Central Perk: 30 oct. 2011

duminică, 30 octombrie 2011

Mish's Global Economic Trend Analysis

Massive Intervention in Yen; Japan Finance Minister Promises to "Intervene Until I'm Satisfied"; Race to Debase Back On; Will It Work?
Financial Suicide: Head of EFSF says Bailout Fund Could One Day Issue Bonds in Yuan
Czech PM Considers Referendum to Halt Joining EU

Massive Intervention in Yen; Japan Finance Minister Promises to "Intervene Until I'm Satisfied"; Race to Debase Back On; Will It Work?

Posted: 30 Oct 2011 08:54 PM PDT

The headlines on the Yen tonight are rather amusing.

Two hours ago Bloomberg reported Yen Climbs to Postwar Record Versus Dollar as Traders See No Intervention

About 40 minutes ago Bloomberg reported Yen Drops on Intervention; Aussie Weakens

About 10 minutes ago Bloomberg reported Yen Tumbles as Japan Sells Currency Third Time in 2011

The yen dropped as Japan stepped into foreign-exchange markets to weaken the currency for the third time this year after its gains to a postwar record threatened an export-led economic recovery.

"I've repeatedly said that we'll take bold action against speculative moves in the market," Japanese Finance Minister Jun Azumi said to reporters today in Tokyo after the government intervened unilaterally. "I'll continue to intervene until I am satisfied."

The yen sank as much as 4 percent to 78.98 per dollar and traded at 78.19 as of 11:10 a.m. in Tokyo from 75.82 in New York Oct. 28.

I like to watch these headlines for a bit to see where they are going. Here is a chart of the action.

Yen 15 Minute Chart

Intervention Never Works

Japan has struck out twice this year on intervention efforts and numerous times before. Why should this time be any different?

Currency intervention never works. However, it may appear to work if by some lucky chance intervention came at the time the Yen was ready to reverse on its own accord.

The race to debase is back on.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Financial Suicide: Head of EFSF says Bailout Fund Could One Day Issue Bonds in Yuan

Posted: 30 Oct 2011 03:29 PM PDT

Klaus Regling, head of the European Financial Stability Facility has proposed European Bailout Fund Could 'One Day' Issue Bonds in Yuan

The euro area's bailout fund could at some point issue bonds denominated in the Chinese currency, Chief Executive Officer Klaus Regling said in Beijing today.

"We are authorized to use any currency we want if it seems efficient so we may one day issue in U.S. dollars or renminbi," said Regling, head of the European Financial Stability Facility, using another name for the yuan. "It depends whether the Chinese authorities would approve of that. I could imagine that over the years that might happen, maybe not immediately but maybe one day," he said.

European leaders are seeking financial support from China, holder of the world's largest foreign-exchange reserves, for an enlarged rescue fund aimed at containing the region's sovereign- debt crisis. Vice Finance Minister Zhu Guangyao said yesterday his government wants more details about the "technicalities" before making any decision on investment.

Regling said yesterday that China, which has been a "good" and "loyal" purchaser of EFSF bonds so far, hasn't set any conditions for buying more of the securities.

Financial Suicide

Issuing bonds in another currency risks financial suicide. Currency movements add to the already massive potential risk of huge fluctuations because of leverage.

Argentina blew up when it could no longer hold a peg in US dollars. While not a peg, imagine the losses on long-term bonds on a leveraged fund were the Yuan to rise by 33% vs. the Euro.

Many homeowners in Eastern European countries have housing loans in Euros or Swiss Francs and have paid a severe price as the value of their currency has dropped vs the Euro and even more so vs the Swiss Franc.

Perhaps the yuan would sink vs. the Euro, but anyone entertaining the risk is severely lacking in financial competence.

Moreover, that Regling would even suggest such a foolish thing says the EU not only expects this crisis will linger for a long time, and it does not believe it has buyers for the debt it issues.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Czech PM Considers Referendum to Halt Joining EU

Posted: 30 Oct 2011 01:02 AM PDT

The Czech Republic is having second thoughts about joining the EU, and rightfully so. The EU Observer reports Czech PM mulls euro referendum

The ruling euro-sceptic ODS party in the Czech Republic wants to push for a referendum on the country's future eurozone accession, claiming that the rules have changed since 2003 when Czechs said yes to the EU and the euro.

We signed up to a monetary union, not a transfer union or a bond union in our accession treaty. This is the major reason why the Czech Prime minister wishes to call the referendum on this matter," said Czech MEP Jan Zahradil, leader of the European Conservatives and Reformists.

Last weekend, at an ODS party congress, Prime Minister Petr Necas demanded a referendum on whether the country should join the eurozone.

"The conditions under which the Czech citizens decided in a referendum in 2003 on the country's accession to the EU and on its commitment to adopt the single currency, euro, have changed. That is why the ODS will demand that a possible accession to the single currency and the entry into the European stabilisation mechanism be decided on by Czech citizens," the ODS resolution says.

Prime Minister Necas also floated the idea in case Germany gets it way on another treaty change bringing about more economic integration and tougher sanctions for deficit sinners.

"In the event that there is a change to fundamental rights that would result in powers being transferred from national organs to European organs, this government is bound to ratify this step with a referendum," Necas told reporters in Brussels on Sunday evening.

Conditions Have Changed

It is crystal clear the rules and conditions have changed. Thus, the Czech prime minister is right to call a voter referendum.

The ESM alone is reason enough to tell the EU bureaucrats where to shove it the Euro. For details, please see Treaty of Debt - An Eye Opening Video on the ESM Bailout Mechanism

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Seth's Blog : The paradox of expectations

The paradox of expectations

Low expectations are often a self-fulfilling prophecy. We insulate ourselves from failure, don't try as hard, brace for the worst and often get it.

High expectations, on the other hand, will inevitably lead to disappointment. Keep raising what you expect and sooner or later (probably sooner) it's not going to happen. And we know that a good outcome that's less than the great one we hoped for actually feels like failure.

Perhaps it's worth considering no expectations. Intense effort followed by an acceptance of what you get in return. It doesn't make good TV, but it's a discipline that can turn you into a professional.