Central Banks

     

 

 

Damned If You Do…

After waking up on Thursday, we quickly glanced at the overnight market action in Asia and noticed that the Nikkei had tanked rather noticeably. Our first thought upon seeing this was “must be the yen” – and so it was:

 

1-Yen, June, dailyJune yen futures, daily – taking off again – click to enlarge.

 

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What Determines a Currency’s Value?

At the end of March the price of the euro in terms of US dollars closed at 1.1378. This was an increase of 4.7 percent from February when it increased by 0.3 percent. The yearly growth rate of the price of the euro in US dollar terms jumped to 6 percent in March from minus 2.9 percent in February.

 

1-EURUSDEUR-USD, 2007 – today, monthly – click to enlarge.

 

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The Inflation Illusion

We hear more and more talk about the possibility of imposing negative interest rates in the US. In a recent article former Fed chairman Ben Bernanke asks what tools the Fed has left to support the economy and inter alia discusses the use of negative rates.

We first have to define what we mean by negative interest rates. For nominal rates it’s simple. When the interest rate charged goes negative we have negative nominal rates. To get the real rate of interest we have to subtract inflation from the nominal rate, so to speak remove the illusion of inflation.

 

1-real FF rateThe “real” federal funds rate (effective FF rate minus CPI-U y/y rate of change)

 

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A Return to Gold

BUENOS AIRES, Argentina ­– “What if you were appointed to head the Fed? In your first week on the job, what would you do?”

The question was not exactly serious. Neither was the answer.

“We’d call in sick.”

 

the-us-federal-reserve-board-building-susan-candelario-1Sorry boys and girls, you’ll have to start without us…

Photo credit: Susan Candelario

 

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The Hard Rocks of Real Life

BALTIMORE – The Dow dropped 174 points on Thursday, the biggest fall in six weeks. Not the end of the world. Maybe not even the end of this year’s bounce-back bull run. As you’ll recall, stocks sold off at the beginning of the year, too. Then, investors were buoyed up after central banks got to work – jimmying the credit market on their behalf.

 

5o1rhrdw59wkPhoto credit: Andrei Shumskiy

 

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No Return to Normal

BALTIMORE – On Tuesday, the Dow sold off – down 133 points. Oil traded in the $36 range. And Donald J. Trump lost the Wisconsin primary to Ted Cruz. Overall, world stocks have held up well, despite cascading evidence of impending doom.

U.S. corporate profits have been in decline since the second quarter of 2015. Globally, 36 corporate bond issues have defaulted so far this year – up from 25 during the same period of 2015. Economists at JPMorgan Chase put the U.S. economy growth rate for the first quarter at 0.7% – down by over one-third from earlier estimates.

 

1-pretax corporate earningsAnnual rate of change in quarterly pre-tax profits: nothing to write home about. A  small “profits recession” incidentally preceded the last economic downturn as well – click to enlarge.

 

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It Wasn’t Supposed to Do That…

When you’re a central banker in a pure fiat money system and even your ability to print your own currency into oblivion is questioned by the markets, you really have a problem. This is actually funny on quite a number of levels if one thinks about it a bit…

Haruhiko Kuroda (a.k.a. Kamikaze) is such a central banker. His valiant attempts to make Japan richer by making its citizens poorer is beginning to be rejected by Mr. Market:

 

1-Yen, daily-bKuroda-san’s latest monetary depredations continue to backfire (from his perspective, that is). The chart of the yen actually continues to look quite bullish here – it is in the process of breaking out and has just attained a new 17 month closing high – click to enlarge.

 

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Poison Money

BALTIMORE – We live in a world of sin and sorrow, infected by a fraudulent democracy, Facebook, and a corrupt money system. Wheezing, weak, and weary from the exertion of trying to appear “normal,” the economy staggers on.

 

David-Simonds-zombie-high-011Staggering on….

Image credit: David Sidmond

 

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A Witless Tool of the Deep State?

Finance or politics? We don’t know which is jollier. The Republican presidential primary and Fed monetary policies seem to compete for headlines. Which can be most absurd? Which can be most outrageous? Which can get more page views?

Politics, led by Donald J. Trump, was clearly in the lead… until Wednesday. Then, the money world, with Janet L. Yellen wearing the yellow jersey, spurted ahead in the Hilarity Run.

 

 

Yellen_cartoon_08.18.2014A coo-coo for the stock market…

 

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Leaning Into the Wind

BALTIMORE – During our lifetime, three Fed chiefs have faced a similar challenge.

Each occupied the chairman’s seat at a time when “normalization” of interest rates was in order.

 

Recently, we remembered William McChesney Martin, head of the U.S. Fed under the Truman, Eisenhower, Kennedy, Johnson, and Nixon administrations. Today, we compare Martin with two of his successors, Mr. Paul Volcker and Ms. Janet Yellen. We allow you to draw your own conclusion.

 

martinPunchbowl theft alert!

 

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Reader Questions on Negative Interest Rates

Our reader L from Mumbai has mailed us a number of questions about the negative interest rate regime and its possible consequences. Since these questions are probably of general interest, we have decided to reply to them in this post.

 

1-key-negative-interest-rates-02192016-LGThe NIRP club – negative central bank deposit rates – click to enlarge.

 

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The G-20 and Policy Coordination

Readers may recall that the last G20 pow-wow (see “The Gasbag Gabfest” for details) featured an uncharacteristic lack of grandiose announcements, a fact we welcomed with great relief. The previously announced “900 plans” which were supposedly going to create “economic growth” by government decree seemed to have disappeared into the memory hole. These busybodies deciding to do nothing, is obviously the best thing that can possibly happen.

 

1-USDCNY(Weekly)Yuan, weekly – since the sharp move in USDCNY in August, market participants have begun to worry about the yuan and China’s shrinking foreign exchange reserves – click to enlarge.

 

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