Around the Globe 05.08.2013

Fed’s credibility tested as inflation drifts below target | Reuters.

US CPI 05.01.2013

The Fed wishes to continue its money printing experiment to maintain the asset price bubbles that the world central banks have inflated since the onset of the GFC.  The problem that they are experiencing in implementing this policy is the decreasing marginal returns of each new round.  $85bn a month may no longer be enough, so  the organization leaks stories about the labor market and low inflation to justify moar.

Not only will the current program be continued, but I bet that the amount will be raised to $100bn per month.

BofA Traders Have Perfect Quarter as Morgan Stanley Lags – Bloomberg.

Fed QE versus SP500

Res ipsa loquitor.  The thing speaks for itself.   Lest one have any doubts that the market is rigged, note this piece.  A firm should not have quarter long winning streaks in efficient markets.  The TBTF firms are the beneficiaries of the Fed’s $3tr+ in purchases since 2009.  They sell bonds to the Fed and buy stock realizing profits and inflating the value of their inventories.

When this madness ends, it will not be the Fed that lost billions of dollars but the taxpayer.  Will the banks give the profits back to help recapitalize the Fed when the time comes?

Poland Cuts Interest Rates to Record Amid Lack of Recovery – Bloomberg.

Polish Benchmark Interest Rate

A few days ago, the Polish government began selling euro membership to its wary citizens.  If the government gets it way, Poland will surrender its independence and monetary policy for nothing, and the country will no longer be able to cut interest rates to offset an economic slowdown.

China Trade Surplus Draws Doubts – WSJ.com.

China opens new front in war as yuan speculation distorts export data | Reuters.

China Export Gains Spur Renewed Skepticism of Figures – Bloomberg.

Chinese Export Growth

How do exports continue rising dramatically when China’s key trading partners reported small or flat increases in Chinese imports? Exporters are adding to invoices, particularly in Hong Kong, so that they have more clean capital that they can use to speculate in Chinese markets.

These massaged export numbers are significant.  Chinese GDP is probably not growing at the official rate of 7.7%, and this slower growth will continue to sap world demand particularly in the commodities space.

Asian Governments Take Measures to Battle Strong Currencies – WSJ.com.

JPM Asia Dollar Index

When the major central banks print money, the effect ripples throughout the world.  The initial rounds in 2009 led to food price inflation that in part caused the Arab Spring.  Currently, cheap central bank money is finding its way to every corner of the globe in its quest for yield.  This dynamic raises the demand for emerging market currencies, which appreciate slowing economic growth.  In response, EM central banks are forced to cut interest rates and sell their own currency in the markets to hold down exchange rates.  And the bubble continues to inflate.

Call to End Troika in Europe Crises – WSJ.com.

Unsustainable Bailouts

Now we all know that everyone has two reasons for adopting a course of action: the reason that they say and the real reason.  You can read all about the reasons for ejecting the IMF from the European bailout regime that the Eurocrats say in this article.

The real reason is that the IMF has begun insisting that debt restructurings are sustainable after remaining silent throughout the Portuguese, Irish and first Greek bailouts.  While the IMF supported sustainability in the third Greek bailout and the first Cyprus one, it quickly caved.

Nevertheless, the IMF seems less willing to pretend that 170% debt to GDP ratios are okay, and the rich countries refuse to any form of debt forgiveness.  If you think this policy will change after German elections, then ask yourself why the IMF is being retired.

EU Commission or ESM could wind down ailing banks: report | Reuters.

Italy, Spain NPLs as of 03.2013

This article reports more talk from the eurocrats.  In order for there to be a banking union, the rich countries must decide to become joint and severally liable for the banking systems of countries like Spain and Italy.  When the rich countries put up about €1trn to start a resolution and deposit guarantee system, then you have a banking union.  Until then, you just have talk.

McDonald’s Sales Slip 0.6% on China, Europe Weakness – WSJ.com.

McDonald’s Sales Slip 0.6% in April.

McD 05.08.2013

McDonald’s sales worldwide sales performance confirms slackening international demand led by Europe and anemic growth in the U.S.  A barely positive 0.7% rise in American sales was more than offset by a 2.4% drop in Europe, McD’s second largest market, and smaller decreases in Asia and Africa.  This has been the McD story for the last year or so, but that has not stopped the stock price from appreciating over 20% since November.  I wonder what could cause a stock with falling revenues and profits to rise so much.

Portugal Marks Return to Bond Market – WSJ.com.

Portugal 10yr Bond 05.08.2013

Portugal managed to sell bonds today in what the mainstream media has decided is an important step for the country to regain independence. Unfortunately, there is no regaining independence in the Eurozone.  A country with a tremendous debt pile and no growth is only able to sell bonds because the ECB has made vague promises about supporting the price and cheap money allows TBTF European banks to speculate in this debt free of charge.

 

 

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