China Isn't the Only Currency Manipulator
What a day in the currencies yesterday! Another day of wild swings… Volatility is the name of the game these days… Watching, for instance, the euro (EUR) trade down to 1.4220, and then up to 1.4320 and not just on a one-way ticket! Oh no! This is a bounce here, a bounce there… But just like it was going from 1.41 to 1.42, it took a few times over the 1.42 figure before it finally stuck, and headed to 1.43… All the other currencies followed in the swings, as usual…
In a change of things that have been going on, which was simply watching the Asians sell dollars, and watching the U.S. counterparts buy them… The Asians actually reversed that course last night taking the euro from 1.4320 to 1.4220 as I walked in this morning, which was later than usual… The S. Korean monetary officials said that they “see absolutely no alternative to the dollar as the main reserve currency of the world.”
Of course… What else would you say if you were a small country connected to another country that likes to show its military power, and shoot off missiles… Oh, and by the by, they are believed to have nuclear bomb capabilities… You would be kissing up to the U.S. like an intern to their boss, as they attempt to get full time employment!
However, the S. Koreans weren’t the only Asian monetary officials to speak… The Indian Central Bank is dying a death of 1,000 daggers watching their currency gain 11% in the past three months! And… Then the Big Kahuna… Japan… But, we all know that the Japanese are the biggest currency manipulators on this earth, and they would do anything to get the yen (JPY) weaker… Speaking of currency manipulating… (Doing an Andy Rooney here) Ever wonder why the U.S. Treasury Secretary and lawmakers all point to China for currency manipulation and don’t mention Japan?
Japan was the whipping boy of the U.S. in the ’80s… Remember? It was all “their fault”… Skip ahead 20 years and it’s now switched to China… Ask Schumer, ask Graham, and any of the other dolts that signed the bill to assign tariffs to Chinese exports, that hangs out on the shelves in D.C. just waiting for the “right time”… Ask them who’s at fault here, China or Japan… They’ll all tell you China… And never mention Japan.
Speaking of currency manipulation, the Big Boss, Frank Trotter, and I were talking the other day, and we came to a thought about manipulation… The U.S. is quick to find fault with currency manipulation, but isn’t the U.S. in the manipulation business too? Aren’t they buying Treasuries in their quantitative easing, to keep interest rates down? By buying the treasuries they are manipulating the price of the bond… But, does anyone hear the media calling them out, here? Bawk, Bawk, Bawk… Son! I think I see a chicken hawk!
OK… On to other things… Did you hear Germany’s Chancellor Angela Merkel talking about quantitative easing? This is like one of those MasterCard commercials… Bundesbank President Axel Weber talking down quantitative easing… very worthy… But Germany’s Chancellor Angela Merkel talking about it… Priceless!
Why priceless? Because it is a long standing tradition in Germany that the leader of the country never comments on monetary policy… But with the European Central Bank (ECB) looking at ways of doing quantitative easing, she took her shot… And the shot was not just aimed at the ECB… She got three birds with one stone! Throw the Fed and Bank of England in here too… Here’s the Chancellor… “Unconventional monetary policies being pursued by the world’s main central banks could aggravate rather than ease the economic crisis.”
She went on to mention the Fed and Bank of England… Let’s listen in… “I view with great skepticism the powers of the Fed, for example, and also how, within Europe, the Bank of England has carved out its own small line,” Merkel said. “We must return together to an independent central bank policy and to a policy of reason, otherwise we will be in exactly the same situation in 10 years’ time.”
You know… Another female leader of a county from times past is responsible for another quote that I use in my presentations… I’ll go dig it up, and come right back… Just hum the Jeopardy song for the final question, and I’ll be back!
OK! I’m back! Here it is… “The problem with socialism is that you eventually run out of other people’s money.” – Margaret Thatcher…
The Eurozone did get some damaging employment data overnight… The Eurozone unemployment rate hit 9.2% in April, after sitting at 8.9% in March. I know, that sounds bad… But just like I tell you all the time about comparing the dollar and euro’s data… The U.S. car is uglier than the euro car… And here’s why… I know of NO games that are played with Eurozone employment data, like the games the Bureau of Labor Statistics (BLS) plays here in the United States. So… If the Eurozone says unemployment is 9.2%, it’s 9.2%! Whereas here in the U.S., when the BLS says that unemployment this Friday is 9.2%, it won’t really be 9.2%; instead it will most likely be closer to 20%!!!!!!
While the Eurozone deals with rising unemployment… Australia posted a better than expected rise in GDP for the last quarter! The last three months showed a rise in GDP of 0.4%, after shrinking 0.6% in the previous quarter! Now… The members of the Reserve Bank of Australia can all breathe a sigh of relief after they left rates unchanged on Monday night! They can walk about like 20-game winners, with their chests sticking out, and their chins in the air! They are dragon slayers!
The news pushed the (AUD) to 0.8260, but profit taking has pushed the Aussie dollar back below 82-cents… But this news will live in the minds of traders for some time, and after the profit taking is over, they will once again take a run at higher levels for the Aussie dollar. Could 85-cents be in the cards in the near future? Could be… But, just as easy as it could go to 85-cents and maybe beyond, it could go the other way… What I’m saying here is that this run from March 1st, is going so fast! It certainly could see it break off, take a breather, go back and fill in the gaps, whatever you want to call it.
I was reading a report yesterday where a trade expert was interviewed regarding the massive bailout of Government Motors (GM)… Claude Barfield, a trade expert at the American Enterprise Institute, believes that the massive bailout of GM “raises the question of whether the subsidies violate President Barack Obama’s pledge not to embrace protectionist measures.” The intervention “will come back to haunt us in terms of the competitiveness of U.S. corporations and in terms of furthering U.S. public-policy goals.”
Well, slowly but surely, more and more people who understand the ramifications of government bailouts are starting to agree with me and speak out against them. Don’t you think that over half of the Financial Institutions that took TARP money are wishing they hadn’t ever hear of TARP right now? It’s a bad thing… Ronald Reagan used to say that the scariest words spoken are…”Hi, I’m from the Government, and I’m here to help.”
But these were “abnormal” and they called for “abnormal” right? Isn’t that the gobble-de-gook the government tells us, as they jam one measure after another down our throats that takes away free markets, and more importantly our republic… We The People, are soon to be, We The Government…
OK, I know, I’ll get a ton of emails telling me to shut my trap, and stick to currencies… But this all has something to do with currencies, folks… Protectionism to a country’s currency, the dollar in this case, is like kryptonite to Superman… So, if you want to see your country’s currency on the slippery slope to nowheresville, just keep those protectionist measures floating… Because you can’t have both… You can’t have protectionism and a strong currency (dollar)… One floats, while the other sinks.
In a related story about having one but not both… A reader sent me two charts yesterday… One showed the fall in the U.S. dollar index in the past three months… And the other showed the rise in the stock markets in the same three months… The reader said that it looked to him that someone was saying, “You can either have a weak dollar and strong stock market or vice versa, but you can’t have both!” Yes… Just like the protectionism, and a strong dollar… You can’t have both!
In a “sign of the times”… The Vehicle Sales for May printed yesterday, and while all the carmakers reported double digit declines of sales, the U.S. automakers outperformed the Japanese automakers!
And then… I know I go to the well quite often when I reprint something from The Daily Reckoning, but it goes both ways, so I don’t feel too bad! But, when Bill Bonner, the Mogambo, or someone else says something that I think you need to read, I go for it! So… Yesterday, Bill was talking about U.S. Treasury Sec. Geithner’s visit to China… Let’s listen in:
“‘It will be helpful if Mr. Geithner can show us some arithmetic,’ said Yu Yongding, a former advisor to the Chinese central bank.
“Yes, we’d like to see that arithmetic too. How do you add $1.75 trillion in deficits…pay for it with funny money from the Fed…and still come out even on the value of the dollar? There’s no arithmetic we know of that works in the Chinese favor. Right now, the numbers…and the logic of the situation…are telling us that feds aim to create inflation. Instead of trying to keep prices under control…they’re trying to get them to go up. That’s yet another thing we didn’t expect to see!
“The US government is less concerned with protecting foreign lenders than it is with getting the US economy back to its old E-Z money ways. Cheap money is what people want. Cheap money is what the feds are trying to give them.”
I was looking at some graphs yesterday of the major currencies… Dollar, euro, yen, sterling (GBP), and even Canadian loonies (CAD)… I’ve told you over and over again that the currencies have all posted gains versus the dollar since March 1st… Well… Euro, sterling and loonies have all outperformed yen. You would have to think that if China is pulling Asia out of the economic meltdown, that Japan would also benefit… So… Maybe, we’ll see yen catch up with its major currency counterparts.
Speaking of sterling… Chris Gaffney and I were talking the other day about sterling’s rise… I talked about this a couple of weeks ago, and said I was impressed with the performance but wasn’t sold on its ability to remain strong… But there it is with a 1.65 handle on it, after hitting a low of 1.35 in February. I still don’t “get it” – as the U.K. has the same problems as the U.S. – but, as I told Chris, sterling is probably a beneficiary of the “crosses” with all the currencies that are going up versus the dollar… Explains it a bit, but sterling has put in a very good performance the past three months!
But… The sterling’s performance is not even on the same page as the performance of the South African rand (ZAR)… And the Brazilian real (BRL)… Of course, past performance doesn’t mean that future performance will repeat itself.