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Bank Central Asia
01 сентября 2014, 14:42

SE Asia Stocks - Indonesia up as inflows lift large caps; Thai index at 15-month high

BANGKOK, Sept 1 (Reuters) - Stocks in Indonesia rebounded on Monday amid foreign-led buying in selected large caps such as Telkom Indonesia and Bank Central Asia, while the Thai index hit a 15-month closing high as some investors welcomed a new military-led government. Jakarta's composite index rose 0.8 percent after a fall on Friday to the lowest close since Aug. 12. The stock exchange posted net foreign inflows worth 127 billion rupiah ($10.84 million) as the rupiah eased but pared som    

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19 сентября 2013, 05:14

Asia markets rally after Fed meeting

Asian stock markets rise after the US central bank unexpectedly says it will not begin scaling back its massive economic stimulus programme.

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19 сентября 2013, 05:14

Asia markets rally after Fed meeting

Asian stock markets are rising after the US central bank unexpectedly said it would not begin scaling back its massive economic stimulus programme.

17 сентября 2013, 17:54

Gold Is Not A Safe Haven? Tell That To People In Indonesia

Today’s AM fix was USD 1,317.25, EUR 985.74 and GBP 828.67 per ounce. Yesterday’s AM fix was USD 1,314.75, EUR 984.83 and GBP 825.17 per ounce.   Gold fell $13.70 or 1.04% yesterday, closing at $1,309.50/oz. Silver dropped $0.49 or 2.21%, closing at $21.70. At 2:55 EDT, Platinum fell $15.76 or 1.1% to $1,433.74 /oz, while palladium rose $5.50 or .8% to $702.00/oz. Gold inched up from its five week low, gaining on the weak U.S. dollar plus increased safe haven demand prior to the U.S. Fed's policy meeting which starts today.  Gold in Indonesian Rupiah, 2000 to Today - (GoldCore) Yesterday Goldman Sachs said that a ‘dovish’ taper would likely limit the downside to gold prices but said that a more hawkish taper than currently expected would likely precipitate a further decline in gold prices. Goldman Sachs have a habit of making big and loud market calls such as their call for oil to rise to $200 a barrel when oil had already surged from $50 a barrel in March 2007 to $140 a barrel in September 2008.  Soon after that call, oil fell from $140 a barrel to a low of $32.40 a barrel at the end of 2008. Their call should be seen as another contrarian buy signal.  The CHART OF THE DAY shows how the Indonesian rupiah, like all currencies has devalued consistently in recent years and remains close to record nominal highs in gold terms. There are concerns that Indonesia’s record current account deficit and consistently large trade deficits  may deter  foreign investors and add pressure on the rupiah, the worst-performing currency in Asia in recent months. The currency has weakened nearly 15% against the dollar since the start of June and 20% against gold since June 28th - from 12.235 million rupiah per ounce (12,235,000/oz) to 14.728 rupiah (14,728,000/oz) per ounce. This  compares with the 10% drop in India’s rupee leading the rupiah to be the worst performer in Asia during the period. The recent losses are simply a continuation of the devaluation seen in recent years.  Since 2000, the rupiah has fallen by nearly 600% against gold from 2.174 million rupiah per ounce in 2000 to over 14.755 million rupiah per ounce today.  The Bank Indonesia has embarked on its most aggressive tightening since 2005, joining Brazil and India in taking steps to support their currencies. The prospect of reduced U.S. monetary stimulus and QE may be prompting investors to sell government bonds internationally. Government debt has been supported by the Federal Reserve’s extremely radical debt monetisation programmes - electric money creation to buy government debt. Indonesia’s foreign-exchange reserves have declined as the central bank defended the rupiah, but the Indonesian Central Bank (BI) still has $92.6 billion foreign exchange reserves. Unlike many large debtor nations such as the U.S. which hold little or no foreign exchange reserves, Bank Indonesia (BI) said in August that the $92.6 billion will be enough to protect the rupiah from further devaluation and the consequences of that devaluation.  Cross Currency Table - (Bloomberg) Bondholders are demanding higher yields to hold its debt. According to Bloomberg, Indonesia sold $1.5 billion of dollar-denominated Islamic bonds this month at the highest yield since 2009, its reserves are near the lowest level in almost three years, and foreigners have pulled out $2.66 billion from local equities since the start of June.  The trade deficit widened to a record in July as an export slump extended to a 16th month, while the expanding middle class increased purchases of manufactured goods and fuel. However, Indonesia is solvent unlike the U.S. government and the Federal Reserve.  U.S. Public Debt, 1972 To 01/01/13 - (Bloomberg) The U.S. Federal Reserve is insolvent and has liabilities of over $3.2 trillion and yet has capital of just $60 billion. Therefore, it is leveraged by fifty to one, akin to a highly leveraged hedge fund.  The U.S. government's national debt is heading rapidly to $17 trillion and the off balance sheet liabilities are now estimated by respected economists at between $100 trillion and $200 trillion. The national finances of the UK, Japan and many European countries are akin to those of the U.S. and they are also either insolvent or close to insolvency. Therefore, the dollar and all currencies will continue to devalue and debase against finite and rare gold in the coming months and years.  Thinking of buying gold? Click here to download and read our free guide to buying gold.        

17 сентября 2013, 06:24

On The "Lunatics" At The Fed" Bill Fleckenstein Warns "As The Fantasy Dies, Gold Will Soar"

"Right now, people continue to believe that the same idiots that created all of these problems, namely the central banks, are going to somehow get us out of it with the exact same policies that got us into it," is the subtle manner in which the outspoken Bill Fleckenstein describes the 'fantasy' in which most Americans live during this wide-reaching interview. "We’ve had so much artificial stimulus, and we’ve misallocated so much capital;" he adds, warning that Americans "believe in the lunatics at the Fed, and the rest of the Western world is that way (as well)." His conclusion is clear, "as the fantasy dies, then they will understand the need to own gold," and if the Fed tapers and is forced to un-Taper, "more people will see that the Fed is trapped." Via King World News, How will the economy handle higher rates? “It’s not going to handle it.  That’s why if the Fed tapers and the bonds start acting funny, they will end tapering because they will start thinking, ‘Geez, we can’t have this happen.’  Then, more people will see that the Fed is trapped. Via SHFTPlan blog, Right now, people continue to believe that the same idiots that created all of these problems, namely the central banks, are going to somehow get us out of it with the exact same policies that got us into it, only at a much higher (aggressive) level of pursuing those policies. We’ve had so much artificial stimulus, and we’ve misallocated so much capital.  And over the couple of decades we’ve been doing this we’ve kind of broken the economy and the financial system.  So, I don’t think you can worry about what’s on the other side.  We haven’t even gotten people to understand the charade that we have. What the masses have done over and over again is to believe one more time that it’s all going to be OK … We are in a unique moment in history.  The whole world is printing confetti, and (yet) people seem to think that’s going to work out fine. … The longer you keep pursuing insane policies, the more you pile (them) on top of each other, the worse it gets … So, when the Fed can’t print money and we have to deal with this, it’s going to be brutal. … The fact of the matter is Americans, in the aggregate, don’t see any reason to own metal.  They believe in the lunatics at the Fed, and the rest of the Western world is that way (as well).  Obviously Asia doesn’t quite see it that way.  But it’s understandable why the average American doesn’t buy gold — If they believe in a fantasy, why would they need it? As the fantasy dies, then they will understand the need to own gold.  and Via The Mess That Greenspan Made blog, … the Fed has overdone it. Now, not everyone will conclude that and they won’t conclude it right away. And the Fed will fight that, and they will keep printing, but we will be on our way to the 1970s. Maybe people will start to look at the stagflationary environment that we actually have, the horrendous job growth, weak GDP, and inflation that’s probably twice as high as whatever real GDP is, and it will be seen as stagflation, and that will have consequences. But right now, people continue to believe that the same idiots that created all of these problems, namely the central banks, are going to somehow get us out of it with the exact same policies that got us into it, only at a much higher (aggressive) level of pursuing those policies. We’ve had so much artificial stimulus, and we’ve misallocated so much capital. And over the couple of decades we’ve been doing this we’ve kind of broken the economy and the financial system. So, I don’t think you can worry about what’s on the other side. We haven’t even gotten people to understand the charade that we have. What the masses have done over and over again is to believe one more time that it’s all going to be OK … We are in a unique moment in history. The whole world is printing confetti, and (yet) people seem to think that’s going to work out fine.         

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16 сентября 2013, 21:14

Gold Up In Asia After Summers Exits Fed Race - Dovish Yellen Gold Positive

Today’s AM fix was USD 1,314.75, EUR 984.83 and GBP 825.17 per ounce. Friday’s AM fix was USD 1,308.25, EUR 984.46 and GBP 827.12 per ounce.   Gold rose $0.20 or 0.015% Friday, closing at $1,323.20/oz. Silver climbed $0.36 or 1.65%, closing at $22.19. Platinum surged $23.05 or 1.6% to $1,450.75/oz, while palladium rose $9.50 or 1.4% to $699.00/oz. Gold and silver bullion both finished down for the week at 4.7% and 6.8%. The sharp price falls came despite no major economic data, news developments or significant news regarding physical supply and demand. The sharp losses seen last week appear to be primarily due to speculative paper selling of futures contracts leading to further technical selling as stop loss orders are triggered. There has been no marked decrease in global physical bullion demand or significant physical selling of any note in recent days.  Gold in USD, 2013 Year to Date - (GoldCore) Gold and silver futures surged 2.1% and 3.6% respectively and the dollar fell on the open in Asia prior to determined selling which again capped precious metal prices. Analysts and media attributed the price gains on the withdrawal of Larry Summers from the race to be the new Fed Chairman, leaving Janet Yellen as the new frontrunner. Some analysts in the blogosphere said that the price gains on Friday and on the open in Asia were due to new allegations of manipulation by Wall Street bullion banks. Two new whistleblowers are believed to have joined Andrew Maguire, the independent bullion trader and whistleblower, in alleging to U.S. regulators and the CFTC. They allege that price fixing is being committed and that prices in the international gold and silver markets had been manipulated in the same way that LIBOR is manipulated (see commentary).  Yellen is known to be very dovish, favouring ultra loose monetary policies, even more so than Bernanke. Therefore, her appointment would be gold and silver bullish, as ultra loose monetary policies and currency debasement will continue.  Yellen’s appointment would also be bullish for risk assets such as stocks and for bonds in the short term. Stock futures and stocks in Asia and Europe have also risen on the development.  Yellen was Obama’s favoured successor since he became President and she is favourite with the bookies including Paddy Power. Outside contenders are Timothy Geithner, Donald Kohn and Roger Ferguson.  The Fed may announce tapering this week. Should the Fed taper and reduce QE from $85 billion by $10 or $15 billion, it would be negative gold in the short term but bullish in the medium and long term.  (Deutsche Bank, Bloomberg Finance) The Federal Reserve and Bernanke have been suggesting for months, indeed years, that they would return to more normal monetary policies by reducing bond buying programmes and gradually increasing interest rates. ‘Talk is cheap’, ‘actions speak louder than words’ and it is always best to watch what central banks do rather than what they say.  Near zero interest rates and the huge bond buying programmes are set to continue for the foreseeable future. Precious metals will only be threatened if there is a sustained period of rising interest rates which lead to positive real interest rates. This is not going to happen anytime soon as it would lead to an economic recession and possibly a severe Depression. Yellen favours a continuation of zero interest rate policies (ZIRP), which is as important if not more important than ‘tapering’. Yellen said in December 2012, that early 2016 may be a more realistic time to start increasing interest rates.  Gold in USD, GBP and EUR Before and After Lehman Brothers Crisis Some investors will be concerned that Yellen underestimates the risk to the dollar and of inflation and will further contribute to the debasement of the dollar which will lead to further inflation hedging and safe haven demand for gold. For breaking news and commentary on financial markets and gold, follow us onTwitter.        

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12 сентября 2013, 19:03

Asia-Pacific central banks shed light on future policy

Central Banking Bank Indonesia hikes rates; Reserve Bank of New Zealand says it will likely tighten policy in 2014; Bank of Korea looks to buck emerging market trend and keep rates low as inflation drops

11 сентября 2013, 08:08

Secondary Sources Asia: India Central Bank Independence, End of the BRICs Party, China’s Local Debt

A round-up of economics news about Asia from across the Web.

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10 сентября 2013, 15:25

Asian central banks brace for Fed's move, Indonesia seen most at risk

As global markets tremble in anticipation that the U.S. Federal Reserve will decide next week to begin tapering its monetary stimulus, four central banks in the Asia-Pacific with very different comfort ...

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10 сентября 2013, 15:12

Asian central banks brace for Fed's move, Indonesia seen most at risk

SEOUL (Reuters) - As global markets tremble in anticipation that the U.S. Federal Reserve will decide next week to begin tapering its monetary stimulus, four central banks in the Asia-Pacific with...

10 сентября 2013, 06:16

Is The New York Fed Blaming "Beers" For The Tulip-Mania Bubble?

In yet another in our series of taxpayer-funded Federal Reserve research that has achieved so much over the years, the New York Fed blog has released its perspectives on the Tulip-mania bubble of 1633-37. Hot on the heels of SF Fed's Williams comments that bubbles can only be seen in rear view mirror and then of course - and that there's always an exogenous factor to blame' - in the case of tulips, the New York Fed cites "beers" as the catalyst since 'shares' were exchanged in pubs... Ironically then, it seems even 380 years ago, the only thing that mattered was liquidity. Via Liberty Street Economics blog, Crisis Chronicles: Tuilp Mania, 1633-37 As Mike Dash notes in his well-researched and gripping Tulipomania, tulips are native to central Asia and arrived in the 1570s in what’s now Holland, primarily through the efforts of botanist Charles de L’Escluse, who classified and spread tulip bulbs among horticulturalists in the late 1500s and early 1600s. By the early 1630s, the tulip was a fixture in Dutch gardens. But Tulip Mania didn’t begin until the summer of 1633, when a house in Hoorn was exchanged for three rare tulips and a Frisian farmhouse was traded for a number of tulip bulbs. The lure of profit enticed novice florists to enter the tulip trade with minimal investment and small parcels of land, harkening back to the days of farmers taking up coin clipping during the Kipper und Wipperzeit. In this edition of Crisis Chronicles, we exchange the trading floors of today for the alcohol-fueled exchanges of the past as we dig up Tulip Mania. The Plague and Tulip Mania A number of factors contributed to the conditions that caused Tulip Mania. To start, the coin debasement crisis of the 1620s was followed by a period of prosperity in the 1630s. This prosperity coincided with an outbreak of the plague, which caused a labor shortage and increased real wages and surplus income. At the same time, there was a strong belief that social mobility was a Dutch birthright and that there was money to be made in every profession.         Prior to the 1630s, tulip bulbs were only physically traded among growers in the summer, when they could be safely pulled from the ground, in what evolved to be an informal spot market for individual commodities where cash and real assets traded hands. By the 1630s, the market for tulips began to grow as florists started buying and selling tulip bulbs still in the ground using promissory notes. The notes provided welcome credit and liquidity to help finance planting and limited credit risk to a known borrower with the borrower’s bulbs as collateral. However, the notes created a limited opportunity to inspect bulbs or to see them flower, provided no guarantee of quality, nor proof that the bulbs actually belonged to the seller, or even existed. Because delivery of the bulb was often months away, this financial innovation ultimately encouraged speculation as florists bought and sold promissory notes, which were in turn resold, creating a futures market. A legitimate need for financing real assets led to a financial market in which people with no stake in the actual underlying bulbs could participate. As Dash points out, it was “normal for florists to sell tulips they could not deliver, to buyers who did not have the cash to pay for them and who had no desire to plant them.” Such a financial market served the liquidity and credit needs of growers and florists, but it also led to highly leveraged speculation by those who could borrow to finance their investments with little of their own capital at stake. Promissory notes quickly transformed from a credit and liquidity mechanism to an instrument of speculation. Beers Instead of Beurs Fuel the Market Bulbs were traded not at the exchange buildings in Amsterdam, the beurs, but rather in local pubs where each trade was celebrated with a toast. The in het ootje method of trade required the seller to pay a commission independent of the seller’s acceptance or refusal of the bid (typically the equivalent of a round or two of drinks), which placed a premium on accepting a decent bid, further fueling the market.         The mania climaxed in January 1637, which marked the greatest influx of new florists. Many of these novices leveraged savings and mortgaged their goods or tools to take part in the bulb trade, just as we saw farmers turn to coin clipping during the Kipper und Wipperzeit. The absolute speculative peak is believed to be an auction on February 5, 1637, which raised 90,000 guilders. To put this in perspective, the wealthiest merchants of the day might’ve accumulated wealth of half a million guilders. Some Florists Pull Back With no predictability or stability in the bulb market, the market was unsustainable. By late January 1637, isolated florists sold their holdings and failed to reinvest. Other florists took notice. By the first week of February 1637, the boom ended with a crash that began at an auction in Haarlem. The first offer of bulbs at auction didn’t receive bids. The price was lowered, still with no bids, then lowered again. The once-plentiful liquidity provided by outside speculators dried up nearly instantaneously. With the auctioneer unable to find a price at which bulbs would sell, the panicked withdrawal of purchasing speculators spread to panicked “fire sales” by leveraged speculators who had bought bulbs on margin and needed to sell. “The market for tulip bulbs simply ceased to exist,” as Tulipomania reports. When bulbs could be sold, it was for 1 to 5 percent of the previous value. Collapse Leads to Grudging Compromise The spontaneous development of an extremely leveraged futures market certainly wasn’t new—futures markets date back to Mesopotamia, but it was the fertilizer that grew the tulip bulb trade from market, to bubble, to bust. When the bubble burst, some highly leveraged florists who had paid only small deposits still owed bulb owners huge sums of money. With the collapsed market, florists hoped to pay nothing. On February 23, growers proposed to the courts of the United Provinces that florists buy the bulbs at 10 percent of the agreed-upon selling price. After a lengthy deliberation, the courts banned tulip cases and asked that all disputes be handled at the local level. With no collective bankruptcy protections or procedures to guide resolution, growers and florists were forced to settle their disagreements individually.         This futures market for tulip bulbs was volatile and poorly regulated—more weed than flower. Rights of ownership were unclear, as growers and florists sought resolution from the tangle of transactions. And if just one florist in the chain was insolvent, the entire chain collapsed. Since the enormous interconnected claims were handled outside the courts, there was little legal protection for creditors or debtors and no clear legal status to settle the claims. That’s why even fire-sale prices of 1 to 5 percent of initial prices, driven down by desperate sellers (debtors) fearing bankruptcy, didn’t stick. Nor did the buyers get stuck with paying 10 percent of the agreed-upon prices, as had been proposed to the courts. Without enforceable debt claims or sales prices, the tulip bulb crisis ended in grudging compromise between individual growers and florists with massive write-downs of debt. However, the disruption and losses to growers, florists, and speculators were largely contained among market participants. The tulip market and the players in it weren’t interlocked with the banking sector or other credit providers. There was no lasting spillover to the real economy and no real market or legal reforms emanating from the crisis. Lessons for Regulators It’s interesting to compare Tulip Mania with more modern debt crises, where asset classes have strong legal protections for creditors with interconnected claims. Take securitized mortgage-backed assets, for example. In a typical crisis, market seizure initially leads to potential fire-sale prices that may wipe out debtor financial institutions. Official sector support steps in to curtail full financial contagion and systemic collapse, thus limiting spillover to the real economy. Individual debtholders (households), however, typically aren’t considered contagious or systemic to the financial system. But with no efficient private sector debt write-down mechanism at households’ disposal, there’s a greater chance for household debt to trigger a large negative spillover to the real economy.       Post-crisis, regulators and lawmakers have indeed focused much needed attention on enhancing consumer protections, including introducing a private sector debt write-down mechanism via the recently extended Home Affordable Refinance Program and providing opportunities for improved access to refinancing opportunities for underwater mortgages, as described in a recent Liberty Street Economics post. One of the most talked-about methods of tempering speculation in the housing market, where by nature purchases are highly leveraged, is to promote strong lending practices by seeking risk retention on the books of the mortgage originator. Regulators have recently sought to “crowd in” private capital according to the “originate-to-distribute” securitization model by raising government-sponsored-enterprise (GSE) guarantee fees. As Congress prepares to enact further GSE reforms, tell us which mortgage market improvements you think would be most impactful.         In a future post on the British credit crisis of 1772, we’ll touch on another example of how a credit crisis can lead to a debt crisis—this time with a spillover to the real economy. ....ZH: and because we couldn't resist "What's better than roses on your piano?" ... "Tulips on your organ"    

07 сентября 2013, 21:30

Is The U.S. Dollar Set To Spike?

So markets wait with bated breath on the words of a bearded academic-turned-central-banker on September 18. Bond king, Bill Gross of Pimco, probably has it right suggesting Ben Bernanke and his Fed have already agreed on a small cut to QE even though economic data out of the U.S. has shown only marginal improvement. I'd add that that Bernanke and his minions would remain concerned with rising bond yields and interest rates and if both head higher in the months ahead, all bets on further QE tapering are likely to be off. Perhaps the word "re-tapering" may soon enter the financial lexicon? Today I'd like to step back from the "will he or won't he taper" debate and look at an interesting, and still minority, view developing that there are structural factors beyond QE tapering which may drive both the U.S. dollar and U.S. bond yields higher in coming years. The argument goes that an energy boom in America will result in a further decline in the U.S. trade deficit, reducing the number of U.S. dollars being supplied to the global economy and thereby creating a scarcity of U.S. dollars which will inevitably push the currency higher. A reduced U.S. trade deficit will also result in contracting foreign exchange reserves for overseas countries, reducing foreign demand for U.S. Treasuries and pushing up government bond prices which will help the dollar further.  Don't worry if you didn't get the full thread of the argument as I'll lay it all out for you below. Suffice to say though that if the view is correct, it'll have enormous ramifications, including for our neighbourhood of Asia. For instance, it may mean the recent currency turmoil in Asia is only a taste of things to come (higher U.S. yields leading to reduced flows into Asia ie. tighter liquidity). I don't happen to agree with much of the argument and will outline why. But it seems like a debate worth having as it goes to the heart of some of the key issues which will drive economies and markets going forward.  Does America's energy boom change everything? Here's a theory: the majority who read my newsletter on a regular basis agree with most of what I have to say. Don't worry, I'm not trying to be arrogant or belittle but just to point out that science suggests that people primarily read things which confirm their pre-existing biases and views. It's called confirmation bias and everyone does it to an extent. Today is my attempt to shake things up. To offer a well thought-out view which is contrary to my own and perhaps yours. This particular view has made me question and re-examine some of my beliefs and perhaps it can have the same effect on you. The view is that there are structural trends which will lead to a higher U.S. dollar and higher U.S. interest rates. It's a line that's been pushed by some stock brokers over the past year. But financial blogger, Charles Hugh Smith is perhaps its most thoughtful proponent. In his most recent article, "America's Energy Boom and the Rising U.S. Dollar", Smith puts forward a strong case. He argues that to understand the trends which will lead to a higher dollar, you need to appreciate why the U.S. currency is the world's reserve currency. And he suggests that it's because the U.S. is willing to provide the world with an extra supply of the dollar to fulfill global demand for the reserve currency and thereby cause a trade deficit (where imports exceed exports). Put another way, the U.S. must export U.S. dollars by running a trade deficit to supply the world with dollars to hold as reserves and to pay debt denominated in dollars. Of late though, the U.S. trade deficit has been falling. In June, the deficit hit four-year lows, before increasing again in July. The fall is primarily attributed to America's energy boom. The U.S. has been able to provide more of its own energy. That's significant because oil imports account for 40% of America's US$750 billion annual trade deficit. And the importing of oil has been the main reason why the U.S. has been running trade deficits for decades. Remember too, trade deficits negatively impact GDP. Anyhow, Smith argues that the American energy boom will lead to further falls in the U.S. trade deficit. A lower deficit will mean fewer U.S. dollars being exported to the global economy. Basic supply and demand suggests fewer U.S. dollars in circulation will push the value of those dollars up. Smith goes on to say that the uptrend in the U.S. dollar over the past 18 months has aligned with a rise in U.S. energy production. He suggests that's not coincidence, but causation: the latter is causing the former. Possible impact on Asia and beyond If that's right, it will turn the trend of recent decades, featuring growing U.S. trade deficits and a lower U.S. dollar, on its head. For America, it will be positive for the economy, as Smith explains: "As the dollar strengthens, the U.S. will pay less for imported energy and earn more for exported energy. This decline in energy costs will ripple through the real economy, offsetting any decline in exports. A strengthening dollars lowers the cost basis for all goods and services originating in the U.S." Smith acknowledges though that a strong U.S. dollar won't be good for listed U.S. companies. That's because more than 50% of their earnings come from overseas. In other words, their profits will be negatively impacted with the higher dollar reducing earnings from overseas operations. When it comes to the effect of a higher U.S. dollar on the rest of the world, Smith loses me. He argues other countries will also benefit from an increasing dollar as it will increase the value of their existing foreign exchange (forex) dollar reserves, enlarging the base for their own credit. But he acknowledges future forex reserves will start to contract with a higher dollar. Won't the latter more than offset the former? If so, as I suspect, it'd be negative for the likes of Asia. Contracting forex reserves mean Asian countries, particularly China, would start selling local currencies to maintain currency pegs against the U.S. dollar. Previously China has been printing yuan to maintain the peg which has created inflation at home and supported local asset prices (think real estate, for instance). Contracting forex reserves will result in the opposite occurring. Declining forex reserves though mean there'll be reduced demand for U.S. treasuries and potentially higher U.S. bond yields, which could well feed back into a higher U.S. dollar. The other issue is the impact of a rising U.S. dollar on commodities. Traditionally, an increasing dollar has been seen as commodity-negative. But Smith thinks for gold least, there's no evidence of a correlation between the dollar and gold prices. He seems to have a point here, but for other commodities, less so. Broadly falling commodity prices would be another deflationary force for the likes of Asia. Potential problems with thesis It seems to me that there are a couple of other, broader potential issues with the view, namely: 1) Whether the boom in unconventional oil and gas in the U.S. is overstated, particularly in terms of the probable economic gains in the short-term. It should be noted that a recent study by IHS Global Insight found that the increased energy production had lifted disposable income in the US by US$1,200 in 2012. IHS suggests that figure will rise to more than US$2,000 by 2015. Call me a sceptic, but any forecasts are likely highly dependent on oil prices. Lower oil prices would substantially lower the gains. 2) More importantly, the view largely discounts the role of QE in money creation and lowering the dollar as well as bond yields. Smith counters the influence of QE on the dollar by suggesting that base money isn't rising in the U.S. because banks are holding onto the printed cash and not lending it out. But QE is playing a role in demand for bonds and keeping yields low. Any rise in yields would surely have a dampening effect on the U.S. economy (it's already impacting the housing sector). And a further yield rise would therefore likely be met with more QE. Suppressed bond yields would cap the value of the dollar. Conclusions In sum, I remain unconvinced that an energy boom will drive a U.S. economic recovery. And though I see a case for a modestly higher dollar on slower global economic growth, it seems that lower rather than higher U.S. bond yields are likely, for the following reasons: 1) Reduced U.S. inflation expectations. Inflation plays a central role in long-term interest rates. All current signs point to low inflation (disinflation in economic parlance) given a higher dollar and lower commodity prices.  2) GDP in the U.S. has seen the slowest growth of any economic expansion since 1948. Post-war growth has averaged 3.5%, compared with current GDP growth of 2.5%. Nominal GDP growth (real GDP growth plus inflation) drives bond yields and therefore growth has to quicken from here to justify higher yields. 3) U.S. consumers are still paying down debt and will need to do so for many more years. As economist David Levy of the Jerome Levy Forecasting Center has demonstrated, private sector leverage in the U.S. remains very high, despite what the bull market propagandists tell you. Given consumption accounts for 70% of GDP, stronger economic growth from here seems a stretch. An oil boom won't mitigate this headwind. 4) The history of U.S. and Japanese balance sheet recessions suggests that bond yields bottom around 13 years following a crisis, meaning we should expect lower bond yields for several years to come. This post was originally published at Asia Confidential: http://asiaconf.com/2013/09/07/us-dollar-to-spike/  

07 сентября 2013, 20:15

Is The U.S. Dollar Set To Spike?

So markets wait with bated breath on the words of a bearded academic-turned-central-banker on September 18. Bond king, Bill Gross of Pimco, probably has it right suggesting Ben Bernanke and his Fed have already agreed on a small cut to QE even though economic data out of the U.S. has shown only marginal improvement. I'd add that that Bernanke and his minions would remain concerned with rising bond yields and interest rates and if both head higher in the months ahead, all bets on further QE tapering are likely to be off. Perhaps the word "re-tapering" may soon enter the financial lexicon? Today I'd like to step back from the "will he or won't he taper" debate and look at an interesting, and still minority, view developing that there are structural factors beyond QE tapering which may drive both the U.S. dollar and U.S. bond yields higher in coming years. The argument goes that an energy boom in America will result in a further decline in the U.S. trade deficit, reducing the number of U.S. dollars being supplied to the global economy and thereby creating a scarcity of U.S. dollars which will inevitably push the currency higher. A reduced U.S. trade deficit will also result in contracting foreign exchange reserves for overseas countries, reducing foreign demand for U.S. Treasuries and pushing up government bond prices which will help the dollar further.  Don't worry if you didn't get the full thread of the argument as I'll lay it all out for you below. Suffice to say though that if the view is correct, it'll have enormous ramifications, including for our neighbourhood of Asia. For instance, it may mean the recent currency turmoil in Asia is only a taste of things to come (higher U.S. yields leading to reduced flows into Asia ie. tighter liquidity). I don't happen to agree with much of the argument and will outline why. But it seems like a debate worth having as it goes to the heart of some of the key issues which will drive economies and markets going forward.  Does America's energy boom change everything?Here's a theory: the majority who read my newsletter on a regular basis agree with most of what I have to say. Don't worry, I'm not trying to be arrogant or belittle but just to point out that science suggests that people primarily read things which confirm their pre-existing biases and views. It's called confirmation bias and everyone does it to an extent. Today is my attempt to shake things up. To offer a well thought-out view which is contrary to my own and perhaps yours. This particular view has made me question and re-examine some of my beliefs and perhaps it can have the same effect on you. The view is that there are structural trends which will lead to a higher U.S. dollar and higher U.S. interest rates. It's a line that's been pushed by some stock brokers over the past year. But financial blogger, Charles Hugh Smith, is perhaps its most thoughtful proponent. In his most recent article, "America's Energy Boom and the Rising U.S. Dollar", Smith puts forward a strong case. He argues that to understand the trends which will lead to a higher dollar, you need to appreciate why the U.S. currency is the world's reserve currency. And he suggests that it's because the U.S. is willing to provide the world with an extra supply of the dollar to fulfill global demand for the reserve currency and thereby cause a trade deficit (where imports exceed exports). Put another way, the U.S. must export U.S. dollars by running a trade deficit to supply the world with dollars to hold as reserves and to pay debt denominated in dollars. Of late though, the U.S. trade deficit has been falling. In June, the deficit hit four-year lows, before increasing again in July. The fall is primarily attributed to America's energy boom. The U.S. has been able to provide more of its own energy. That's significant because oil imports account for 40% of America's US$750 billion annual trade deficit. And the importing of oil has been the main reason why the U.S. has been running trade deficits for decades. Remember too, trade deficits negatively impact GDP. Anyhow, Smith argues that the American energy boom will lead to further falls in the U.S. trade deficit. A lower deficit will mean fewer U.S. dollars being exported to the global economy. Basic supply and demand suggests fewer U.S. dollars in circulation will push the value of those dollars up. Smith goes on to say that the uptrend in the U.S. dollar over the past 18 months has aligned with a rise in U.S. energy production. He suggests that's not coincidence, but causation: the latter is causing the former. Possible impact on Asia and beyond If that's right, it will turn the trend of recent decades, featuring growing U.S. trade deficits and a lower U.S. dollar, on its head. For America, it will be positive for the economy, as Smith explains: "As the dollar strengthens, the U.S. will pay less for imported energy and earn more for exported energy. This decline in energy costs will ripple through the real economy, offsetting any decline in exports. A strengthening dollars lowers the cost basis for all goods and services originating in the U.S." Smith acknowledges though that a strong U.S. dollar won't be good for listed U.S. companies. That's because more than 50% of their earnings come from overseas. In other words, their profits will be negatively impacted with the higher dollar reducing earnings from overseas operations. When it comes to the effect of a higher U.S. dollar on the rest of the world, Smith loses me. He argues other countries will also benefit from an increasing dollar as it will increase the value of their existing foreign exchange (forex) dollar reserves, enlarging the base for their own credit. But he acknowledges future forex reserves will start to contract with a higher dollar. Won't the latter more than offset the former? If so, as I suspect, it'd be negative for the likes of Asia. Contracting forex reserves mean Asian countries, particularly China, would start selling local currencies to maintain currency pegs against the U.S. dollar. Previously China has been printing yuan to maintain the peg which has created inflation at home and supported local asset prices (think real estate, for instance). Contracting forex reserves will result in the opposite occurring. Declining forex reserves though mean there'll be reduced demand for U.S. treasuries and potentially higher U.S. bond yields, which could well feed back into a higher U.S. dollar. The other issue is the impact of a rising U.S. dollar on commodities. Traditionally, an increasing dollar has been seen as commodity-negative. But Smith thinks for gold least, there's no evidence of a correlation between the dollar and gold prices. He seems to have a point here, but for other commodities, less so. Broadly falling commodity prices would be another deflationary force for the likes of Asia. Potential problems with thesis It seems to me that there are a couple of other, broader potential issues with the view, namely: 1) Whether the boom in unconventional oil and gas in the U.S. is overstated, particularly in terms of the probable economic gains in the short-term. It should be noted that a recent study by IHS Global Insight found that the increased energy production had lifted disposable income in the US by US$1,200 in 2012. IHS suggests that figure will rise to more than US$2,000 by 2015. Call me a sceptic, but any forecasts are likely highly dependent on oil prices. Lower oil prices would substantially lower the gains. 2) More importantly, the view largely discounts the role of QE in money creation and lowering the dollar as well as bond yields. Smith counters the influence of QE on the dollar by suggesting that base money isn't rising in the U.S. because banks are holding onto the printed cash and not lending it out. But QE is playing a role in demand for bonds and keeping yields low. Any rise in yields would surely have a dampening effect on the U.S. economy (it's already impacting the housing sector). And a further yield rise would therefore likely be met with more QE. Suppressed bond yields would cap the value of the dollar. Conclusions In sum, I remain unconvinced that an energy boom will drive a U.S. economic recovery. And though I see a case for a modestly higher dollar on slower global economic growth, it seems that lower rather than higher U.S. bond yields are likely, for the following reasons: 1) Reduced U.S. inflation expectations. Inflation plays a central role in long-term interest rates. All current signs point to low inflation (disinflation in economic parlance) given a higher dollar and lower commodity prices.  2) GDP in the U.S. has seen the slowest growth of any economic expansion since 1948. Post-war growth has averaged 3.5%, compared with current GDP growth of 2.5%. Nominal GDP growth (real GDP growth plus inflation) drives bond yields and therefore growth has to quicken from here to justify higher yields. 3) U.S. consumers are still paying down debt and will need to do so for many more years. As economist David Levy of the Jerome Levy Forecasting Center has demonstrated, private sector leverage in the U.S. remains very high, despite what the bull market propagandists tell you. Given consumption accounts for 70% of GDP, stronger economic growth from here seems a stretch. An oil boom won't mitigate this headwind. 4) The history of U.S. and Japanese balance sheet recessions suggests that bond yields bottom around 13 years following a crisis, meaning we should expect lower bond yields for several years to come. This post was originally published at Asia Confidential: http://asiaconf.com/2013/09/07/us-dollar-to-spike/      

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06 сентября 2013, 03:43

Asia FX

The appetite for risk should be neutral in Asia after three G7 central banks left their interest rates unchanged, as widely expected, and ahead of the NFP report. The foreign currencies should consolidate after most of them sank on Thursday....

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05 сентября 2013, 19:00

Central Asia and its Russian dependence: Remittance man

UK Only Article:  standard article Issue:  Fight this war, not the last one Fly Title:  Central Asia and its Russian dependence Rubric:  Russia attempts to draw Tajikistan and Kyrgyzstan back into its orbit Location:  BISHKEK AND DUSHANBE Main image:  Going back for more Going back for more PICK a village in either of the former Soviet Union’s two poorest and frailest successor states, Tajikistan or Kyrgyzstan, and the chances are you will not find many men about. It is not that they are busy in some workshop. Rather, they have left for Russia. According to the World Bank, Tajikistan is more dependent on remittances than any other country in the world. Last year migrant workers sent home the equivalent of 47% of Tajikistan’s GDP. Perhaps half of working-age males are abroad, most in Russia. Kyrgyzstan is third in the World Bank’s rankings, behind Liberia. One-fifth of its workforce are migrant workers. The economic dependence of ...

Выбор редакции
05 сентября 2013, 19:00

Central Asia and its Russian dependence: Remittance man

UK Only Article:  standard article Issue:  Fight this war, not the last one Fly Title:  Central Asia and its Russian dependence Rubric:  Russia attempts to draw Tajikistan and Kyrgyzstan back into its orbit Location:  BISHKEK AND DUSHANBE Main image:  Going back for more Going back for more PICK a village in either of the former Soviet Union’s two poorest and frailest successor states, Tajikistan or Kyrgyzstan, and the chances are you will not find many men about. It is not that they are busy in some workshop. Rather, they have left for Russia. According to the World Bank, Tajikistan is more dependent on remittances than any other country in the world. Last year migrant workers sent home the equivalent of 47% of Tajikistan’s GDP. Perhaps half of working-age males are abroad, most in Russia. Kyrgyzstan is third in the World Bank’s rankings, behind Liberia. One-fifth of its workforce are migrant workers. The economic dependence of ...

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05 сентября 2013, 19:00

The origins of the financial crisis: Crash course

UK Only Article:  standard article Issue:  Fight this war, not the last one Fly Title:  The origins of the financial crisis Rubric:  The effects of the financial crisis are still being felt, five years on. This article, the first of a series of five on the lessons of the upheaval, looks at its causes Main image:  20130907_SBD001.jpg THE collapse of Lehman Brothers, a sprawling global bank, in September 2008 almost brought down the world’s financial system. It took huge taxpayer-financed bail-outs to shore up the industry. Even so, the ensuing credit crunch turned what was already a nasty downturn into the worst recession in 80 years. Massive monetary and fiscal stimulus prevented a buddy-can-you-spare-a-dime depression, but the recovery remains feeble compared with previous post-war upturns. GDP is still below its pre-crisis peak in many rich countries, especially in Europe, where the financial crisis has evolved into the euro crisis. The effects of the crash are still rippling through the world ...

Выбор редакции
05 сентября 2013, 19:00

The origins of the financial crisis: Crash course

UK Only Article:  standard article Issue:  Fight this war, not the last one Fly Title:  The origins of the financial crisis Rubric:  The effects of the financial crisis are still being felt, five years on. This article, the first of a series of five on the lessons of the upheaval, looks at its causes Main image:  20130907_SBD001.jpg THE collapse of Lehman Brothers, a sprawling global bank, in September 2008 almost brought down the world’s financial system. It took huge taxpayer-financed bail-outs to shore up the industry. Even so, the ensuing credit crunch turned what was already a nasty downturn into the worst recession in 80 years. Massive monetary and fiscal stimulus prevented a buddy-can-you-spare-a-dime depression, but the recovery remains feeble compared with previous post-war upturns. GDP is still below its pre-crisis peak in many rich countries, especially in Europe, where the financial crisis has evolved into the euro crisis. The effects of the crash are still rippling through the world ...

03 сентября 2013, 16:07

Gold Rises Towards $1,400 After Russia Says Missiles Fired At Syria

Today’s AM fix was USD 1,391.25, EUR 1,056.06 and GBP 893.09 per ounce.  Yesterday’s AM fix was USD 1,391.25, EUR 1,052.46 and GBP 893.14 per ounce.  London’s PM fix was USD 1,392.25, EUR 1,054.49 and GBP 893.843 per ounce. Yesterday the U.S. observed a national holiday and the COMEX was closed. Is there a run on the fractional gold reserve banking system? Read this special report - LBMA Data: Beyond the Smoke And Mirrors Gold, silver and brent oil rose and European stocks declined after reports of missile launches in the Mediterranean. Russian radar detected two ballistic "objects" that were fired towards the Syrian coastline from the central part of the sea. Gold in USD, 1 Day - (GoldCore) Gold recovered from early losses and climbed toward $1,400 an ounce, after Interfax reported that Russia detected that two missiles had been launched. The missiles appear to be headed toward the eastern Mediterranean, RIA Novosti reported, citing comments Russian Defense Minister Sergei Shoigu made to President Vladimir Putin.  The reports led to some safe haven buying of gold. Gold for immediate delivery rose 0.5% to $1,399/oz soon after the reports.  The FTSE, DAX and CAC all fell by between 0.4% and 1% in volatile conditions as traders sought more information about the missile launches. Brent crude climbed 0.6% to $115.04 a barrel. At one point it surged 1.6% and reached a six month high of $117.34. The Russian embassy in Syria said there was no sign of a missile attack or of explosions in Damascus. The Ministry of Defence in London confirmed that the missiles were not British. The Israeli military initially said it was "not aware" of any missile launch in the Eastern Mediterranean according to the Daily Telegraph. Reuters have just reported that Israel has now said that it carried out joint missile test with U.S. Russia earlier today had criticised the United States for sending warships close to Syria, saying the deployments would exacerbate tension as Washington prepares for a possible military strike. Gold had edged down for its fourth consecutive day prior to the missile reports, while the U.S. dollar has reached a seven week high ahead of U.S. economic data that will help determine the state of the U.S. economy. Gold in USD, 5 Year - (GoldCore) Gold rallied from its low in June of $1,180.50/oz but has fallen from its three month high on August 28th of $1,433.83/oz due to a delay of the U.S. military attack on Syria. Gold has rallied 17% since the end of June as lower prices boosted demand, particularly in China and Asia.  Gold looks set to rebound as spending cuts by producers and the closure of many increasingly costly mining operations leads to a further reduction in supply while aggregate global demand remains robust. Geopolitical risk continues to be underestimated and the missile reports this morning underscore the importance of having an allocation to gold bullion. Is there a run on the fractional gold reserve banking system? Read th.is special report - LBMA Data: Beyond the Smoke And Mirrors