs.
This november, please, vote the rascals out, and let's get back to a reasonable budget.
Keating, just got charged up after that short interruption that happens every day. It is worth your time to run the numbers assuming zero cost for the solar panels. Pick a 1% interest rate. Neglect O&M expenses. I'd like to compare payback/results.
- Ned
keating
Throw them all out.
Remocrats or Depublicans- sans difference.
Currencies have two roles. They are a medium of exchange for settlement of cross boarder trade and finance. All the reserve currencies do a good job in that function. The other role of a currency is as a store of wealth. It is not clear to me if any of the major currencies are doing well in that capacity.
Thank you Bruce, I enjoy your writing very much. There is something positive about using your own name. Cheers!
Both Europe and the USA have decided they must export more and import less. There is no other way to avoid another deep recession. Europe will gladly cast off Greece if it means a weaker Euro and greater exports to the EMs. The USA cannot let Europe take this path alone. Therefore, Bernanke and Geithner will weaken the dollar one way or another. It is a game of high stakes poker. Europe will have to blink at the end of the day.
The helicopter is on the pad and ready to take off.
What you write seems to be happening already. Reports coming out from Canada say that publicly the sides will "agree to disagree". Privately it must be rather heated, with Obama and Geithner no doubt perplexed that people are either not taking them seriously or are simply telling them they are wrong. It would never occur to either Obama or Geithner that they have their heads up their asses.
In the end, Obama, Geithner and Bernanke (in spirit) will convince themselves that a combination of more Keynesianism and the resulting weaker dollar will bring back prosperity, even though it has failed already. Any public statement reflecting that mindset could send the dollar tumbling even if Greece, Spain and Portugal go belly up.
Looks like in the race to the bottom, the US might be about to turn on the afterburners.
You presume these hoodlums want the USA to prosper? Really? Gonna have to disagree with you on that. Judging by recent actions, it seems more likely they are trying to put an end to the grand experiment known as the USA. Heads may indeed be up their asses, but they know exactly what they are doing.
http://research.stlouisfed.org/fred2/series/SBASENS?cid=124
Harvey--I'm with you. They are too smart and have had 50+ years to figure out how to "get the man." Notice Dodd's (D-Countrywide) statement "you have to pass the bill to see what is inside it." just lie SanFranNan.
I've sent a note to Stevie Lynch (best of a bad lot) asking him "what up with the budget?" Not holding my breath.
But it is all coming down politically as well.
- Ned
Great post Bruce. May I add, the Doe'larr is dead.
As for the dollar being dead, it may be in its death spiral but not dead quite yet.
I wanted to add this pertinent piece from The Privateer as it adds to the gold/currency debate so well covered above. The G20 tie-in may help gain some perspective:
Gold This WeekClose Of Trading: June 25, 2010
If you are trying to get me due to a technicality, and if that technicality is that something that never was can not die, then touche!
But the Doelarr is dead, and even pretending it is alive does not work for me. Weekend at Bernie's was funny for a reason.
I don't know what you two are talking about, but I suspect we are all singing from the same page. The buck is toast.
Re: Rocky's 436529 (did comment nesting break or something?)
That is an excellent piece that focuses attention on the reality of what money is. If the U.S. decides to go it alone with fiscal profligacy, that would mean we face a near-term currency repudiation by our trading partners. Incrementalism doesn't apply to such events, not with this amount of pressure built up in the system.
Thank you for a nice article, Bruce; and thanks to all the comments. Sure is nice to read reasonable and cogent words.
The USA still believes that debt saturation will be solved by more debt. But I have to ask, is the ultimate implication of continuing higher debts inflationary or deflationary?
German Finance Minister Wolfgang Schauble defended Germany’s focus on reining in German and European fiscal deficits:
“To the question of what caused the recent turmoil in the eurozone, there is one simple answer: excessive budget deficits in many European countries....f“Behind the calls for us to pursue a more expansionary fiscal course lie two different approaches to economic policymaking on each side of the Atlantic. While US policymakers like to focus on short-term corrective measures, we take the longer view and are, therefore, more preoccupied with the implications of excessive deficits and the dangers of high inflation.”
-----------------------
I look for USA to extend & pretend by raising retirement age, higher SS means testings, etc. That will decrease the NPV of unfunded liabilities, and should help maintain lower borrowing cots. If they try "Cap & Trade" to fund more bullshit, it will be stagflationary.
The car in the photo is a 1929 Chrysler 75 roadster. This was a fast, medium price car. In the Chrysler line the 75 came second only to the Imperial 80, which was in the Cadillac or Packard class.
So this was a pretty snappy car for 1929. MSRP was $1550. With tax, delivery charge and accessories the dude in the derby probably shelled out around $1700 just a few months before this pic was taken.
Today the same car in good shape would be worth $23200 to $34000 according to NADA's price guide.
Correction: settle taxes (since FRN's don't "pay" for anything)
Deflation. Contemplate Eagles put into circulation. USC 31, 5112. Where would FRNs run to? All you'd want them for would be to pay taxes.
RE: the car for sale.
Don't know the model but thought I would see which would be worth more today.
$100 bill from late 1920's today would fetch $150-200
5 1920's $20 dollar gold pieces= $9000 plus
1928 Buick in good condition= $15000
Now keeping a car for 80 years has its own costs but if you had a shed and kept it there unregistered and unused it would appear our desperate depression era car seller would have been advised to just keep his car!
Thanks sangell
Great idea
I gonna put my 08 Dodge pick-me-up truck away fer 80 years.
Thanks again fer the idea.
ps I have a 28 Stude roadster and it cost a little more than $100 but storage and security is a nuisance.
Beyond the false growth vs austerity debateBy Mohamed El-Erian
Squaring the circle of growth and fiscal stability needs policies that focus on long-term productivity gains and immediate help for those left behind. This means first enhancing human capital, including retraining parts of the labour force, and increasing labour mobility. Then new emphasis on infrastructure and technology investment is needed, with greater support for scientific advances that promise increased productivity. Finally all nations must begin an honest assessment of the social frictions coming in the next few years. In some countries (like the US) this means an urgent bolstering of social safety nets.
http://www.ft.com/cms/s/0/2f50ef78-7fcb-11df-91b4-00144feabdc0.html
Yeah and all those countries with "social saftey nets" are now BROKE exactly because of it. What a pile of turd these keynsian economists really are.. I really hope pimco gets shafted when the bond market collapses, fcking commie sheisters
I've read elsewhere but it bears repeating: Social safety nets require some people on the outside holding up the net. When we are all expecting to fall safely into it the impact is deadly!
Truth
Bruce,
"They are performing a bank stress test that appears to be a joke".
Wasn't that EXACTLY what occurred with the bank (lack of) stress tests in the US?! Didn't pass? Redo the tests with your own parameters until you pass. We'll change the accounting rules so you can mark to fiction. You can offload your badly performing assets to the Fed. Etc etc.
DavidC
The one not-so-subtle point that followed the US stress tests was that the stress test here were used to tell investors that it was "safe to go back in the water" and the banks issued huge amounts of equity off the backs of those tests. What Timmay has likely done is to sell the Europeans on the same concept: put on a smoke and mirrors show through the stress tests and then get the greater fools to use their hard-earned money to buy stock in these supposedly solvent banks. And indeed they are solvent because they are TBTF. The funds at this stage are just coming in a different form than they will at a later stage.
theres too much illiquidity around the corner for a dollar problem yet...but dont get me wrong, all fiats are toast.
Schrodinger's economist?
Well played!
Bruce, please -
The phrase « dead cat bounce » is extremely hurtful and offensive to many of us who love animals. Please never use it again in publication.
I have yet to see a dead cat bounce on my Farm. Usually they just lie there after the larger animals accidentally step on them.
Dead cat bounce is perfectly fine.
Toughen up or find another hobby; don't inflict your neurosis on the rest of us. I've seen you harping on this topic before.
If you can't stand the idea of a dead animal how do you go to the grocery store, visit a restaurant or go for a hike in the woods? The world is filled with dead animals.
I pray you are offended and hurt by this comment. It was intended so.
+ Yaz horizontal
I find it amazing that there can be so many unnecessary human deaths in war, that violence pervades our entertainment, and this seems to bother very few people, but people still shudder at the thought of a dying animal. I have a friend who will run away from a movie, crying, if she sees an animal pretend to die onscreen, but she does not blink when a human does. Unfuckingbelievable.
See no evil? Hear no evil? Speak no evil?
Evil. Evil. Evil.
Sometimes the crystal clarity of logic manages to shine the unbearably bright light of truth on glaring hypocrisy.
LH, you just managed to shine such a light.
okay.
So if "dead cat bounce" isn't PC, then is "looking up a dead dog's ass" out also ?
How about "tighter than a bull's ass in fly time".
In watching Bruce F. drop a few live cats from his second floor balcony (when we were kids) I can tell you live cats don't bounce very well either.
So, Bruce, I think I will be OK if you change to "live cat bounce"
Bruce,
Please never use that response again. It reminds some of us of the OKC bombing...
/sarcasm
okey dokey.
Dead Economist bounce ?
they do?... cool!