Tuesday 27 August 2013

Fed Launches New Currency War.



Baltic Dry Index. 1165 

LIR Gold Target by 2019: $30,000.  Revised due to QE programs.

Ford to [NY] City: Drop Dead.

Headline Daily News, October 29, 1975.

The Fed’s message to the rest of the world at Jackson Hole was unmistakeable.  “Fed to ROW, Drop Dead.” If the Fed dares to taper, all interest rates start to rise. Finally  it’s become put up or shut up time at the world’s leading central bank. Having just told the rest of the world President Ford style to “drop dead,” U-turning on tapering now won’t undo the bad feelings just generated.

Still plunging Southeast Asia, Club Med and Latin America back into turmoil just to placate US domestic politics is not a step to be lightly taken. The rest of the world is not likely to be impressed. As the UK found out to its cost in the 20th century, there can be a high price to pay for running a reserve currency. Happily for the UK, it was forced out of that game by losing two World Wars financially, and incompetent class-hatred, old socialist wealth envy, governments following World War Two. America picked up the role of running the only world reserve currency. President Nixon traduced it in 1971, launching the Great Nixonian Error of fiat currency.  Over the next 5 years, I think, we are about to witness the end of the world as we knew it. Stay long fully paid physical gold and silver.

"The first requisite of a sound monetary system is that it put the least possible power over the quantity or quality of money in the hands of the politicians."

Henry Hazlitt

Fed Officials Rebuff Coordination Calls as QE Taper Looms

By Simon Kennedy, Joshua Zumbrun & Jeff Kearns - Aug 26, 2013 5:55 AM GMT
Federal Reserve officials rebuffed international calls to take the threat of fallout in emerging markets into account when tapering U.S. monetary stimulus.

The risk that the Fed’s trimming of bond buying will hurt economies from India to Turkey by sparking an exodus of cash and higher borrowing costs was a dominant theme at the annual meeting of central bankers and economists in Jackson Hole, Wyoming, that ended Aug. 24. An index of emerging-market stocks last week fell 2.7 percent, the steepest in two months, compared with a 0.5 percent gain in the Standard & Poor’s 500 Index.

Such selloffs aren’t an issue for Fed officials who said their sole focus is the U.S. economy as they consider when to start reining in $85 billion of monthly asset purchases that have swelled the central bank’s balance sheet to $3.65 trillion. Even as the Fed officials advised emerging markets to protect themselves, they were pressed by the International Monetary Fund and Mexican central banker Agustin Carstens to spell out their intentions better in the interest of safeguarding global growth.

“You have to remember that we are a legal creature of Congress and that we only have a mandate to concern ourselves with the interest of the United States,” Dennis Lockhart, president of the Atlanta Fed, told Bloomberg Television’s Michael McKee. “Other countries simply have to take that as a reality and adjust to us if that’s something important for their economies.”
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Below, the rest of the world starts to comply. Not for nothing does crash season approach with a vengeance. What could possibly go wrong? This reminds old dinosaur Graeme of the summer of 1987, when America’s Jimmy Baker picked a fight in the summer with West Germany’s Bundesbank. Remind me again of what happened on “Black Monday” October 19, 1987.

The conspicuously wealthy turn up urging the character building values of the privation of the poor.

J. K. Galbraith.

Brazil's real defence falters as Fed leaves emerging markets to their fate

Brazil's emergency intervention to shore up the real has already begun to unravel, prompting fears of fresh capital flight unless the government takes more radical action.

The currency fell 1.3pc to $2.38 against the dollar yesterday as the shock effects from last week wore off. Investors appear to have been shaken by warnings from US Federal Reserve governors that the bank will not back away from monetary tightening because of emerging market woes.

"Other countries simply have to take that as a reality and adjust to us," said Dennis Lockhart, the Atlanta Fed chief.

The insouciant attitude has led to loud grumbling from officials now in the eye of the storm. Mexico's central bank governor Agustin Carstens said the capital outflows had become "pernicious", while a top Chinese official said it was encumbent on the US to "consider not only the US’s own economic needs" as it scales down stimulus.

A drizzle of bad figures over recent days may yet cause the Fed to hold back in September. Durable goods orders fell 7.3pc in July, raising doubts about the strength of recovery.

Countries across Asia have been hit by currency flight as dollar liquidity dries up. A report by Macqararie said the current upheaval is "more insidious and risky" than the East Asia crisis of 1997-1998, even though these countries now have bigger foreign reserves and less dollar debt.
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Mexican Peso Plunges Most Among Major Currencies on Fed Concern

By Ben Bain - Aug 26, 2013 10:04 PM GMT
Mexico’s peso tumbled the most among major currencies after Federal Reserve policy makers indicated they won’t take into account the fallout in emerging markets as they pare back U.S. monetary stimulus.

The currency fell 1.7 percent to 13.1879 per U.S. dollar at 4 p.m. in Mexico City. The currency’s decline today is the most among the dollar’s 31 most-traded counterparts.
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India 10-Year Bonds Drop as Weaker Rupee Spurs Inflation Concern

By Shikhar Balwani - Aug 27, 2013 6:23 AM GMT
India’s 10-year government bonds dropped for a third day as the rupee approached a record low, raising concern inflation will accelerate.

The rupee fell as much as 1.8 percent to trade within 0.2 percent of the unprecedented 65.56 per dollar level reached on Aug. 22, taking its loss this quarter to more than 9 percent. A weaker currency stokes inflation as India imports about 80 percent of its oil needs. Wholesale prices rose 5.79 percent in July from a year earlier, compared with 4.86 percent the previous month, official data show.

---- The rupee completed a second week of losses on Aug. 23 despite a series of measures by policy makers since mid-July to stem its slide. The Reserve Bank of India raised two interest rates and tightened the supply of cash in the banking system. A spike in yields after the cash squeeze prompted the RBI to announce a plan to buy long-dated debt last week.
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Ringgit Declines to Three-Year Low on Current-Account Concern

By Liau Y-Sing - Aug 27, 2013 3:32 AM GMT
Malaysia’s ringgit fell to a three-year low and government bonds retreated on concern over the nation’s worsening current-account position.

The currency declined the most since July 8 after official data last week showed the surplus in the broadest measure of trade shrank 70 percent in the second quarter from the first. Fitch Ratings lowered its outlook on Malaysia to negative from stable in July, citing public debt levels. The Federal Reserve will begin to slow its bond purchases at its Sept. 17-18 meeting, according to 65 percent of economists in a Bloomberg News survey.

“We’re in an environment where investors are not looking kindly on countries with current-account deficits, or deteriorating surpluses,” said Khoon Goh, a strategist at Australia & New Zealand Banking Group Ltd. in Singapore. “We’re seeing capital being pulled out of emerging markets.”
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Elsewhere in Asia, the rising Great Dragon snubbed the Leader of the country that glows in the dark. If someone doesn’t fix Fukushima soon, no one will want any of the islands in the East China Sea.

China Rules Out Xi-Abe Meeting at G-20 as Island Dispute Simmers

By Bloomberg News - Aug 27, 2013 5:23 AM GMT
A senior Chinese diplomat said Japan is only paying “lip service” to the idea of resolving a territorial dispute and ruled out a meeting between the two countries’ leaders at a Group of 20 summit next month.

Chinese President Xi Jinping won’t meet Japanese Prime Minister Shinzo Abe at the G-20 meeting in St. Petersburg, Russia, because Japan isn’t serious about improving ties, Vice Foreign Minister Li Baodong told reporters in Beijing today, citing Japan’s continued “provocative moves” in the East China Sea.

“Under these circumstances, there is no basis for talks,” Li said at a briefing to discuss Xi’s trip to the G-20 meeting. “The Japanese side should stop paying lip service to the issue.”

Li’s remarks reflect the lack of progress in a dispute over an uninhabited island chain -- known as Senkaku in Japanese and Diaoyu in Chinese -- that has damaged trade and diplomatic ties. Japan’s government bought three of the five islands from their private owner last September, sparking protests across China. China’s exports to Japan fell 2 percent in July from a year earlier, the sixth straight decline.
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Ecuador Receives $1.2 Billion Loan From China for Budget

By Nathan Gill - Aug 26, 2013 8:52 PM GMT
Ecuador borrowed $1.2 billion from China, its second loan from the country this year to help fund its 2013 budget, according to a Finance Ministry official.

China transferred the money to the Andean country on Aug. 12 as part of a “commercial operation” with Ecuador’s state-owned oil company, PetroEcuador, the official, who asked not to be identified because he isn’t authorized to comment publicly, said today in a telephone interview from Quito. He declined to give more details about the loan.

President Rafael Correa, a 50-year-old former economics professor who’s relied on Chinese lending to prop up public spending since taking power in 2007, plans to increase government outlays by 7.8 percent this year even as the Finance Ministry forecasts economic growth will slow to a three-year low of 4 percent. The government, which defaulted on $3.2 billion of foreign debt four years ago, received a separate $1.4 billion loan from China in February to help fund spending.
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We end for the day with ominous signs of yet another Argentine crisis arriving. The trouble with Peronist socialism is that eventually you run out of other people’s money. Time for another diversionary war with Great Britain over the Falklands? Perhaps they can get a loan from China.

"The fate of the nation and the fate of the currency are one and the same."

Dr. Franz Pick

Argentine Importers Say Permits Being Delayed to Shield Reserves

By Eliana Raszewski - Aug 26, 2013 6:47 PM GMT
Argentina is extending the time it takes to approve import permits in an effort to shore up central bank reserves that have dwindled to a six-year low, according to Argentina’s biggest importers’ association.

“Imports have become the variable of adjustment of this model of currency restrictions,” Miguel Ponce, an official at Cira, which represents companies that account for 80 percent of the country’s imports, said in a telephone interview from Buenos Aires. “The most affected by these delays are workers, small and medium-sized companies and industrial production, as the lack of parts and machinery is causing a decline in some industries.”

Argentina is blocking imports from Brazil, its biggest trading partner, Valor Economico reported today. President Cristina Fernandez de Kirchner started tightening import restrictions in 2011 to protect reserves after capital outflows jumped. She also banned most dollar purchases. Her efforts didn’t prevent central bank holdings from dropping to $37 billion on Aug. 23, the lowest since April 2007.

Industrial output expanded 2.8 percent in July from a year earlier, the slowest growth since April, according to the national statistics agency.

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"Gold would have value if for no other reason than that it enables a citizen to fashion his financial escape from the state."

William F. Rickenbacker

At the Comex silver depositories Monday final figures were: Registered 39.27 Moz, Eligible 124.65 Moz, Total 164.93 Moz.  


Crooks and Scoundrels Corner
The bent, the seriously bent, and the totally doubled over.

No crooks today, we’re giving the banksters and EU Eurocrats a day off. Today we cover commodities, as always with an eye open for future food inflation. Nothing riles up the great hungry masses more than food price inflation followed by “let them eat cake” from the Lords of the Universe. In agricultural commodities, suddenly we have a good old fashioned, honest, weather market back in play. Just when we thought we were about to get a big break from food price reductions following last year’s North American drought, here at the end of August that big break is starting to look decidedly iffy. And now India is about to subsidise grain to India’s masses.

Coffee Reserves Seen at 2000 Low on Indonesian Rain: Commodities

By Isis Almeida - Aug 27, 2013 5:14 AM GMT
Robusta coffee stockpiles are poised to slump to a 13-year low as torrential rain in Indonesia disrupts supply and consumers wait three more months before Vietnam’s new crop gets shipped.

Rain in the largest growing regions of Indonesia, the biggest producer behind Vietnam and Brazil, was as much as twice the 30-year average since April, MDA Weather Services says. Inventories certified by NYSE Liffe will tumble 34 percent to 52,000 metric tons by the end of 2013, the lowest since May 2000, the average of 10 trader estimates compiled by Bloomberg shows. Futures will gain 13 percent to $2,000 a ton over the same time, according to the average of seven forecasts.

The deluge delayed harvesting and drying of beans. Nedcoffee BV, an Amsterdam-based trader with Indonesian offices, says deliveries from farms have been about 16 percent lower than last year. Stockpiles already tumbled 38 percent since mid-May as traders in Vietnam curbed cargoes to hold out for higher prices. Euromonitor International Ltd. predicts a 3.6 percent expansion in the market for instant coffee, mostly made from robusta, to a record $29.2 billion.
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Corn, Soy Jump Most in More Than Year as Heat Hurts Crops

By Jeff Wilson & Phoebe Sedgman - Aug 26, 2013 9:58 PM GMT
Corn jumped the most in 14 months and soybean futures rallied the most since 2011 as hot, dry Midwest weather threatens to erode crop yields in the U.S., the world’s biggest grower. Wheat also advanced.

Temperatures will average as much as 14 degrees Fahrenheit above normal during the next 10 days, with little rain expected in the Midwest, T-Storm Weather LLC said in a note to clients today. July and August will be the driest since 1936 in Iowa, Illinois and Indiana. Corn production will be 2.2 percent below the government’s forecast on Aug. 12, while the soybean harvest will be 3 percent less, Professional Farmers of America said Aug. 23, after a tour of crops in seven states last week.

The weather is cooking the crop that the Pro Farmer tour already said was smaller than expected,” Mark Schultz, the chief analyst for Northstar Commodity Investment Co., said in a telephone interview from Minneapolis. “The hot, dry weather will knock down the corn and soybean crop potential daily.”
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Canola Surges Most Since 2011 as U.S. Oilseed Crop May Shrink

By Jen Skerritt - Aug 26, 2013 6:20 PM GMT
Canola futures headed for the biggest gain in 29 months on signs that U.S. oilseed production will be smaller than the government predicted and as hot, dry weather threatens crops.

Soybean output will probably be 3 percent below the U.S. Department of Agriculture forecast of 3.255 billion bushels after planting delays and cool weather hampered growth, Professional Farmers of America said Aug. 23, after a tour of 2,600 fields in seven states last week. Heat advisories are in effect for parts of South Dakota, Nebraska, Iowa, and Minnesota and temperatures are expected to range between 95 degrees Fahrenheit (35 Celsius) to 110 degrees, according to the National Weather Service.

“It’s all based on U.S. weather right now and the soybeans,” Lorne Boundy, a trader with Paterson Grain, said in a telephone interview from Winnipeg. “Canola has to follow.”
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Grain-Carrier Rates Rising as Crop Cargoes Near Record: Freight

By Isaac Arnsdorf & Rob Sheridan - Aug 27, 2013 12:00 AM GMT
Near-record agricultural exports are diminishing the capacity glut in grain carriers, boosting rates for Safe Bulkers (SB) Inc. and other owners to the highest in almost two years.

Global shipments of wheat, corn and soybeans will rise 11 percent to 365.4 million metric tons in the 2013-14 crop year, the U.S. Department of Agriculture predicts. Panamaxes, each hauling 75,000 tons of cargo, will earn an average of $9,500 in the first quarter, 32 percent more than now, according to the median of six analyst estimates compiled by Bloomberg. Investors may profit because the forecast is 15 percent higher than swaps traders use to bet on future freight costs.

The U.S. will account for 47 percent of the expansion in grain shipments as output recovers from the worst drought since the 1930s, with corn and soybean harvests starting next month. That will add cargoes for the next two quarters and curb the shipping glut that caused rates to drop 92 percent since 2007. Projected Panamax earnings would still be below what most owners need to break even.
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India’s Landmark Food Bill Passed Amid Stormy Parliament Clashes

By Andrew MacAskill & Bibhudatta Pradhan - Aug 26, 2013 8:01 PM GMT
Indian Prime Minister Manmohan Singh won a rare victory by passing a landmark bill through the lower house of parliament that expands the world’s biggest food program, a key plank of his party’s re-election strategy.

Frustrated by delays in parliament, Singh relied on an executive order last month to enact proposals that will give subsidized grain to two-thirds of India’s 1.2 billion citizens. Seeking to avoid the embarrassment of the order lapsing in the middle of next month, the minority government was able to pass the legislation in the Lok Sabha late last night with the support of other political parties. It still needs to be passed by the upper house, the Rajya Sabha, to become law.
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"Whom the gods would destroy, they first subsidize."                                       

George Roche

The monthly Coppock Indicators finished July:
DJIA: +164 Up. NASDAQ: +167 Up. SP500: +195 Up. The Fed’s final bubble still inflates but for how much longer?  

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