Norway

A big picture look at the drivers of the global capital markets.

The overtly inflationary policy stance of the FOMC is especially significant when you consider that Fed Chairman Ben Bernanke is no longer in control of monetary policy.

Synthetic securities based on putrid shipping loans

In August 2011, while undergoing cancer treatments that ultimately failed him, Venezuela’s President Hugo Chávez began withdrawing 160 tons of gold from U.S., European and Canadian banks. “It’s coming to the place it never should have left. ... The vaults of the central bank of Venezuela, not the bank of London or the bank of the United States. It’s our gold,” he said on national television as crowds cheered armored trucks carrying an initial bullion shipment to the central bank. The Caracas hoard would today be valued at around $9 billion, were it not for the fact that Venezuela has been selling it — about $550 million worth in the first eight months of 2012, according to the IMF. Did further sales follow over the past six months, with proceeds partly paying for the public largesse that helped fuel Chávez’s victorious up-from-the-sickbed presidential run? Thus, there is something less than $8.5 billion in untraceable gold bullion stashed in an extremely politicized city that’s simmering with grudges and dreams. Physical gold is modestly short of priceless to a criminal. What mala gente or dissident generals wouldn’t want some of Chávez’s rich legacy?

Liquefied natural gas (LNG) technology - from LNG seaborne tankers and LNG trains to floating LNG facilities have quickly gone from concept to commercialization, opening up new possibilities in new frontiers and rendering the remote - well, much less remote. Analysts say FLNG terminals will become a major growth market within the next couple of years, as they offer more flexibility than stationary terminals. Liquefaction of natural gas is the process of super-cooling natural gas to minus 260 degrees Fahrenheit (minus 162 degrees Celsius) at which point it becomes much safer and easier to transport. After its been shipped to its destination, regasification plants at importing or receiving terminals return the fuel to a gaseous state. A lot of money is being dumped into LNG technology right now. It’s a major bet on the LNG market, but here’s why it’s solid...

On the first workday of a new month, global PMI manufacturing surveys are released around the world. That gives us an early read on the state of manufacturing. As the nearby table from BofAML shows, out of the 22 countries that have reported so far, the message is not good. A reading above 50 reflects expansion while below 50 indicates contraction. In this regard, there were 12 countries in negative territory and 10 in positive. Europe remains a disaster with the divide between core and periphery now starting to be matched by the divide (which we recently discussed) between France and Germany. The UK's plunge from expansion to contraction (just beating Italy's weakness) was its largest drop in 8 months (seemingly once again confirming that you can't print real economic growth) as Holland and Norway also fell notably. While still theoretically in expansion, China also slid raising concerns over the global growth meme that we see highlighted in stock prices this morning.

• Wal-Mart's Sales Problem—And America's (WSJ)
• Investors fret that Italy may undermine ECB backstop (Reuters)
• Monti Government Mulls Delaying Monte Paschi Bailout (BBG)
• Norway Faces Liquidity Shock in Record Redemption (BBG)
• ECB's Praet Says Accommodative Policy Could Lose Effectiveness (BBG)
• EU Chiefs Tell Italy There’s No Alternative to Austerity (BBG)
• New Spate of Acrimony in congress As Cuts Loom (WSJ)
• BOE's Tucker hints at radical growth moves (FT)
• Kuroda Seen Getting DPJ Vote for BOJ, Iwata May Be Opposed (BBG)
• Russian Banks Look to Yuan Bond Market (WSJ)
• Dagong warns about rising debt (China Daily)
• Italy Election Impasse Negative for Credit Rating, Moody’s Says (BBG)

While the G-20 and the G-7 haggle among each other, all (with perhaps the exception of France) desperate to make it seem that Japan's recent currency manipulation is not really manipulation, and that the plunge in the Yen was an indirect, "unexpected" consequence of BOJ monetary policy (when in reality as Richard Koo explained it is merely a ploy to avoid the spotlight falling on each and every other G-7/20 member, all of which are engaged in the same type of currency wars which eventually will all morph into trade wars), Europe's energy powerhouse Norway quietly entered into the war. From Bloomberg: "Norges Bank is ready to cut interest rates further to counter krone gains that interfere with the inflation target, Governor Oeystein Olsen said. “If it gets too strong over time, leading to inflation that’s too low, we will act,” Olsen said yesterday in an interview at his office in Oslo.

As debate about currency wars heats up, there's been little talk about which currencies will prove safe havens. We think the Singapore dollar tops the list.

Currency War ... Trade War ... Hot War

With Abe picking his new dovish playmate, and Draghi doing his best to jawbone the EUR down without actually saying anything, it is becoming very clear that no matter what level of bullshit histrionics is used by the politicians and bankers in public, the currency wars have begun to gather pace. Japan's more open aggressive policy intervention is the game-changer (and increasingly fascinating how they will talk around it at the upcoming G-20), as if a weaker JPY is an important pillar of the strategy to make this export-oriented economy more competitive again, it brings into the picture something that was missing from earlier interactions among central banks of the advanced economies – competitive depreciation. The last time the world saw a fully fledged currency war was in the early 1930s. Morgan Stanley's Joachim Fels looks at what it was like and what lessons can be drawn for the sequence of events - there are definite winners and losers and a clear first-mover advantage.

The Global Currency War Is Escalating

G4+CHF can fight the currency wars longer and more aggressively than small G10 and EM countries can.  However, as Citi's Steven Englander notes, it also takes a lot of depreciation to crowd in a meaningful amount of net exports. His bottom line, GBP, CHF and JPY have a lot further to depreciate.  In principle, the USD can easily fall into this category as well, but right now the USD debate is focused on Fed policy – were it to become clear that balance sheet expansion will end well beyond end-2013, the USD would fall into the category of currency war ‘winners’ as well. Critically, though, the reality of currency wars is that policymakers do not use FX as cyclical stimulus because of its effectiveness; they use it because they have hit a wall with respect to the effectiveness of fiscal and monetary policies, and are unwilling to bite the structural policy bullet. The following seven points will be on every policymakers' mind - or should be.

Currency wars have captured the imagination of many. However, the modern history of the foreign exchange market demonstrates that is has always been an arena in which nation-states compete. Typically central banks want the currency's exchange rate to affirm not contradict monetary policy. The synchronized crisis and easier monetary policy makes it appear that nearly ever one wants a weak currency. Yet most officials are on low rungs of the intervention escalation ladder. Moreover, there is no sign of it spilling over to a trade war. Has any one else noticed that Japan's largest trading partner and regional rival China has been quiet, not joining the the chorus of criticism?

Even if you’re white, insured, educated, or in upper-income groups and live a healthy lifestyle, you’re still getting the short end of the stick