Fed Confuses Markets, Risk Assets Get Sold
Well, the currencies and commodities got whipsawed yesterday, and the culprit was the FOMC minutes… You see, the Fed Reserve met to discuss rates, and other items. And what they said just blew away the bond vigilantes, and really ticked off the hawks, but in the end, what they said was really that things will maintain the status quo.
Their announcement of bond buying didn’t measure up to what the bond folks wanted to see, and their announcement that interest rates won’t be going up for some time, didn’t measure up to the inflation hawks, who wanted a comment about fighting inflation. Instead, what they received was more Alfred E. Newman on inflation… “What, me worry?” That’s how ridiculous their statement was, folks… The Fed still looks for inflation to “remain subdued for some time”… Although… Their outlook for the economy was slightly upbeat.
So… If you’re confused about what the Fed is thinking… Then join the rest of us! The markets spent the day trying to sort it out, and when it was all said and done, they couldn’t, so they sold risk assets… So… The 1.41 level that the euro (EUR) enjoyed yesterday morning when I signed off, is now 1.3945…
On top of all this, the Swiss National Bank (SNB) has issued a communiqué’ that talks about their “new aggressiveness” toward Swiss franc (CHF) strength. Now, isn’t that just one of the most ridiculous things for a central bank to say about it’s currency! Would someone over there at the SNB, please think about what you’re saying!
Oh well… This is all I’ll say about the SNB… It’s hard to soar with the eagles when you have to work with a bunch of turkeys! OH! And it’s also reported that this “aggressiveness” showed up as intervention by the SNB yesterday. They sold francs in the markets… UGH!
OK, let’s get back to the Fed, and their bond purchase program/quantitative easing/monetizing the debt/money printing… It’s all the same… Oh, one more thing, it’s the road to ruins, but don’t let that get in the way of the Fed Party! You see, the Fed didn’t announce anything this time, because the entire world was watching and waiting for them to announce a “mega-buying program”… I told you earlier in the week to NOT expect the Fed to announce any changes to their road to ruins at this meeting, but instead at their August meeting – during the dog days of summer, when almost every #1 trader on earth is on vacation.
So… The bond vigilantes who want bond yields low realize, with the amount of supply that the Treasury is issuing these days, that the only way to get those lower yields is to have the government buying bonds!
I came across something yesterday that I yelled across the desk to make certain everyone knew… Recall at least a month or so ago, I told you how China had called for a new reserve currency, replacing the dollar with SDRs (special drawing rights), which would be a basket of currencies… This news received a ton of publicity… But one thing that didn’t receive a ton of publicity was the fact that President Obama agreed at an economic summit in London that SDRs should now be used to help stabilize the balance sheets of nations struggling to combat the current crisis.
Now… On the outside that looks harmless, right? Just helping these struggling nations… But! Could this also be a baby step toward a global currency? Could this be a baby step toward a further devaluation of the dollar, and it’s signed-off on by the President?
OK, now here’s the thing that really caught my eye… The IMF is going to issue $300 Billion worth of SDRs. That’s 10 times – that’s right, I said 10 times – the amount of SDRs that CURRENTLY EXIST!
Could this be the facility for China to quietly exchange dollar reserves for SDRs? Come on! Somebody has got to see this the same way I do!
I mean, it was just LAST WEEK, that the countries of Brazil, Russia, India and China (BRIC’s) called for a “more diversified international monetary system?” Why, yes, Chuck, it was… Just last week! And then this week, the IMF “just happens” to be issuing 10-TIMES the amount of SDRs that CURRENTLY EXIST?! Hmmmm…
I should probably stop there… I’ll be accusing people of all sorts of things if I continue on this path… But there’s some food for thought, eh? You won’t see this on TV… They have more important things to show you and talk about, like… The President killing a fly! That’s a really sad thing, to think that our news has come to that!
OK… New Home Sales for May dipped lower, but the inventory of homes for sale also dipped… And, we got the surprise of the year when durable orders for May showed an unexpected and very strong gain of 1.8%. While I think this is wonderful news, I have to question it… I mean, with the automobile industry basically shut-down, one would think this number to be quite lower… However, I’m told… That non-defense aircraft orders more than offset the auto losses. OK, so, this is NOT a green-shoot, folks… This is a One-and-done!
OH! And to follow up on yesterday report regarding Existing Home Sales… I totally forgot to mention that Foreclosure Sales are soaring, and thus a big part of the rise in Existing Home Sales… So, no green-shoot here either!
Today, we’ll see the Weekly Initial Jobless Claims, and… The final print of first quarter GDP, which will remain at -5.7%.
So, once again, not much on the data watch for today.
Before I go to the Big Finish… I want to follow up on the news I wrote about yesterday regarding the European Central Bank’s (ECB) €300 billion injection of liquidity out 12-months. The total came in at a higher figure than that, at €442 billion. Still, much lower than the forecasts, which had seen some call for a number as high as €1 trillion! And… This morning, the Eurozone announced that Industrial Orders fell 1% in April… So that data isn’t helping the euro any either!
And then there was this from the NY Times this morning… “The U.S. House Oversight and Government Reform Committee will question Federal Reserve Chairman Ben Bernanke about his role in Bank of America’s acquisition of Merrill Lynch. While Republican lawmakers are launching an attack on Bernanke, who is Republican, Democrats are defending him.”
Man, is that all mixed up! But… A week ago or so, we were getting reports about the Bank of America (BOA) purchase of Merrill Lynch… And now, nothing, absolutely nothing, say it again! Any wonder why? Well, maybe it will come out in the U.S. House Oversight and Government Reform Committee questioning, although I doubt it.
And the State of California… The largest economy in the United States and in the top 7 economies of the world (used to be 7th, but with their recession, who knows?), announced that they were going to pay their bills with IOU’s. The state’s comptroller said, “Next Wednesday, we start a fiscal year with a massively unbalanced spending plan and a cash shortfall not seen since the Great Depression.”
And… The Fed believes the recession is easing? Hmmm… Maybe they are too far away from the California books and records!
I’m on a roll here, somebody stop me! OK, I’m stopped!
The Treasury will auction $27 billion of 7-year Treasuries today… “Just keep the supply spigot open” must be the Treasury’s motto these days!