Let the WAR (Currency) GAMES Begin? & More Top Insights

Central Banks Hold Nerve After China Devaluation

Global policymakers, including those at some of Asia's most intervention-minded central banks, are holding the line on their currency policies after China's surprise devaluation of the yuan.

China's central bank said Tuesday's 1.9 percent devaluation was a one-off move. It also switched to a more market-determined benchmark for the currency's daily trading band.

A weaker yuan makes Chinese exports cheaper and competing exports more expensive. Countries that see themselves at a competitive disadvantage might be tempted to devalue their own currencies in retaliation. But so far policymakers from South Korea, India, Indonesia and Japan see no reason for tit-for-tat trade-war policies.

"I don't think the move would trigger a global currency war," a Japanese policymaker said.

The devaluation is unlikely to perturb the Bank of Japan, whose money-printing programme to stimulate the economy has weakened the yen by 50 percent against the dollar since 2012.

Yuan Slide Slams Emerging Nations as Stocks Head 

for Bear Market

The selloff took the MSCI Emerging Markets Index’s decline from a peak last September to 20 percent, the threshold for a bear market on a closing basis. Shares in Indonesia slumped to a 17-month low. Russia’s ruble weakened 2 percent against the dollar while currencies from Brazil to Chile fell at least 1.1 percent.

World Markets Shudder,

Expect More Trouble GoingForward

China's currency devaluation ripped global risk markets, but the real fear is that what's behind the move could be a bigger problem for the world economy.

Global stock markets fell and commodities were crushed. Emerging market equities were casualties, and currencies from the Mexican peso to the Australian dollar were smacked. The U.S. dollar was higher against a basket of currencies, and buyers moved into the safety of bunds and Treasurys, driving yields sharply lower. The U.S. 10-year was yielding 2.13 percent.

"It's a little bit of damage to the global growth psychology. If the country that's been growing the fastest and been one of the mainstays of global growth momentum ... is allowing their currency to sink a little bit, if they're resorting to that, how bad are things around the world?" said Robert Sinche, chief global strategist at Amherst Pierpont Securities.

China the Ultimate Crony Capitalist State devalues its currency 

 

 In case you haven’t noticed things aren’t so hot in China. In fact the country, the Ultimate Crony Capitalist State is in serious trouble. Today it devalued the yuan, its currency.

We have been sounding the alarm on China for a very long time. Not that we’ve been the only ones. That China has been headed for real trouble has been obvious to many for quite a while, years. Regardless, trouble is here now. The world’s second largest economy is pretty much in crisis mode, or very near it and this state of affairs will have an impact (it already has) globally.

What should also be understood is that this is not a separate episode from the initial financial crisis which hit much of the world in 2008. China, Greece, Japan, it’s a continuation of the Great Recession. We’re not out of it. Indeed, some believe that we likely have not seen the worst of it.

Mexico central bank sells $107 mln to support peso

Mexico's central bank on Tuesday said it sold $107 million of $200 million offered in an auction to support the peso currency at an average price of 16.3274 pesos per dollar. (Reporting by Mexico Newsroom)

Russian firms, banks shrink as they face fresh peak debt payment

Russian state companies and banks are cutting staff and scrapping projects as they prepare for another surge of foreign debt repayments of at least $35 billion before the end of the year amid falling energy export revenues and a weaker rouble.

Analysts sharply cut Japan growth forecasts, cloud BOJ optimism

apanese analysts are sharply cutting their economic growth forecasts for the year amid expectations that activity shrank in the second quarter, a survey showed, piling pressure on the central bank to trim its own rosy projections.

Japan’s government debt hits record high ¥1.057 quadrillion

The central government’s debt hit a record high of ¥1.057 quadrillion at the end of June, up by some ¥3.87 trillion from the end of March, according to the Finance Ministry. The national debts, or the combined balance of outstanding Japanese government bonds, financing bills to cover temporary funding shortfalls and borrowings, increased due to rising social security costs, including on medical care and pensions, amid the aging of society.

Ruble Leads Currency Slide as Yuan 

Risks Denting Russian Exports

The ruble slid the most in emerging markets as the biggest drop in China’s yuan in two decades drove down oil prices and sparked concern Russia’s exports to its largest trading partner will be curtailed.

Eurozone 

Industrial Production Falls 

In June

Industrial production across the eurozone declined more than expected in June, rounding off a weak second quarter and indicating that lackluster investment continues to restrain economic activity.

The European Union's statistics agency said Wednesday that production at factories, mines and utilities fell for the second straight month in June, down 0.4% from May. Economists polled by The Wall Street Journal had forecast a monthly decline of 0.1%.

The data, coming ahead of Friday's publication of gross domestic product estimates, "shed a concerning light on the manufacturing recovery in 2015" as some of the region's main trading partners are going through a weak growth spell, said Bert Colijn, an economist at ING Bank.

A cooling Chinese economy prompted Beijing on Tuesday to devalue its currency, while data on Monday showed that Russia's economy moved further into recession in the second quarter.

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Indra Nooyi,  

PepsiCo, another of 100 Most Powerful Women - Forbes, has not only led her company to record financial results but is making strides to move PepsiCo in a healthier direction, leading the courageous charge to shed traditional fast food properties and to replace them with initiatives to supply healthier foods. She is deeply caring and committed as a senior executive. She is a fun-loving executive as well—she played lead guitar for an all-woman rock band in college, loved to play cricket, and is known to sing karaoke and perform at corporate gatherings to this day. Yes, I have been known to relate to her fun-loving spirit as a senior executive as well.

Top Weekly Ideas and Insights

An Inconvenient Truth

"Eurasia BIG Bang" 

What Happens When Geo-Political Shifts Occur?

EXISTENTIAL REALITY 

"Humanity's Coming of Age"

 - Last Days: Hegemony or Survival -

Emerging Markets In Free Fall, Oil Plunges, & More Top Insights

Emerging-Market Sell Off Accelerates On Fed Outlook, Oil Plunge

A selloff in emerging-market assets accelerated as currencies deepened their slump against the dollar amid mounting speculation that a U.S. interest-rate increase is imminent and energy stocks tumbled with oil prices.

Russia’s ruble fell for a second day as crude, the country’s biggest export, sank on concern a global supply glut will be prolonged. Brazilian bond yields rose to a record as President Dilma Rousseff suffered a setback in Congress that eroded measures to pare budgets and avoid a junk credit rating. The MSCI Emerging Markets Index traded at a more than two-year low as energy companies tumbled.

Developing-nation stocks, bonds and currencies have been dragged down by growing evidence that the U.S. economy is improving enough to embolden the Federal Reserve to raise borrowing costs for the first time since 2006 as soon as next month. The Fed’s near-zero interest rates have supported demand for riskier assets in emerging nations. Data on Thursday that showed filings for U.S. unemployment benefits near four-decade lows further bolstered the case for an increase.

Marc Faber – The Fed Has No Intention To Raise Rates

With the U.S. economic recovery being doubted by weaker economic data, and more and more market watchers expecting the Federal Reserve to make a move on rates at a later date, Kitco News speaks with Marc Faber, editor of the Gloom Boom & Doom Report, to find out what he has to say about it. “Given the dollar strength and that most recent economic statistics in the U.S. have been on the weak side, I don’t think the Fed has any intention whatsoever to increase rates,” he says, adding that if they do they will make sure that the increase would stay below the cost of living. “In other words, we would still have negative real interest rates,” he explains. Looking to gold, Faber says considering gold’s current price compared to the highs of 2011, he thinks this is a “reasonably good entry point.” Finally, Faber comments on Europe, which he says might outperform the U.S. economy this year. “Most of the European markets – I’m not saying all, I’d say Germany, France, Italy – they’re up something like 10% in dollar terms. I think 2015 will see a year where Europe outperforms the U.S. massively.” 

Here's the Next Crisis "Nobody Saw Coming"

When borrowing become prohibitive (or impossible) and raising taxes no longer generates more revenues, state and local governments will have to cut expenditures.

"Strangely enough, every easily foreseeable financial crisis is presented in the mainstream media as one that "nobody saw coming."

 No doubt the crisis visible in these three charts will also fall into the "nobody saw it coming" category.

Take a look at this chart of state and local government debt. As we noted yesterday, nominal GDP rose about 77% since 2000. So state and local debt rose at double the rate of GDP. That is the definition of an unsustainable trend

Coming Out - As a Bear! 

Earlier this year, as the market kept marching upward, I decided that buying put options on equities wouldn’t give me the kind of protection I was looking for. So I liquidated most of my equity holdings. We also shut down our equity strategy for the firm.

Of late, I’ve taken it a step further, starting to build an outright short position on the market. In the long-run, this may be losing proposition, but right now, I am rather concerned about traditional asset allocation.

James Turk: Money Bubble About to Pop

This money bubble is going to pop. It has to because there is just too much debt in the world. That debt has to be reconciled and, ultimately, when you are reconciling debt, it gets back to the point about collateral on the balance sheets. There is just not enough good collateral to support all of this paper money circulating out there

The Economist: The TPP is Dead 

The coverage of the TPP in the media was schizophrenic, on the one hand describing it as part of Obama’s “pivot to Asia” (as in an effort to contain China’s growing hegemony), meaning it was clearly a political enterprise, an “everybody but China” deal, and on the other hand, saying that the reason Americans should support it was those miniscule trade benefits. And of course, there was nary a mention of the cost in terms of national sovereignity.

The Tale of an Anxious Economic Recovery, Told by a Revived Textile Mill 

“More people are finding jobs, but nobody feels optimistic about their income prospects,” he added. “That’s likely why it doesn’t feel like the economy has really recovered even though the statistics say it has.”

John Kerry on the Risk of Congress ‘Screwing’ the Ayatollah 

On a related matter—whether or not the nuclear agreement represents a bad deal for the people of Syria, who suffer under the Iran-supported Assad regime, which will presumably benefit financially from the lifting of sanctions on its primary sponsor—Kerry was somewhat dismissive. In response to my question, “Does it bother you that money will be going to Assad and Hezbollah?,” 

Kerry responded, “Yes, but it’s not dispositive. It’s not money that’s going to make a difference ultimately in what is happening.”

Canada Is On The Brink

 Of A‘Very Unusual

 Recession’

Canada is teetering on the edge of a recession.

The country's GDP has fallen for five straight months, the latest numbers coming in at a 0.2 percent contraction in May. And economists say Canada is about to hit its second-straight quarter of declining GDP, the technical definition of a recession.

Contributing to Canada's problems include plunging commodities prices, slowing exports and a falling Canadian dollar. The tumble in crude oil, which has fallen more than 15 percent year to date, has hit Canada hard as a commodities-heavy economy.

According to TD Bank's deputy chief economist, Derek Burleton, investor concerns about the Canadian economy date back to last year, when oil prices first began to fall.

"They're worried about Canada; they're still short Canada," Burleton said. "There's not a lot of upside to growth."

Learning Success: 

APPLY Tips From The Best

Warren Buffett, Berkshire Hathaway – He is a deeply conservative trader during the times that everyone around him is moving from one extreme to the other to the tune of huge losses and gains. Warren Buffett is a perfect example of patience, proving that slow and steady generally wins the business race. (Although I continue to press my own desire to spur Fishbowl’s inventory software business to race!)

Top Weekly Ideas and Insights

An Inconvenient Truth:

What Happens When Top Economists Realize Physical Growth Constraints?

 EXISTENTIAL REALITY 

"Humanity's Coming of Age"

 - The Last Days of Economic Growth -