A dispassionate discussion of the technical condition of the dollar.
It is unclear exactly why stock futures, bonds - with European peripheral yields hitting new record lows for the second day in a row - gold, oil and pretty much everything else is up this morning but it is safe to say the central banks are behind it, as is the "de-escalation" algo as a meeting between Russia and Ukraine begins today in Belarus' capital Minsk. Belarusian and Kazakhstani leaders will also be at the summit. Hopes of a significant progress on the peace talks were dampened following Merkel’s visit to Kiev over the weekend. The German Chancellor said that a big breakthrough is unlikely at today’s meeting. Russian FM Lavrov said that the discussion will focus on economic ties, the humanitarian crisis and prospects for a political resolution. On that note Lavrov also told reporters yesterday that Russia hopes to send a second humanitarian aid convoy to Ukraine this week. What he didn't say is that he would also send a cohort of Russian troops which supposedly were captured by overnight by the Ukraine army (more shortly).
The consensus among market watchers last September was that, with U.S. interest rates so low and the U.S. Federal Reserve (the Fed) about to withdraw stimulus, interest rates would trend higher. However, Guggenheim's Scott Minerd took a different view, writing in a commentary that “10-year rates may be heading back to 2.25 percent or lower.”
Overview of the technical outlook for the major currencies, bonds, Treasuries, stocks, CRB and oil.
With the FOMC Minutes in the books, the only remaining major event for the week is the Jackson Hole conference, where Yellen is now expected to talk back any Hawkish aftertaste left from the Minutes, and which starts today but no speeches are due until tomorrow. And while the Minutes were generally seen as hawkish, stocks continue to levitate, blissfully oblivious what tighter monetary conditions would mean to an asset bubble, which according to many, is now the biggest in history. And speaking of equities, US futures climbed to a fresh record high overnight on just the right mix of bad news.
Any day, week, month, year now... Japan's adjusted trade balance missed expectations by the most since October 2013 (back over a JPY1 trillion deficit) as the QQE-ing, j-curve-any-minute-now nation awaits the arrival of the competitive pickup for the 40th month in a row. Exports beat expectations (which we are sure will be the headline crowed about by all) but imports surged by 2.3% (against expectations of a 1.5% drop). It appears you single-handedly devalue yourself to prosperity in an interconnected world after all - whocouldanode? As we said before, "Monetary debasement does NOT result in an economic recovery, because no nation can force another to pay for its recovery."
Non-ideologically laden overview of the key issues shaping the investment climate in the week ahead.
The ragged Keynesian excuse that all will be well in Japan once the jump in the consumption tax from 5% to 8% is fully digested is false. Here’s the problem: this is just the beginning of an endless march upwards of Japan’s tax burden to close the yawning fiscal gap left after the current round of tax increases, and to finance its growing retirement colony. There is no possibility that Abenomics will result in “escape velocity” Japan style and that Japan can grow its way out of it enormous fiscal trap. Instead, nominal and real growth will remain pinned to the flatline owing to peak debt, soaring retirements, a shrinking tax base and a tax burden which will rise as far as the eye can see. Call that a Keynesian dystopia. It is a cautionary tale for our times. And Japan, unfortunately, is just patient zero.
Overview of the technical conditions of the major markets.
The world is suddenly a very sad place: people killing people across the globe, deadly viral epidemics claiming over a thousand, hate crimes, human misery and drama at levels not seen in years. What is one to do to find a little precious humor? Why read this latest Dennis Gartman excerpt ahead of his daily CNBC appearance of course.
What does the future look like for fiat currencies? (e.g. the dollar, the euro, the yen, the pound...) In the case of the dollar (which operates similarly to the other major world currencies), we know that - since all are "loaned into existence" - all dollars are backed by an equivalent amount of debt. Debt upon which interest must be paid. As all outstanding debt must compound over time at the rate of its interest (at least), we come to this important conclusion: Our money system is designed to grow exponentially. And it requires ever more debt in order to do so.
Overview of the price action in various currencies, S&P 500, Treasuries and the CRB Index
Empires are not the result of conscious thought; they happen when a group is large enough and powerful enough to impose itself on others. But empires are expensive. They are typically financed by theft and forced tribute. The imperial power conquers... steals... and then requires that its subjects pay “taxes” so that it can protect them. The US never got the hang of it. It conquers. But it loses money on each conquest. How does it sustain itself? With debt.
Japan’s QE was large enough that no one, not even the most stark raving mad Keynesian on the planet, could argue that it wasn’t big enough. Which is why the results are extremely disconcerting for Central Bankers at large.
"We tried not to equivocate too materially yesterday but we hoped we had made it clear that it was our intent to move off of the centre point of neutrality to something a bit more bullishly inclined.... We’ll err bullishly then, albeit not aggressively so. Rather, as we’ve been in the past, we are “pleasantly” bullish and look to add to our positions..." - Dennis Gartman