Huh? When the Fed expands its balance sheet these days it’s actually bullish for the dollar!?
Guest post by Gresham’s Law.
If you ever happen to acquire an inclination for being the subject of disrepute and ridicule I highly recommend endorsing the conceit alluded to in the title. Apparently this issue is ‘so obvious’ that even gold bugs and government officials can reach common ground via the contention that I’m deluded. My folly — if you will — is to maintain that dollar debasement can be bullish for the dollar vis-à-vis other currencies at present. Since this long-standing conviction of ours is once again being corroborated by price action in the currency markets I thought I’d attempt to convince you that I’m not completely crazy. Here I outline why dollar debasement is bullish for the dollar against other fiat currencies in this environment.
Re-hypothecation for dummies
The World suddenly learnt of re-hypothecation, old time practices in finance, last year when MF Global went bust. Here is a neat explanation for the ones who missed it last year.
Courtesy Paddy Hirsch.
Things that make you go hmmm-on Europe, debt, coins, gold and much more
Remember the Teflon market? It sure seems 2012 started of in this “teflon” way. Markets are climbing the wall of worry, and nobody wants to miss out on the bull (nor the bear). Europe is still the main character in this debt soap opera. Some great insight on the Euromezz by Grant Williams of Things that make you go hmmm.
As we enter 2012, it is clear that Europe is still the focus of most people’s attention (although I suspect the gradual shift towards the Middle East is a trend that should and will accelerate in coming weeks) and I firmly believe that the continent is finally heading towards a resolution in 2012.
I suspect that resolution will NOT be pretty, will result in much upheaval and, ultimately, mean the end of the euro (at least in its current form), but from the ashes of that resolution we will find the clarity we need to move forward and put the past 2 years of ever-worsening headlines behind us.
Greece is done. Period. They cannot remain in the Eurozone – nor should they and, with the next bailout package (this time north of €100bln) being due in March when a whopping €17.5bln of Greek debt will need to be sold (although, between now and then, any of the 5 smaller auctions – starting with next week’s €2bln could tip the scales), it’s hard to see how they make it past that point. The Troika’s visit to Athens on January 16th will no doubt ramp up the rhetoric once more, but realistically handing ANOTHER €100bln+ to the Greeks would be both cavalier and stupid.
Market and Economic Indicators
Charts by Macro Story.
Markets have been drifting higher on thin volumes. Let’s see if this coming first “real” trading week of the year will provide better liquidity and manage attracting genuine interest.
Charts below.
Fear of HFT
We have written extensively on the HFT theme. As ordinary people pull out money from the markets and regulators lack competence on the HFT subject, the first warning signals are heard from the industry.
“We’ve gotten a little anxious when you hear that, on a given day, high-frequency traders of all types … make up 60, 70, 80 percent of what’s trading,” Andy Brooks, head of U.S. stock trading at the firm, said in an interview. “The public’s confidence in pricing and markets, and getting a fair deal and earning a fair return, has been challenged. And these guys — the more aggressive high-frequency traders — undermine confidence. And that’s bad for everybody.”
Baltimore-based T. Rowe Price, with its focus on small investors, is one of the few financial companies to break the industry’s code of silence on criticizing rapid traders.
Former Delaware Sen. Ted Kaufman, a Democrat, likens the boom in high-frequency trading, with its novelty, complexity and opacity, to the bubble in mortgage bonds a few years ago. We know how that turned out.
Spain’s young people trapped in 50% unemployment
How is Europe actually feeling? With unemployment among the Spanish young people at 49.6%, Europe has some serious problems to deal with. From Businessweek;
Spanish and Italian bonds declined as European confidence in the economic outlook fell to a two-year low, fueling concern that the region’s most-indebted countries will struggle to cut budget deficits amid a slowdown.
Spain’s 10-year yields had the biggest weekly increase in almost 17 years. The unemployment rate among the nation’s young people rose to 49.6 percent in November, the European Union’s statistics institute said today. French 10-year bonds slipped for an eighth day, yielding more than the European bailout fund in which the country is a main guarantor. German bonds posted a weekly decline as stocks advanced and U.S. employers added more workers to payrolls in December than predicted by economists.
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