MAS to Adjust Monetary Policy?

Good day. Mondays have always been the most-trying day for my brain cells, as it’s our largest day of risk management in World Markets. That means I have to be “on top of my game” on Mondays, and then I go home mentally exhausted. Well, I thought those types of days would be over, with our brand-spanking-new computer system. Eventually, it will be better. I know it.

And eventually, we’ll see what the Fed has been up to for some time now, with their “it’s not quantitative easing (QE) bond buying.” I know this isn’t the best way to start a day, with me immediately throwing the Fed under the bus, but as I say when doctors tell me bad things, “It is what it is.” I really would prefer to talk about other things, folks, but something about last week’s FOMC meeting minutes has radiated with me.

About five years ago, I read a book that I quoted and told you about several times, titled Greenspan’s Bubbles: The Age of Ignorance at the Federal Reserve, by William Fleckenstein. It opened my eyes to what went on at the Fed during the Greenspan era. And if you think things have changed much since Big Ben Bernanke took over, I would say you’re giving the Fed more credit than they deserve. For some day, sons and daughters, we’ll know all about “it’s not QE bond buying.”

OK, longtime readers know that when I have something radiating on my mind, I’m going to bust loose with it eventually, and the longer I hold it back, the worst the busting loose is! And as we head into the last three months of Operation Twist, let me remind you that the Fed’s target here was to lower interest rates.

Well, the yield on the 10-year Treasury, on the day the Fed announced Operation Twist & Shout, was 1.79%. Today, it is 2.06%, and has been as high as 2.38% in the past couple of weeks. So once again, a Fed scheme is proven to have little firepower.

So the currencies and metals yesterday attempted to put together a rally, but in reality, there just wasn’t enough in the tank to fuel a rally. Most of Europe was celebrating Easter Monday, and here in the U.S., trading desks were skeleton-crew staffed as the Big Dogs stretched the holiday weekend. So the fuel just wasn’t in the tank.

But I have to say that in the past couple of days, gold has gained small amounts, and I would prefer to see it move that way and not the wild swings of up $25, and then down $20.

I found the currency mini-rally to be of importance, though, because stocks were getting sent to the woodshed. I’ve said for a long time that we needed to get stocks and currencies trading the way they used to, and not thrown in the barrel with metals and treated as one asset class, called risk assets. We’ve seen this separation a few times in the past couple of years, but never any real sustained separation. So maybe, just maybe, this time, ’cause you never know!

Yesterday, I talked a bit about the Singapore dollar (SGD) and its proclivity to trade alongside the Chinese renminbi. (CNY) But longtime readers know that the Monetary Authority of Singapore (MAS) is the real decision maker here on how the currency will perform.

The MAS uses the S$ to assist them in fighting inflation the way a “real central bank” should. And with inflation in Singapore proving to be difficult to tame, I don’t see the MAS changing their policy drastically when they next meet. But with China’s economy moderating, I do expect the MAS to allow the S$ to continue to appreciate, but at a slower pace.

Did you see the story (I saw it on Bloomberg, but it is being reprinted all over the place) about what the Brazilian president, Dilma Rousseff, told the U.S. president? OK, sit down, because this is good stuff. She told the U.S. president that “monetary policies of the wealthiest nations are a drag on global economic growth, especially among rapidly growing emerging economies.” She later told Brazilian reporters that “developed nations’ reliance on interest rates close to zero to stimulate growth creates a monetary tsunami that damages Brazil.”

And people in the U.S. wonder why the BRICS countries of Brazil, Russia, India, China and South Africa are looking to start their own version of a World Bank, to assist emerging economies?

The price of oil has fallen since last Friday when the Jobs Jamboree disappointed everyone. I see this drop in the price of oil as being shortsighted. The markets took the report as a sign that slow job creation will equal slower demand for oil. Well, if oil were used only by the U.S., then maybe that would have some truth to it. But that’s just like the markets to have blinders on.

While I like the idea that the prices at the gas pumps will be cheaper, I also realize at the same time that we’ve seen this so many times in the past couple of years. And it’s a false dawn, so go fill up your gas tanks now before these prices go back up! HA!

The petrol currencies of Canada, Brazil, Russia, Norway, the U.K. and others are on their heels to this morning, as the price of oil drops. The direction of oil isn’t the only factor for these petrol currencies, but it does play a big role in how they perform.

I have a friend that sends me a note about every two weeks that lists a bunch of items and the numbers around the item (Thanks, Dennis!), and this week’s note had this ditty that I think tells us quite a bit about the future of the Housing Sector: 17.3% of subprime mortgages were 60 days or more delinquent at the end of 2011.

And a quick check of the U.S. National Debt Clock shows me that the national debt this morning is a mere $15,639,709,000,000 — in short, $15.6 trillion. Each citizen’s piece of that debt is equal to nearly $50,000. Just two years ago in Vancouver, I told the people that the number then was $45,000. So up $5,000 in two short years.

But the thing that really scares the bejeebers out of me is the unfunded liabilities, which this morning stand around $118,381,150,000,000 — in short, $118.3 trillion. or $1,044,356.00 per taxpayer. So what’s the big deal, I hear some of you youngsters asking? The baby boomer generation began drawing on these liabilities a couple of years ago, and this unfunded liabilities number is just going to get larger and larger, because 7,600 Americans turned 65 EVERY day in 2011. And that number will grow in 2012, and so on until it reaches an estimated 11,400 Americans that will turn 65 each day by the year 2029.

Hey! I don’t make these numbers up, folks. You can view the Debt Clock for yourself here.

And the number of Americans turning 65 each day comes from the General Accountability Office.

We as a country are in deep dookie, folks. And that’s why I continue to believe that the dollar will be held accountable for those debts and deficits, just like it has been since February 2002. Sure, there have been periods of dollar strength that come from what I call “props” to keep the dollar from falling off the cliff. But each time, the dollar has returned to the underlying weak trend.

But we’re not alone! And no, I’m not talking about the existence of aliens. I’m talking about how the U.S. is not alone when it comes to unsustainable debts and deficits. We all know about the eurozone and their problems and it becomes a contest to see which set of debts and deficits is uglier than the other (U.S. and eurozone). As long as the euro remains stronger than the dollar, the markets are telling you that the U.S. debts and deficits are uglier.

Then recall me telling you that the CFTC (commodities and futures regulator) had accused the Royal Bank of Canada (RBC) of conducting illegal futures trading? I told you that the bank denied any wrongdoing. I saw in Bloomberg this morning as a follow-up that RBC decided not to settle with the CFTC over allegations it conducted illegal futures trades, but will challenge in court. “It was a conscious decision to defend ourselves vigorously, and we made that decision because we believe we didn’t do anything wrong,” said a RBC attorney.

I have stated before that I would prefer the CFTC to go after the price manipulators in the metals, especially after the whistle–blower admitted to such practice going on at his old bank. But instead, the CFTC turns its back and goes after RBC on something else. Hmmm.

I take that as a pitcher that knows he has little left in the tank and has to face a batter swinging a hot bat. Instead of pitching to the batter, the pitcher steps off the rubber and throws the ball to first, and repeats, and stalls in hopes to put the batter asleep so he can slip a dark one past him!

To recap: The currencies and metals attempted to rally yesterday, but just didn’t have enough fuel in the tank with all the missing traders on Easter Monday. Chuck went off on a tangent about the Fed, and then about the debts and deficits of the U.S. All in all, it’s more of Chuck just venting this morning.

About Chuck Butler 105 Articles

Affiliation: EverBank

Chuck Butler is President of EverBank® World Markets and the author of the popular Daily Pfennig newsletter.

With a career in investment services and currencies extending over 35 years, Mr. Butler oversees all aspects of customer service and the trading desk for EverBank World Markets. A respected analyst of the currency market, Mr. Butler has frequently made appearances or been quoted by the national media. These include the Wall Street Journal, US News, World Report, MarketWatch, USAToday, CNNfn, Bloomberg TV, CNBC, and the Chicago Tribune.

Mr. Butler was previously the Chief International Bond Trader and Director of Risk Management for Mark Twain Bank, and has held significant positions in the investment industry since 1973.

Visit: EverBank

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