Friday, June 22, 2007

Feel the Gush

EUR/USD 1.3458 Hi 1.3470 Low 1.3380
USD/JPY 123.95 Hi 124.17 Low 123.67
AUD/USD 0.8484 Hi 0.8496 Low 0.8460
EUR/JPY 166.78 Hi 166.82 Low 165.63

You would never know from the headlines that Nicholas Sarkozy actually LOST seats at the recent legislative elections in France. No. Everywhere there is talk of triumph. The media is having a GUSH FEST about his mandate for reform. Indeed, the man did win the Presidency but he wasn't exactly running against genius. Far from it. And when it came to the more recent Legislative Elections the UMP actually lost seats. Alain Juppé got tossed out altogether. That was the guy appointed SUPER-MINISTER for everything. Now he gets the super ministry for nothing. Not that he is likely to be out of job. Friends in high places mean quite a lot in France.

But hey no-one in the mainstream media is worrying about Sarkozy's spectacular failure to win a legislative landslide and his inability to EVEN HOLD on to ALL the seats the UMP already HAD. It's full steam ahead and let's go for reform because the man has the votes. Votes. Right. The way democracy works NOW is: as long as you have enough votes at the relevant elections you can do whatever you want subsequently. You may even talk "Political Capital" just to rub it in.

Looking on the bright side at least no-one is talking about outright electoral fraud.

So we have a worldwide trend. No-one is getting governments these days that even vaguely resemble what "the people" want. In France "the people" want less immigration and more security. Particularly job security. What they will get is the exact opposite. Not that the PUNDITS are fussed. The narrative in the press is that Sarkozy won a mandate for widespread reform. End of story.

And now somewhere in Europe there is all sorts of tweaking going on with the European Constitution Mark II. This tweaking, which is largely cosmetic, will allow our Dear Leaders to plausibly deny that they introduced something which "the people" have actually already voted against. Oh my. It's so kind of them to bother. After all they could just barrel ahead and introduce the darn thing without making even cosmetic changes. But hey they do understand their role as our representatives. Maintaining appearances is so crucial.

Meantime back at the ranch the people working behind the scenes to ensure that ARMAGEDDON happens right on time haven't given up. Accusations are flying. The Americans are accusing the Iranians of kidnapping people. No mention, of course, of the Iranian DIPLOMATS which the U.S.A. kidnapped in Iraq earlier this year. Or of the covert U.S. operations inside Iran aimed at destabilising the Government. And, of course, no-one is really talking about that great U.S. fiasco: the illegal Iraqi Invasion.

And right at this pleasant juncture Tony Blair has decided to bestow a knighthood on Salman Rushdie, who is, you might recall, not the most popular person in Iran. Nothing like pouring a little fuel on the fire Tony. Such timing. Such panache.

Tony reportedly plans to convert to Catholicism soon. Can it be the rite of CONFESSION that he's interested in? They no longer do indulgences. But place your hand on your heart and say you're truly sorry. A couple of Hail Marys and, voilĂ , all is forgiven, your soul is wiped clean and you get to move on. Accountability is so last century.

Back on financial markets the game plan looks a little strained. Interest rates are rising everywhere. Sweden went. New Zealand went. The U.K. looks set to hike in the short term. Japan is reportedly planning to hike soon. And BOND MARKETS are getting slammed.

This is not the greatest scenario possible for debtor nations. And debtor currencies. And the U.S. is the NUMBER ONE debtor nation.

U.S. Treasuries yields look set to test their recent highs. And U.S. Stock Markets are less nonchalant about that than they used to be.

USD/JPY is doing fine. That's about it. And that particular trend is supposed to be something to do with Japanese Housewives opening deposit accounts in foreign currencies. These housewives are supposedly offsetting those huge on-going Japanese TRADE and CURRENT ACCOUNT SURPLUSES with that little piece of sophisticated financial engineering. Does that sound plausible to you? Me neither.

Everything else looks sick. The USD is performing badly against pretty much any currency you would care to name. No-one wants to buy more U.S. Treasuries and the Stock Market has got as much zing as it's going to get out of Mr. Murdoch's timely little take-over bid. Stay tuned this could get worse.

OIL 69.28
GOLD 656.70

In the midst of the mess that is the Middle East OIL climbs. GOLD is being held in check by shady forces and COMMODITIES are struggling as global economic growth slows. Led, of course, by the economic train wreck taking place in the U.S.A. and helped along by the rising cost of finance, well, everywhere.

Liquidity glut? I mean please.

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Thursday, June 21, 2007

Tony's Second Life

EUR/USD 1.3384 Hi 1.3410 Low 1.3371
USD/JPY 123.66 Hi 123.78 Low 123.41
AUD/USD 0.8463 Hi 0.8468 Low 0.8428
EUR/JPY 165.43 Hi 165.47 Low 165.36

Tony Blair is casting around for job openings now that his political career is coming to an inglorious end. The feral British Public, like the feral British Press, doesn't seem to know just what a treasure they are losing and some career suggestions for Tony have been extremely ungracious. While there was once talk of Blair being offered a post on the Board of News Corp by his old mate and mentor, Rupert Murdoch, there have been no recent noises in that regard. But George W. seems to have stepped into the breach. After all what are old (war-mongering) friends for?

Ooooh the delicious irony of it. Tony Blair, apologist for the unprovoked attack and invasion of Iraq is to be "appointed" PEACE ENVOY. Well I guess if you are going to have one it may as well be someone who faces the possibility at some point of being tried at the Hague for War Crimes.

But back to the markets. U.S. Treasuries are not doing well. Pundits everywhere are falling all over themselves, as expected, trying to explain why this is really good news. Or at least not bad news. Or anyway nothing to worry about.

The break above 5.0% in 30 Year Treasury Yields led to a spectacular sell off last week which saw 30 Year Yields rise as high as 5.40%. It was mayhem on the markets. Expect news on just how much damage has been done in Hedge Fund Land shortly.

NOW, after a little short covering rally in Treasuries, the sellers are back. Oh the joy, the joy. The prospects for the U.S. economy are obviously so much better than we first imagined!! Ah yes.

Only maybe not. Maybe this is just the result of the absence of some very annoyed foreign buyers who are, after all, the guys with the dough. China, Russia and potentially a lot of Oil-Producing Arab nations don't seem to see the current GEOPOLITICAL situation in quite the same light that George W. does. And they certainly don't see why they should be providing the funding for his attempt to take over the world with bigger and better guns. So they don't appear to be rocking up to buy more Treasuries.

What happens when they start actually dumping the Treasuries they already hold? You don't want to know. And George W. doesn't know and doesn't care. Eventually these divergent points of view (between George W. and everybody else) about how the world should be run and by whom will lead to a confrontation. If we are lucky the confrontation will take place on financial markets. If we are unlucky quite a lot more people could end up dead.

For now the pain is being contained. Treasuries have taken a hit but the U.S. Stock Market hasn't seen much damage and the USD looks steady. With ECB rates now on hold while Trichet examines the tea leaves (that is M-3 data) and Japan not expected to HIKE until August, the immediate risks to the BUCK look limited. That doesn't mean we are going to see a huge USD rally. But the market needs new news. And the news recently has been that the European economy is taking some hits. Despite the bragging from Trichet, the recent data hasn't been quite as exciting as most would hope. Good news for the BUCK? Not likely. More like a temporary reprieve.

As for the U.S. Stock Market that seems nothing more like a very big accident waiting to happen. And when it does the echo will be heard around the world.

OIL 68.90
GOLD 658.00

Well the GOLD rally has fizzled which is weird considering the fraught GEOPOLITICAL scenario (Lebanon, Gaza, Syria, Putin, Iraq, Iran, George W.), the very sad performance of the U.S. Treasury market (could it be it's inflation they're worried about?) and the idea making the rounds that it might be a good idea to reduce risk right now.

But the fizzle in the GOLD market, it seems, is not entirely spontaneous. Forces are at work. Those big guns standing by to help George W. dig himself out of a hole are indeed lurking. Not that they are advertising their actions. And they haven't engineered a collapse in the price of GOLD either. The market has so far failed to break above USD 700 but it hasn't exactly fallen into a black hole. So here we are waiting and wondering. Just how much money, or leverage, or chutzpah do these guys have anyway? And does it really matter? For the long term player this attempt to stop the price of GOLD breaking to the upside may just provide another, and cheaper, buying opportunity. Provided, of course, that the somewhat unappreciated IMF doesn't decide to offload its GOLD holdings. Market manipulation? Why never. It's just necessary and intelligent way to manage reserves.

I wonder what happened to the geniuses at the Reserve Bank of Australia who started the ball rolling in 1996 by offloading a substantial proportion of Australia's Central Bank GOLD reserves when the price was around USD 400?

Well nothing beats Gordon Brown's move to sell massive amounts of GOLD at the bottom of the market. And he's up to be the U.K.'s next Prime Minister. So in some rarefied circles, it seems, there is simply no accountability. Which is why Tony Blair just might be able to find himself a second career.

Meanwhile the price of OIL is reacting to the unfortunate situation in the Middle East.

OIL bulls beware Tony Blair may well be "appointed" (the man is unlikely to ever get himself legitimately "elected" to anything anywhere in the world ever again so an "appointment" is his only hope) the new Middle East Peace Envoy. All these entrenched Middle East problems may well be swiftly solved. On second thoughts, perhaps not. No, there is nothing much beyond the possibility of a U.S. economic collapse keeping the price of OIL from rising.

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