• Monetary Metals
    07/28/2014 - 02:38
    Notice the “icicles” dripping all over the place? They occur at different times of the day. What are they? Each one is a brief but dramatic price drop.

Trade Deficit

Tyler Durden's picture

Guest Post: Floating Exchange Rates - Unworkable And Dishonest





Milton Friedman was a proponent of so-called “floating” exchange rates between the various irredeemable paper currencies that he promoted as the proper monetary system. Many have noted that the currencies do not “float”; they sink at differing rates, sometimes one is sinking faster and then another. This article focuses on something else. Under gold, a nation or an individual cannot sustain a deficit forever. A deficit is when one consumes more than one produces. One has a negative cash flow, and eventually one runs out of money. The economy of a household or a national is therefore subject to discipline—sooner or later. Friedman asserted that floating exchange rates would impose the same kind of forces on a nation to balance its exports and imports. He claimed that if a nation ran a deficit, that this would cause its currency to fall in value relative to the other currencies. And this drop would tend to reverse the deficits as the country would find it expensive to import and buyers would find its goods cheap to import. Friedman was wrong.

 
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Frontrunning: April 17





  • This is just hilarious on so many levels: Japan Will Provide $60 Billion to Expand IMF’s Resources (Bloomberg) - just don't look at Fukushima, don't look at the zero nuclear plants working, don't look at the recent trade deficit, and certainly don't look at the Y1 quadrillion in debt...
  • US Senate vote blocks ‘Buffett rule’ (FT)
  • Reserve Bank of Australia awaiting new data before considering rate move (Herald Sun)
  • Merkel Offers Spain No Respite as Debt Cuts Seen As Key (Bloomberg)
  • RBI cuts repo rate by 50 bps; sees little room for more (Reuters)
  • China allows banks to short sell dollars (Reuters)
  • Central bankers snub euro assets (FT)
  • Shanghai Econ Weakening’ Mayor Vows to Pop Housing Bubble (Forbes)
  • Wen's visit to boost China-Europe ties (China Daily)
  • Madrid threatens to intervene in regions (FT)
 
Tyler Durden's picture

At Least One Italian Export Is Soaring: Gold





When one thinks PIIGS, one usually imagines countries with collapsing economies, 50%+ youth unemployment, and current account deficits so large they are about to drag down the ECB, Bundesbank and Germany. And while that is absolutely correct for the most part, there is one product which the PIIGS, or in this case Italy, are all too happy to export in size. Gold, and not just to anywhere, but to that ultimate safe haven - Switzerland. From BBC: "Italian exports of gold ingots to Switzerland have soared in recent months, data has shown. Exports to Switzerland were 35.6% higher than in February 2011 "mainly because of sales of non-monetary raw gold", statistics agency Istat said. This followed a 34.6% year-on-year rise in exports to Switzerland in January." And the absolutely funniest attempt at spin ever:  "Experts say improvements in the trade deficit could be a sign that Prime Minister Mario Monti's economic reforms are starting to take effect." Uhm, when the country is exporting the only real asset it has for when it will need to backstop its own currency following the inevitable collapse of the EUR, this is not exactly a sign that the country's reforms are taking effect, but rather that everyone else in Europe is stockpiling the precious metal in advance of "some" event, which is coming.

 
Tyler Durden's picture

Sheila Bair's Modest Proposal To Fix Everything: Hyperinflation





This one is actually quite funny, although we feel that the MMTers, the Neo-Keynesians, the Econ 101 textbook fanatics, and the government apparatchiks out there will fail to appreciate the humor. However, we are a little concerned how many of those in charge read into this a little too much, and decide to make this official policy...

 
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Goldman Raises Q1 GDP Forecast To 2.5% On Trade Deficit Data





US fiscal and monetary policy summarized: Baffle them with B(L)S data. This is what happened most recently this morning, when as we noted the labor data is finally reverting to a far weaker trendline now that the weather effect first written about here in February, has been fully exposed. And if it was only that it would be case closed: more QE is coming, especially with headling PPI coming less than expected. However, we also had trade data that came in $6 billion better than expected, a number we said would result in imminent Q1 GDP hikes. Sure enough, here comes Goldman. "The US trade deficit declined to $46.0 in February following a deficit of $52.5bn in January. Most of the improvement reflected a sharp decline in real goods imports, which fell by 3.9% (month-over-month). We suspect that the weakness reflects in part seasonality related to the Chinese New Year holidays. Real goods exports also declined during the month, falling by 1.0%. On net, the report raised our tracking estimate of Q1 GDP growth to 2.5% from 2.3% previously." So what is a poor Fed chairman to do to keep the goldilocks illusion going, yet have a QE way out? Well, blame China for a jump in GDP helps. For everything else we have the weather.

 
Tyler Durden's picture

Initial Jobless Claims Soar Past Expectations, Hit 380K, Highest Since January





So much for the endless string of "Jobless Claims in US fall to lowest since 2008" propaganda. First of all, just as we predict every week with 100% accuracy, last week's "decline" from a revised 363K to 357K was revised, and instead it surged from 357K to a revised 367K. So much for the spin. More importantly, the current weekly claims number exploded to 380K, on expectations of 355K - the highest print since January, and the biggest claim miss in a year! And also just as predicted, the "economic weakness" period to butter up the country for the NEW QE begins. Don't be surprised as claims surge to close to 400K in the next few weeks in advance of an epic BLS miss next month, all to be blamed on the "warm weather", "Chinese new year", "Sumatra earthquake" and "Bush" of course, it never happens just because, in time for the FOMC's June meeting to set the stage for MBS LSAP, just as Bill Gross has been expecting all along. 

 
Tyler Durden's picture

Overnight Sentiment: Lack Of Good News Is Not Good News





So far futures are broadly unchanged, following the release of a Chinese trade report which while showing a resumption in the trade surplus, on expectations of further trade deficit in March, showed it was primarily due to a slide in imports, not so much a rise up in exports, a fact which impacted the Aussie dollar subsequently. We already noted that in conjunction with the BOJ, this means that Asia's central banks will likely hold off on further easing, and defer to the Chairman, especially with food inflation in China still prevalent. Aside from that the traditional European weakness is back, where April Sentic Investors Confidence slid to -14.7 on expectations of -9.1: to be expected from a meaningless market-coincident indicator. Keep a close eye on PIIGS bonds where whack a mole is now firmly back as the LTRO benefit is long forgotten, 3 month half life and all that.

 
Tyler Durden's picture

Stocks Have Second Biggest Plunge Of 2012





Treasury yields retraced more than 60% of their rise post-FOMC yesterday leaving them only marginally higher on the week as, despite another late afternoon light volume surge to VWAP, stocks closed with their second biggest daily loss of the year. Three days in a row now, ES (the S&P 500 e-mini futures contract) has closed at its VWAP - suggesting institutional blocks continue to look for opportune/efficient selling levels (as opposed to buying the dips which we are so used to). After Spain's auction debacle and the ISM Services miss, it seems that with no Fed standing guard that good is good but bad is not better anymore as the S&P 500 cash lost over 1% (down 2% from Monday's peak to today's trough). Financials underperformed and the majors (which we noted on Monday sagging after Europe's close) have been really hurt with Citi, BofA, and MS down 6 to 7% since then. Equity markets in the US and Europe played catch up once again to credit's more realistic assessment of the world as HYG (the high-yield bond ETF) is back at one-month lows, down 2.7% from its end-Feb highs (or five months worth of yield, oops). Investment grade credit (which remains rich to its fair-value) was not helped as Treasuries were the place of refuge for the day as 30Y yields dropped their most in 2012. Commodities suffered significant damage as Silver tumbled to meet Gold's loss for the week, both down 3% Copper and Oil also dropped notably and are now back in sync with the USD for the week -1% or so. Most major FX remained USD positive except for JPY which retraced its snap lower from yesterday as carry trades were generally exited (with EUR and AUD weakness mirroring JPY strength post-FOMC) leaving DXY near 3-week highs. Who-/What-ever was doing the buying in the afternoon clearly levered the position (using AAPL or options) as VIX dumped once again out of nowhere intraday - closing near its lows of the day. However, VIX did close up near one-month highs as it catches up to Europe's VIX flare. Given the drop in implied correlation (and in-line VIX-S&P move) we suspect the covered-call strategy of the year was coming undone a little at the seams as single-name vol underperformed.

 
Tyler Durden's picture

Sentiment: Deep Red As Europe Is Back With A Thud





Oh where to begin. The weakness in the markets started late last night when Australia posted a surprising second consecutive deficit of $480MM on expectations of a $1.1 billion surplus (with the previous deficit revised even higher). This is obviously quite troubling because as we pointed out 3 weeks ago when recounting the biggest Chinese trade deficit since 1989 we asked readers to "observe the following sequence of very recent headlines: "Japan trade deficit hits record", "Australia Records First Trade Deficit in 11 Months on 8% Plunge in Exports", "Brazil Posts First Monthly Trade Deficit in 12 Months " then of course this: "[US] Trade deficit hits 3-year record imbalance", and finally, as of late last night, we get the following stunning headline: "China Has Biggest Trade Shortfall Since 1989 on Europe Turmoil." So who is exporting? Nobody knows, but everyone knows why the Aussie dollar plunged on the headline. The shock sent reverberations across Asian markets, which then spilled over into Europe. Things in Europe went from bad to worse, after Germany reported its February factory orders rose a modest 0.3% on expectations of a solid 1.5% rebound from the -1.8% drop in January. But the straw on the camel's back was Spain trying to raise €3.5 billion in bonds outside of the LTRO's maturity, where the results confirmed that it will be a long, hard summer for the Iberian country, which not only raised far less, or €2.6 billion, but the internals were quite atrocious, blowing up the entire Spanish bond curve, and sending Spanish CDS to the widest in over half a year.

 
Tyler Durden's picture

Chinese Business Media Cautions Japanese Bond Bubble Is Ready To Burst, Anticipates 40% Yen Devaluation





It is a fact that when it comes to the oddly resilient Japanese hyperlevered economic model, the bodies of those screaming for the end of the JGB bubble litter the sides of central planning's tungsten brick road. Yet in the aftermath of last month's stunning surge in the country's trade deficit, this, and much more may soon be finally ending. Because as Caixin's Andy Xie writes "The day of reckoning for the yen is not distant. Japanese companies are struggling with profitability. It only gets worse from here. When a major company goes bankrupt, this may change the prevailing psychology. A weak yen consensus will emerge then." As for the bubble pop, it will be a sudden pop, not the 30 year deflationary whimper Mrs. Watanabe has gotten so used to: "Yen devaluation is likely to unfold quickly. A financial bubble doesn't burst slowly. When it occurs, it just pops. The odds are that yen devaluation will occur over days. Only a large and sudden devaluation can keep the JGB yield low. Otherwise, the devaluation expectation will trigger a sharp rise in the JGB yield. The resulting worries over the government's solvency could lead to a collapse of the JGB market." It gets worse: "Of course, the government will collapse with the JGB market." And once Japan falls, the rest of the world follows, says Xie, which is why he is now actively encouraging China, and all other Japanese trade partners of the world's rapidly declining 3rd largest economy to take precautions for when this day comes... soon.

 
Tyler Durden's picture

Previewing Next Week's Events





Next week will be relatively light in economic reporting, and with no HFT exchange IPOs on deck, and the VVIX hardly large enough to warrant a TVIX type collapse, it may be downright boring. The one thing that will provide excitement is whether or not the US economic decline in March following modestly stronger than expected January and February courtesy of a record warm winter, will accelerate in order to set the stage for the April FOMC meeting in which Bill Gross, quite pregnant with a record amount of MBS, now believes the first QE hint will come. Naturally this can not happen unless the market drops first, but the market will only spike on every drop interpreting it for more QE hints, and so on in a senseless Catch 22 until the FRBNY is forced to crash the market with gusto to unleash the NEW qeasing (remember - the Fed is now officially losing the race to debase). For those looking for a more detailed preview of next week's events, Goldman provides a handy primer.

 
testosteronepit's picture

Liquid Economic Indicators: The Wine Debacle





More vertigo-inducing than all of the Eurozone bailout mechanisms combined.

 
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