Thursday, April 21, 2016

When money moves..

The long commodities bear market has left all economists wistful for the good old days of robust demand for basic materials. All hope seemed to have left the space in just a few short years.

But the piles of money that influence interest rates to be so low could start to move. The world is waiting for the next big thing.

Africa as a land starting to develop.

India short on infrastructure after all these years.

It really shouldn't take too much to take up the China slack. There are more people every day.

This is what I am reminded of.

This from earlier


Friday, April 8, 2016

Peak Financial Economy

There can be little doubt that the last 25 years of declining interest rates and disinflation has been good to the big banks. We have seen the financial havoc that bank shenanigans have wrought. And we have seen the extent the Central Banks will go to in order to "save" the banks from themselves.

We have witnessed over the last decades a financialization of the world economy, and certainly the U.S. economy. There is a bank or insurance company on every downtown street corner. Working men and women save for retirement by investing in the stock or bond markets. And providing financial advice is a big business.

During this time paper assets have gone up many multiples in price. What good, though, to a consumer or a retiree, or a nation, for that matter are paper assets. We CAN consider these paper assets as "savings".  So what happens when the world needs to spend these savings.

I think of the sovereign wealth funds of S. Arabia, et. al., cashing in some chips and using the proceeds to fund their societies.  These savings, which I presume were denominated in US Dollars, are now used to buy actual physical goods. This lowers the value of the Dollars and raises the price of goods.

If this idea catches on. This cashing in of paper to actually use the 'value' for something. If this starts to raise the price of real goods and lower the value of paper we may see something we haven't seen for a long time. And there is a whole lot of paper out there.

I asked the question: "What is the effect of inflation on big banks?"

Here is an old article from the Richmond Fed. Written before the last decades of paper.

Richmond Fed on Inflation

I sense a change happening.

Control risk,

gh

Wednesday, April 6, 2016

Reflexivity?

Here is a thought.

Let us assume the world is oversupplied with oil. So there should be a fundamental pressure to push down on the price of oil.

Several nations, mostly in the middle east, have grown accustomed over the decades to a relatively high price of oil and their societies are dependent on a subsidy from oil exports.

Recent liquidations by sovereign wealth funds pushed down the stock markets. The liquidations were presumably to raise cash for sustaining the economies and societies of oil producers suffering from a low oil price.

Oil is mostly transacted in U.S. Dollars. Oil overproduction tends to support a strong dollar. However, years of profits by the oil producers were invested in stocks and bonds, and as sovereign funds liquidate those funds, the currencies realized are spent in the real economy. To the extent that the original profits were in US Dollars, can we assume that the liquidation of profits will be in US Dollars? This should be the "freeing up" of US Dollars. The spending of savings. Perhaps the reversal of the financial economy/"saving economy", and resuming the spending of that 'savings'.

As these monies are recirculated they will stimulate. Demand for oil will rise, the price will rise, inflation will become evident, interest rates must rise, bonds will be sold; those savings come into the economy providing further stimulation and demand. A reflexive feedback occurs. Inflation is seen as good after decades of disinflation. Big bond holders reduce holdings and invest in equities.

We may still have a "5th Wave" coming in equities.

And then the oil runs out. Yikes!

Tuesday, April 5, 2016

Double Top in U.S. Dollar

From a technical perspective there is a double top in price in the US Dollar index.

This shows up well on the weekly chart perspective. From my experience, the longer the perspective the more true the indicator in question.

Some of the great trades are made in the big moves in commodities prices and the US Dollar is the ultimate commodity.

There is the possibility of a dramatic fall, on a weekly perspective, with a break through the 'neckline' of this price chart. At the least this chart signals a change in sentiment for a strong dollar.

Don't fight the Fed.


VALE is strong.

Control risk,

gh