Dollar issuance by the United States is "out of control", leading to an inflation assault on China, the Chinese commerce minister said in comments reported on Tuesday.
"Because the United States’ issuance of dollars is out of control and international commodity prices are continuing to rise, China is being attacked by imported inflation. The uncertainties of this are causing firms big problems," Chen was quoted as saying by the official Xinhua news agency.
Chinese officials have criticised U.S. monetary policy as being too loose before, but rarely in such explicit language.
Two years on from the global financial crisis, the contrast with the rich world is striking. In the United States and Europe, growth is sluggish, a slump into outright deflation is a real risk and central banks look set to loosen policy further.
So the evidence is in: China is decoupled, influenced by, but ultimately independent from other major economies.
"The crisis was a test and China passed the test. Decoupling has become a much more solid thesis now than three years ago when we only talked about it hypothetically," said Qing Wang, Morgan Stanley’s chief economist for greater China.
Chinese Money Supply Numbers from People’s Bank of China
Money and Quasi Money Jan 2009 – 496135.31
Money and Quasi Money Sep 2010 – 696384.86
"Out Of Control" Monetary Expansion Irony
I am certainly not about to defend the Fed’s misguided policies, but the complaint from Chinese commerce minister that US monetary printing is "out of control" is the ultimate in "pot calling the kettle black" irony.
Over the past few weeks I have exchanged quite a few Emails regarding China with my friend "BC" who writes …
Total Chinese money supply is up over 4 times since ’03, a 17%/yr. rate at a doubling time of just 4 years; up 66% since Jan. ’08, a 19%/yr. rate at a doubling time of 43 months; and
Don’t worry everybody. Federal Reserve Chairman "Helicopter Ben" Bernanke says that the U.S. economy is going to be just fine, and that if it does slip up somehow the Federal Reserve is ready to rush in to the rescue. That was essentially Bernanke’s message to an annual gathering of central bankers in Jackson Hole, Wyoming on Friday. Bernanke insisted that even though the Federal Reserve has already cut interest rates to historic lows it still has plenty of tools that could be used to stimulate the U.S. economy if necessary.
Well, considering Bernanke’s track record, the "don’t worry, be happy" mantra is just not going to cut it this time. After all, if Bernanke and his team were such intellectual powerhouses the "surprise" financial crisis of 2007 and 2008 would not have caught them with their pants down. The truth is that just before the "greatest financial crisis since the Great Depression" Bernanke was telling everyone that the economy was just fine. So are we going to let him fool us again?
But Bernanke insists that this time is different. This time the Federal Reserve really has got a handle on things. During his remarks at Jackson Hole, Bernanke said that the Fed will adopt "unconventional measures if it proves necessary, especially if the outlook were to deteriorate significantly."
Could that be a thinly veiled way of saying that Helicopter Ben and his pals will do as much "quantitative easing" as they feel is necessary to keep the economy moving forward?…
These days it takes very little to set me off on yet another rant against the American political class – a proxy for governments the world over.
On occasion, I’m tempted to apologize for these rants. Not so much for the message, but for the frequency.
Unfortunately, when surveying the landscape on which our hovels rest, the king’s castle looms large in the foreground.
I am not an envious person by nature and so wouldn’t begrudge the king his fine trappings, provided they were honestly earned.
But therein lies Ye Olde Rub.
Ever more frequently these days, the drawbridge comes down and a troop of the king’s finest sallies forth to extort from me more than half of my crops, and to read new royal proclamations whose net result is to add to the daily burden of trying to provide sustenance for family and jobs for workers.
Should I protest, say, by grabbing a pitchfork and telling the soldiers to clear off my land, or refuse to fill their wagons with the best of my crops – each leaf of which represents time and investment on my part – they would grab me by the shoulders, drag me to the king’s dungeon, and confiscate my property.
In fact, all that has changed since the days of yore is that the king’s knights tend to no longer rape, as well as pillage.
To be fair, the annals of history contain rare instances of kind and intelligent monarchs, the sort who understand that overburdening the peasants ultimately reduces crop production, leading to unnecessary and unproductive hardship and, in time, even revolt. Though, by temperament, I resist authority of any description, I suppose I could live comfortably under the rule of a fair and benign monarch.
The problem with that notion, of course, is that the corruptive nature of power leads to the near certainty that Baldash the Not So Bad will be followed by Norbit the Nasty.
And all of a sudden, instead of politely requesting I kick in some reasonable percentage of my crops to help maintain a constabulary, courts, and maybe the highways, Norbit’s men are kicking in my doors and we’re back to ox carts full of my produce being confiscated to provide a new set…
Gold is hotter than ever. You can’t turn on the TV these days without seeing a gold commercial. Several well known hedge fund managers have leveraged up positions in gold while John Paulson even went so far as to start his own gold hedge fund. As an asset class gold has outperformed just about everything over the last 10 year period. It’s been an impressive run. But is it all justified? Bear with me for a bit while I take a long-term macro look at gold as an asset class….
After having experienced deflation through much of 2008 and the beginning of 2009 the economy began to reflate as the Fed’s printing press (or button pressing if you prefer) went to work. Asset prices began to stabilize and bank balance sheets were suddenly flush with cash as the Fed provided liquidity like it was going out of style. The inflationistas immediately began crying wolf. All of this extra cash was certain to cause inflation. And that meant one thing: buy gold and short dollars. Right?
All was not what it seemed, however. Underneath the surface, there was no real reflation – only continuing signs of deflation or at best, very benign inflation. Asset prices surged as money flowed out of low risk assets (for which investors were no longer rewarded) and into high risk assets. This herding of the Federal Reserve has given many the impression that the economy is “recovering”. But underneath the surface lies the continuing problem of double D’s (and not the good kind) – debt and de-leveraging. While asset prices have improved the liability side of the ledger remains in tatters in the U.S. economy and around the world. De-leveraging continues and demand for more credit remains subdued. Yet, the price of gold rallied. I believe a large portion of the move is based on the misconception of gold as an asset class.
When analyzing the price of gold it’s important to understand that gold prices do not move like most other commodities. It has certain built-in unquantifiable characteristics that drive price. The price of gold is actually a function of four things: 1) its replacement potential for the U.S. dollar; 2) the future rate of inflation, 3) Sentiment – generally fear based and 4) true supply and demand. Let’s take…
This is an interesting analysis by Rob Hanna who has studied and quantified the gap activity Phil mentioned in his double week review. He came to a similar conclusion – very odd market behavior. – Ilene
A trader I know pointed out the unusually large gap activity lately. I track the 10-day absolute average gap over the 100-day absolute average gap on the charts page in the members section of the site. Meanwhile I observed the average true range is still below normal. I’ve copied the two charts from the website to illustrate.
The real odd behavior here is with the average gap size. Such gappy behavior is unusual with the market near new highs. It’s also unusual when there isn’t also a substantial increase in the intraday range. I looked at this a number of different ways last night. The 10/100 Absolute Avg Gap is 1.38 (meaning the 10ma is 38% larger than the 100ma of the overnight gap size). I looked at other instances where similar levels were approached and the market was near a new high. It’s been fairly unusual over the last 15 years and results were inconclusive.
I then look at comparing the size of the average gap to the size of the average intraday range (not the true range as shown above). Here again I found we are at very high levels but past history was choppy and inconclusive.
Lastly I looked at times where the 10-day average gap was well above normal and the 10-day average intraday range was well below normal. Again I could find nothing suggesting a significant directional edge.
So is this activity suggestive of anything? Perhaps. While the readings themselves don’t seem to help greatly in predicting direction, they do indicate some unusual behavior. My take is that the market is being influenced more by outside forces than is customary. It’s been noted by many that the dollar has been leading everything by the nose lately. Outside influences like Dubai debt have also had an overnight influence lately. This would seem to explain why such a large percentage of action is occurring overnight.
So what should we do about it as traders? Two things come to mind – 1) Be more cognizant
Richard Russell is better than fine wine. His thoughts, as always, are excellent. Investors interested in his daily missives would be wise to investigate his website:
There are two ways to view the stock market’s advance from the March lows. One way is to assume that the stock market, despite an awful lot of negative news, is discounting better times ahead. This is the usual way of viewing a steady stock market advance, and it is undoubtedly the way most bulls are thinking.
The other way to view the advance from the March low is that this is the normal and expected recovery following a semi-crash in the stock market. I consider the 2007 to 2009 collapse a semi-crash. The automatic recovery following a crash is the single surest action in the market. Normally following a crash, the market will recoup one-third to two-thirds of the territory lost during the crash. The Dow would have to advance to the 10300 area to recover just half its 2007 to 2009 loses.
Meanwhile, we are facing an extraordinary situation in US finances. Wall Street, or I should say, the Federal Reserve, has bailed out Wall Street banks and entities that were considered “too big to fail.” The actual and potential costs of the financial bailout put US taxpayers on the hook for $17.8 trillion (that’s trillion), which is more than the entire annual gross domestic product of the US.
In 1990 the 20 largest companies in the nation controlled 12% of US financial assets. Today the 20 largest companies control more than 70% of US financial assets. Many of these include corporations that have been deemed “to big to fail.” The Russell comment is “if they’re too big to fail, then they’re too big to exist.” In a true capitalist (not socialist) economy, if you fail you fail and you’re bankrupt. You just haven’t made the “grade.” If any business is so reckless and so ignorant of risk that it goes broke, then damn it — let it go under. And let its CEO and board be accountable. But that’s hardly what’s happening in the US today.
While the run of Americans are struggling with their economic lives, the big bankers are back…
Considering the source – this is a quite sobering warning to America of what the Chinese are thinking. Nothing surprising as we have seen China up their stake in gold, sign bilateral currency agreements with other countries to avoid the dollar, purchasing hard assets to redeploy out of dollars, move their bond purchases to near term maturities and the like, but you can see in their words both a dismay at what we have done, and what they are slowly planning for in the long term. [Feb 13, 2009: FT.com - China to US: "We Hate You Guys"] [May 21, 2009: China Becoming More Picky About Debt]
Of course, as we have said many times – for now they are stuck with us, because any move to detach from the States or our bond market would destabilize both countries.
The US Federal Reserve’s Policy of printing money to buy Treasury debt threatens to set off a serious decline of the dollar and compel China to redesign its foreign reserve policy, according to a top member of the Communist hierarchy.
Cheng Siwei, former vice-chairman of the Standing Committee and now head of China’s green energy drive, said Beijing was dismayed by the Fed’s recourse to "credit easing". "We hope there will be a change in monetary policy as soon as they have positive growth again," he said.
"If they keep printing money to buy bonds it will lead to inflation, and after a year or two the dollar will fall hard. Most of our foreign reserves are in US bonds and this is very difficult to change, so
The Consumer Price Index for Urban Consumers (CPI-U) released this morning puts the October year-over-year inflation rate at 1.66%, off the May 19-month high of 2.13%. It is well below the 3.86% average since the end of the Second World War and 29 percent below its 10-year moving average.
For a comparison of headline inflation with core inflation, which is based on the CPI excluding food and energy, see this monthly feature.
For better understanding of how CPI is measured and how it impacts your household, see my Inside Look at CPI components.
For an even closer look at how the components are behaving, see this X-Ray View of the data for the past six months.
The Bureau of Labor Statistics (BLS) has compiled CPI dat...
Two months ago, to much fanfare by the progressive community, HHS, if not Dr. Jonathan Gruber, were delighted to report that as of August 15, Obamacare enrolment had hit 7.3 million sign ups, well above the 7.0 million goal.
7.3 million people were signed up for Obamacare as of Aug 15 and paid their premiums, HHS says
Depending on where and when you got your news yesterday on the tragic death of Shawn D. Miller, a Managing Director of Wall Street mega bank, Citigroup, you were either emphatically told he died of a suicide or you were led to believe he was murdered. By late evening yesterday, the story had disintegrated into wild speculation. The New York Daily News ran this stunning headline, based on anonymous sources, at 9:22 p.m.: “Banker, 42, slashed his own throat in Manhattan bathtub during drug- and booze-filled bender: sources.”
It is becoming abundantly clear that if you work for a major Wall Street firm and die a sudden death, it will be shaped, molded, twisted and contorted until it fits with the suicide narrative – no matter how ...
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Investors in U.S. equities seem to have embraced a new market paradigm in which upside spikes come more swiftly than the downside selloffs. Remember when it used to be the other way around? When fear was stronger than greed? The market is consolidating its gains off the early-October V-bottom reversal, and no one seems to be in any hurry to unload shares this time around, with the holidays rapidly approaching and all. After all, there are bright blue skies directly overhead giving hope and respite from the early freeze blanketing the country.
In this weekly update, I give my view of the current market environment, offer...
If you would have supposed that Ukraine had enough problems to make banning bitcoins a backburner issue, you'd have been wrong. The rationale, "to protect consumers' rights" makes little to no sense... The other one, "to keep money in the country" makes more sense.
A four-year low for the spot price of gold has had a devastating impact on Yamana Gold (Ticker: AUY), with shares in the name down at the lowest price in six years. Some option traders were especially keen to sell premium and appear to see few signs of a lasting rebound within the next five months. The price of gold suffered again Wednesday as the dollar strengthened and stock prices advanced. The post price of gold fell to $1145 adding further pain to share prices of gold miners. Shares in Yamana Gold tumbled to $3.62 and the lowest price since 2008 as call option sellers used the April expiration contract to write premium at the $5.00 strike. That strike is now 38% above the price of the stock. Premium writers took in around 16-cents per contract o...
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Well PSW Subscribers....I am still here, barely. From my last post a few months ago to now, nothing has changed much, but there are a few bargins out there that as investors, should be put on the watch list (again) and if so desired....buy a small amount.
First, the media is on a tear against biotechs/pharma, ripping companies for their drug prices. Gilead's HepC drug, Sovaldi, is priced at $84K for the 12-week treatment. Pundits were screaming bloody murder that it was a total rip off, but when one investigates the other drugs out there, and the consequences of not taking Sovaldi vs. another drug combinations, then things become clearer. For instance, Olysio (JNJ) is about $66,000 for a 12-week treatment, but is approved for fewer types of patients AND...
This is a non-trading topic, but I wanted to post it during trading hours so as many eyes can see it as possible. Feel free to contact me directly at firstname.lastname@example.org with any questions.
Last fall there was some discussion on the PSW board regarding setting up a YouCaring donation page for a PSW member, Shadowfax. Since then, we have been looking into ways to help get him additional medical services and to pay down his medical debts. After following those leads, we are ready to move ahead with the YouCaring site. (Link is posted below.) Any help you can give will be greatly appreciated; not only to help aid in his medical bill debt, but to also show what a great community this group is.
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