Sunday, January 25, 2015

Ruble, Oil and Francs- monetary policy is silly

I want to start off by mentioning my position on this.
This summer, Russia and China discussed a deal for natural gas from Russia to China.

China has to secure energy resources for 1.4 BILLION people.  That's A LOT of people.

The U.S. has been difficult to China in the past (ref: CNOOC Unical in 2003, etc.) on behalf of special interest.

When the two countries discussed this deal, I noticed that natural gas companies in Texas had an unusually large number of "puts" placed on them.  I have to look for it and I don't know what the outcome was.

So this is when Victoria Nuland admitted that the CIA funded Kiev Nazis in the Ukraine with $5 billion of our tax dollars.  To antagonize Russia.

Which is NOT okay or acceptable.

John Kerry said that the Arabs offered to pay for a US attack on Syria.  Now there are Syrians in Greece.

Ukraine pretty much stole natural gas (profits) from Russia as the go between land mass that Russia needs to export that natural gas.

Hunter Biden is on the board of directors for Ukraine's largest gas producer.

I haven't studied Ukraine, I'm not an expert.  But it's obvious that Ukraine has been exploited by the U.S. and holds too close to it's heart neo-Nazi and severe hate for other races.  Which is evidenced by the murder of Bill Cosby's son Ennis on the 405 freeway in Los Angeles during the 90's by a young man from the Ukraine.  It was a horrible hate crime.  This happened over 20 years ago.

Racism in sorts that I know (as a "model minority") is the racist dicking around and doing drugs, then blaming and scapegoating minorities to evade blame for a lack of productivity.

Asia has a drug problem now, which was bound to happen and that's going to be a mess.  But Asians do not have a stupid racism problem.  And look at Asia, there is no street violence.  No homicides based on race.  Which is why Asians have moved their way up in the world.  The unnecessary trouble is distracting and a severe consequence to your own welfare.

So anyways, past the drama between the Ukraine and shady, seedy U.S. involvement.   Some stuff happened, Greece's socialist system HATES Nazis (thank God!) and Grexit is about to occur when Draghi is poised to start quantitative easing as the president of the ECB.  Mario Draghi and Mario Ciampi are both former Goldman Sach employees who got jobs with Italy's government and signed Italy away on these interest rate swaps with Goldman Sachs.  Mario Draghi worked as a govenor? for the Bank of Italy.  Who also defaulted but somehow Italy comes up with the money for Quantitative Easing?  Because they will need to borrow when this happens.

So out of nowhere, the Swiss National Bank unpegs the Franc after hinting lower interest rates for it.
Why did this happen? Someone asked if it was to bankrupt Soros- it may have.  Soros doesn't like Russia, he had been vested in Argintinia's oil.

Mind you, the world is shifting it's purchasing power into investments in a stable currency as the value of their own currencies dwindle.  Which is the smart thing to do.  But it makes a huge but inevitable joke of the monetary policy.  Mrs. Wantanabe hedges her purchasing power in AUD when PM Abe drops the value of the Yen.  Nothing is preventing Foxconn from exporting in Taiwan Dollars and receiving US Dollars and then storing them in HKD or now Yuans with a carry trade policy.  And rising Yuans/Remnimbis could make way for a stronger Panda/Dim Sum bond payout/ROI to investors and more debt for the borrowers (companies).

Now that China cracked down on gambling in Macau- former gamblers have rightfully put their money into the exchanges.

I said it before, we should've physically picked up 99 Wall Street, stuck it in the middle of Macau and stuck ticker tape on the slot machines.  It would have completely fixed the U.S. economy since they LOVE to gamble so much.

As a trader, I noticed that strong demand is not affected by monetary policy.  Before Bernanke dropped rates- when there was an economy in the tech sector- high margins didn't scare away people from buying hoards of tech stocks with sky high PE valuations.

I witnessed this.  LIVE.  For a living.

Fiscal policies, not monetary policies are the answers to the US economic dilemma we're stuck with.  And this would include reinacting the Glass Stegall Act without SOX "updates", removing red tape barriers to young company growth, tax cuts for investors buying assets backed in businesses and currency hedges, etc.  The incentive motive that the boomer voting majority set up for themselves is so screwed up that nobody but connected trust fund brats have access to "the dream" of starting a company (which creates jobs- Reagan's tax cuts resulted in the largest employment to population growth in the history of the world at 84%).

And guess what happens now?
Stories. Connecting Russia, oil and the Franc. (I'm just posting the entire two articles here)...

THE SNB AND THE RUSSIA/OIL CONNECTION Izabella Kaminska  | Jan 15 11:57 | 8 comments | Share
A quick post to collate a few side theories on the reasons, justifications and consequences of the SNB move.

Simon Derrick at BNY Mellon is first to point out that the euro floor/chf celing was leaving an open door to safe haven flows from Russia by way of an open bid for euros. As he notes:

Compounding this was Switzerland’s role as a safe haven as the Russian crisis intensified. It was, therefore, not entirely surprising when the SNB decided a few weeks ago to impose an interest rate of -0.25% on sight deposit account balances at the bank and expand the target range for three-month LIBOR to -0.75%/+0.25%.

Since this measure wasn’t enough to put the flows off, it was clear, Derrick notes, something else would have to be done.

So what does today’s move tell us? According to Derrick, mainly that the SNB probably expected quite an inflow in the weeks to come and was not prepared to provide these buyers of CHF with an artificial cheap rate.

It was not, as you might put it, prepared to bailout the world’s oil/commodity value losses.

This makes a lot of sense if you appreciate that Switzerland is home to the world’s biggest oil trading intermediaries, all of whom generate revenues in dollars, all of whom pay (what little tax they do) in Swiss francs, and most of whom have a mix of US dollar liabilities and Swiss ones.

What’s the easiest way to get the best Swiss rate? Swap your overvalued but diminished supply of dollars into euros, and then recycle them directly into as many Swiss francs as you can, which translates into an effective tax break for your oil focused residents.

Then, of course, there’s the ECB’s expected QE programme.

As we’ve noted before, whether intended to or not, the SNB’s floor mechanism recapitalised eurozone assets just when the Eurozone was most in need of capitalisation.

The process by which this happened, of course, was the open bid for euros in the market. Not only did this support the euro, it amounted to a giant bid for what were at the time extremely toxic Eurozone assets that no-one else was prepared to touch, helping to support their value vis-a-vis non euro-denominated assets.

Now, if we assume that ECB QE is really about to take place, we should not be surprised that from the SNB’s perspective this sends a signal that their time recapitalising the eurozone is over. Those Eurozone assets can now swiftly be handed back into the market, because the ECB will be standing by to support them instead.

If you consider the pressure the Swiss balance sheet may be about to feel from distressed oil-related cash flows internally and it makes even more sense that the SNB might be more concerned about the effects of a strong dollar than about Swiss franc strength. Though on that last point we’re speculating. And the linkages are not at all clear.

Gold News-What 'Violet Thursday' Did for Swiss Francs, QE and the Gold Price Friday, 1/16/2015 18:45The Swiss central bank's Euro peg marked the top in 2011 gold prices. Now it has gone...VIOLENT doesn't say it. Violet might, writes Adrian Ash at BullionVault.

That's violet in honor of the largest Swiss banknote, the 1000 Franc note.
 Because that's what hedge fund types who bet against the Swiss Franc keeping its peg of CHF1.20 per Euro should have used to pay for lunch on Thursday...
 ...while lighting their cigars with the biggest denomination Euro paper, the €500 note.

Odd coincidence, but the day the SNB imposed its peg at CHF 1.20 per Euro – back on 6 September 2011 – was the day gold peaked at $1920 per ounce. It's been downhill pretty much since then.  How come? Well, like Mario Draghi's "whatever it takes" speeches of 2012 (when the Euro gold-price again hit those highs), the Swiss peg suggested that central bankers were taking charge...and had everything under control.

Who needed gold? Who needs it now? Maybe ask this week's new buyers...or simply take a quick look at what the Swiss news did for gold prices in all currencies barring the super-charged Franc.

The Swiss blow-out on Thursday saw trading volumes on BullionVault's physical gold and silver exchange jump to the strongest level since June 2013.

In cash terms, trading reached well over twice the last 3 years' daily average, and it was the strongest since the Spring 2013 crash finally found its floor.

Users were, as then, slight net sellers on the day, with Sterling investors in particular taking profits if not cutting losses from the last 3 years' drop at these 16-month highs. Good buying has since come in, however, notably from Euro clients ahead of what looks certain to be full Quantitative Easing from the European Central Bank next Thursday.

If past QE announcements from the Bank of England and US Fed are any guide, traders might expect a quanti-climax in gold prices short term. Buy the rumour, sell the news – it applied every time, no matter the underlying direction in gold.

And as for those rumours, this week's SNB announcement was a hammy actor's shouted stage-whisper...winking that they know something big is coming from Draghi and his Eurozone committee next week. 

Why didn't you tell us you were about to end the peg? bleats the International Monetary Fund's chief, Christine Lagarde.

Because, SNB chairman Thomas Jordan told reporters on Thursday, removing the Franc's low peg...and letting it move higher as market demand wanted...had to be a surprise. And a surprise it was!
 The Euro lost 25% inside 10 minutes against the Swissie...or maybe 40% depending on whose data you check... 
 ...while the Swiss stock market dropped over 10%... Swiss government bond prices jumped so high, the annual yield they offer has gone negative on all debt out to 7-year maturities... 
 ...and the gold price lost 23% for Swiss investors top to bottom before recovering half that plunge and settling Friday at CHF 1,100 per ounce...just above the 10-month low seen in October 2014.

Why so crazy? One currency dealer "was lost for words...The thing which could not happen, has occurred – the speculators have won against the National Bank." 
In truth, most FX speculators...certainly at the 'retail' level...were betting the other way. So they got filled, drilled and killed on Thursday's huge spike, and their losses in turn have started killing some of the larger FX bookmakers too.

But yes, the Swiss National Bank...after printing billions of Francs (electronically) and throwing them at the FX market to try and keep the currency low...gave in to the flood of bank account inflows on Thursday. 
That means the Euro's false level of CHF 1.20...attacked by hedge funds and other currency traders, and defended with all those billions of Francs from nowhere...has gone. 
So the "speculators" were right in other words. Their "speculation" that central banks cannot fight the market proved anything but a wild guess...and the Franc has shot higher. 
 Priced in Francs (currency code CHF), the Dollar sank together with everything else...losing 14% by midday here in London. The Euro meantime touched CHF 0.71 on some screens (we doubt anyone dealt down there)...whipping back to 0.98 by the end of the week.
 That still marks the single currency's lowest ever valuation against its small, wealthy neighbour's money. 

What to make of it all?
 First, let's call Thursday's SNB shock what it is. A "reverse Soros". Back in 1992, the Hungarian speculator (and wannabee philosopher) George Soros bet £1 billion...some $1.5bn...that the British Pound could not stay inside the pre-Euro system, then called the ERM (exchange rate mechanism). 
 Soros' huge bet famously "broke the Bank of England"...forcing it to sell huge quantities of foreign currency to buy Pounds in the open market...and forcing the government to hike Sterling interest rates from 10% to 12% and then the hope of driving its value higher and maintaining the peg against Britain's partner currencies in the European Union. 
 Alas, the Pound was weak for good reasons, and the market won. On "Black Wednesday" in September 1992, the UK abandoned its ERM peg...and membership of the Euro was written off for good. 

The market won again this week, only in the other direction, on Violet Thursday. But why now? Well, the European Central Bank meets next week. And after pussy-footing about since vowing to do "whatever it takes" in October 2012 (when gold priced in Euros again hit its record peak at €1380 per ounce), Mario Draghi and his team now find the data, electoral cycle and lawyers aligned.

Deflation is here, thanks to sinking oil prices. The Greek election, three days after next week's ECB decision, looks set to deliver the anti-austerity Syriza party to power. And there's nothing illegal about the ECB printing electronic cash to buy Eurozone assets, said the European Constitutional Court of Justice's advocate-general Pedro Cruz Villalon on Wednesday.  
The Swiss National Bank pulled its ceiling from the Franc the very next day. Now or never on Euro QE, in short.
 One guess is that the SNB had in fact done the Euro a favor back in 2011 when it started printing Francs to sell for Eurozone assets. Because the ECB wouldn't print Euros to buy Portuguese, Italian, Greek or other weak debt. So the SNB moved to avert disaster for its biggest trading partner. Now the ECB is about to start printing at last. So the SNB can step down from the task.

This would stand up if Eurozone assets had proved the biggest beneficiaries of Swiss QE cash. But no. Check the SNB's annual reports...and compare against itslate-2014 breakdown of investment assets...and you'll see that Euro assets fell since 2010 from 55% of the total to just 45%...thanks to the Swiss buying Dollars, Sterling and Yen with their QE cash to depress the Franc's value on the FX market.

A better guess is that, after 3 years of holding the Franc down, the chaos that was certain to follow only grew worse with each day the peg remained in place. Better to get it over and done with than wait until after the ECB starts pushing the Euro still lower from its decade lows, dragging the pegged Franc with it and inviting yet more speculation that the peg would break in the end.

A third theory, put forward by Australia's ANZ Bank on Friday...and echoing what we told BullionVault clients in their Daily Update email Thursday that the SNB is suddenly much less willing "to be a major provider of safe haven investments."

Previously, speculators (AND RUSSIAN OLIGARCHS) HAD BEEN ABLE TO BUY 'SAFE HAVEN' FRANCS AT MUCH DEPRESSED PRICES. Because the SNB had been keeping them cheap with that ceiling of CHF 1.20 per Euro. But that was getting politically tough (if not morally so, as Simon Derrick at BNY Mellon notes of the Russian inflows of cash during the latest Ruble Crash) after the anti-QE, pro-gold referendum held at the end of November.

Yes, the proposals to boost SNB gold holdings failed, thanks to being both bad policy and also wide open to accusations of simply trying to make gold owners rich. But it did hint at deeper discomfort amongst at least 1-in-4 Swiss citizens over the swollen central-bank balance sheet, and the gift to speculators which cheap Francs provided.

That gift paid off big-time on Thursday. The SNB'S DECISION GAVE FX SPECULATORS (AND RUSSIAN SQUILLIONAIRES) JUST THE SURGE IN FRANC VALUE they were betting on. But it also led the world deeper down the rabbit hole of negative interest rates. Because while the Swiss have abandoned a currency target, they're now targeting 3-month interest rates as low as minus 1.75% per annum.

So, the world's wealthy can hoard their savings in the 'safe haven' Swiss currency if they wish. But it will cost them, the SNB is saying. Holding cash will NOT be rewarded, even if the currency value rises.
"While the cost of holding gold is negligible, the Swiss 1-year deposit rate has fallen to -0.5% overnight," says ANZ. What's more, and while "for most participants, the yield on holding gold is effectively zero...for those who are able to lend the metal; a positive yield on physical holdings can be earned."
That sure beats Francs...unless the Franc keeps surging in value. In which case, as the SNB's announcement made plain on Thursday, a return to currency pegging is only ever one more press release away. 

So too is QE money printing by the Bank of England...and even the US Fed. The Swiss have now untied their Franc from the Euro because they clearly expect just such big QE news from the European Central Bank in Frankfurt next Thursday. So too does the gold price.

Are you all ready too?

Saturday, January 17, 2015

I had an earful of the Tiffen Dilemma. Somehow during the Nixon reign, at a Bretton Woods congregation-somebody decided that whoever holds the world's reserve currency has to be in deficit to the world so that there was enough reserve currency available throughout the world. 

I'm just going to stop right there because I strongly believe that monetary policy is a fallacy of false outcomes and the Federal Reserve is not going to fix anything. They don't have the tools to.

I'm not a believer in monetary policy, but a fiscal and legislative one that will fix the U.S. economy. 

The country's economy was not only trashed by massive trade deficits with OPEC and China, but a severe investment deficit as well. 

The boomer voting and fiscal majority elected politicians made a huge epic mess out of this. 
There is literally no volume on the US stock exchanges.

The Asians LOVE to invest. It's part of that gambling gene. Asians love businesses. This is inevitable. Maurice Greenberg made bank for AIG when he sold insurance to the Chinese back in 1992 (I think TARP bailed out the wrong people for this reason, the others are useless). 

We needed to put Asia to good use before "overinvestments" over heat their economy again like it did in the late 90's.

So refereed by Malaysia and India, the Multilateral Investment Agreement between the US and China in 1995 was a complete disaster because the wannabe Nixon then POTUS Clinton didn't convince China to remove their barriers to the U.S. financial sector.

So the only Cash Flow to the US was from the U.S. Treasury funded by foreign governments - whom the Federal Reserve could not afford to print or buy treasuries without (France loaned Britain gold during their quantitative easing with the bank of England a few centuries ago).

Again, all this did with no cash flowing through the private sector was give the US politicians/government a monopoly of power over the private sector and U.S. citizens through this absolutist massive amount of leverage. 

The other massive disaster was replacing Glass Stegall with SOX. 

Back during the Reagan administration, the actor who majored in economics cut taxes to encourage the wealthy to bring their money back to the U.S., and they had nothing better to do than to invest it.  Reagan's economy produced 84% employment to population growth and Clintons had 79%.  Back in 1996, there were 675 IPOs.  IN 2012, I believe there were 19?  For companies that already exist. 

Being that Glass Stegall was still law, that money fueled business growth which resulted in the largest employment/population growth in the history of the world.

Now we have some assets collataeralizing loans.  SOME.  Not $4 quadrillions worth.

Petrodollars have provided liquidity to banks.   Because of things like SOX red tape to venture capital, IPOs, etc., the Frank Dodgy thingie,  and the excessive taxation on mid-sized companies, those bank loans were sold as mortgages. 

Houses are merely inanimate objects.  They don't create value.  People create value and in this country, it's through businesses.  And you need Research and Development fees assigned with your operating cash flow in order to get this accomplished.  And I believe that the techies voted for all of that red tape to protect themselves from competition.  Not from PR's, but their own personal character and outlooks on how to retain that market share. The trouble is their block is a negative externality to every other sector and the entire economy leaving many Americans out of work?   It was recklessly implemented.  And the connections to Venture and Private Equity in the San Francisco Yay Area of gold diggers is deeply bottlenecked. 

And in a more political economy- and on the thesis of "New Trade and Michael Porter" that a "limited government should support an emerging industry to help it gain that competitive advantage (ie. "strategic Trade Policy).... a little company in the global market is like sending a floating device to save the Titanic in our business climate. 

How do you qualify for a Dim Sum Bond in this rip tide?  They want a track record like anyone else before they trust you with investor money.  If the stock market isn't going to perform there, the bonds will and bonds are getting more expensive when they raise their interest rates. 

I know that the Boomers are threatened by younger generations and they like to patronize, condescend and put us down-they did so in the Main stream media with their thrive on negativity influence.  But come on.  This is ridiculous.