foreign money is leaving the US ...
(snip)"Inflation Abating? NOT!
Good day... Here we go! Here I am, in Las Vegas... One could quickly get addicted to people-watching here! Anyway... Let's hope this goes well!
We just didn't see any traction in the currencies yesterday... The markets were waiting for U.S. CPI to print this morning... Me? I really don't give a rat's tail about CPI, because it is so trumped up, massaged and cooked to make us all "feel good" that I find it just doesn't have relevance any longer. But... The markets do, so here you go!
April CPI printed this morning slightly less than the experts forecast at .4%... To some, this represents what they feel is an indication of inflation abating... However, let's think about this for a minute... .4% in a month puts annual inflation at 4.80%... OUCH! But as long as they keep quoting it in small monthly numbers, they disguise the overall crunch on us!
The media will shout about the "core" number, which excludes food and energy, as if we don't use those items each and every day! The core advanced only .2% in April, putting the annual inflation for those that don't use food and energy at 2.4%...
I don't think the Fed Heads, even in their wildest dreams, would fall for this trick the media likes to play with CPI...
Over in the Eurozone, the strength of the economy has come shining through. Many a naysayer had the Eurozone economy going into the dumpster with the VAT tax and the slowing down of the U.S. economy... But the resiliency of this economy has taken on those two potential problems and posted a .6% growth in the 4th QTR... This beat the experts forecast of .5%, which I'm sure gives the European Central Bank (ECB) a proud papa smile!
Strong domestic growth is fueling the GDP, and the ECB will use this as their reasoning for having inflation fears... Even though inflation is below the ECB's target of 2% (at 1.8%), Money Supply is still strong at +10%... So... Expect a rate hike in June to further underpin the euro.
It's not all good news from across the pond this morning... In the U.K., pound sterling lost some ground this morning after it was reported that inflation had come down from last month's annual number of 3.1% to 2.8%... But come on, traders... Do you really think this move down in inflation is going to stop the Bank of England (BOE) from raising rates back to back in June? Not a chance! But go ahead... Create some great buying opportunities for sterling!
Besides, isn't this the result we want to see after raising rates? The thing to keep in your thoughts here is that this marks 12 consecutive months that inflation has exceeded the BOE's inflation target of 2%... As long as that remains the case, the BOE cannot and will not pull away from the interest hike table, and that should be a great underpinning to pound sterling!
Still waiting for the TIC net flows data to print this morning... This is the real problem for the dollar going forward, in my opinion... The problem of funding the deficit... Yes, the stock market is soaring higher, every day, and that should help attract foreign investment... But... What happens when that rally is over? Yields on bonds are not particularly attractive... Uh-Oh...
I see that the Chinese Imports keep rising... That should be good news for the base metals, like copper... And good news for the currencies of the countries that send those base metals to China... That would be... Australia, and Canada, at the front of the class! And a quick look at the currency round-up shows that those two have performed nicely in recent trading days.
Oh, and for those of you keeping score at home... Chinese imports rose 61% in the first four months of this year! Oh... And China's economy is going to slow down, right? NOT!
Just when I was about to head to the Big Finish, the TIC data printed... Here's the skinny... Net long-term portfolio inflows into the U.S. only amounted to $67.6 billion in March from the $58.1 billion in February. Capital inflows once again fell short of the $80 billion which is needed to attract each month to cover the Current Account deficit and FDI outflows (based on the outcome in Q4). And even though March's number was better than February's number, the trend continues to come down each month... That's going to present a BIG FAT PROBLEM!"(snip)
Bottom line appears to be that foreign investors in US assets are now starting to sell out and take 'home' some $10-$20 billion dollars per month ... presumably to avoid additional losses as the exchange rate for the US dollar continues to deteriorate vs their 'home' currency. This means that there are $10-$20 billiion fewer dollars available in the US domestic economy every month. This leaves the US fed / gov't with two difficult choices. They can print up $10-$20 billion brand new dollars every month to make up for the shortfall, but this will further devalue the US dollar and raise the price of every 'world commodity' i.e. gasoline / food / imported cars and durable goods. On the other hand they can allow the shortfall to stand, which will make less money available for real estate / auto / consumer loans ... at even higher interest rates and with even tighter creditworthiness standards which would disqualify many would-be borrowers.
I think the real fear here is that if the shortfall is allowed to stand, and if as a result many Americans are unable to borrow / refinance, the only salable assets they really still have left are wall street investments ... which could be subject to forced sale as this may be the only option still open to some Americans who need to raise cash to avoid bankruptcy. As this would cause rich and poor Americans alike to lose a lot of money on declining stock share prices, the US fed / gov't is much more likely to simply turn up the printing presses to warp speed. The resulting inflation of the US dollar and deterioration of the US dollar exchange rate tends to disproportionately affect the poor a lot more than the rich !
Re: foreign money is leaving the US ...
Didn't we discuss this some months ago??? Reading news like this makes me realise that:
1, I was right to pull my clients out of US assets 12+ months ago
2, This is a growing trend that will cause stock and currency turbulence
3, The bad times we have all been dreading are approaching rapidly
Re: foreign money is leaving the US ...
Quote:
Originally Posted by
Melonie
Good day... Here we go! Here I am, in Las Vegas... One could quickly get addicted to people-watching here! Anyway... Let's hope this goes well!
I was in Vegas last weekend, good times. Anyways, I have issue with this article, but don't worry, it's far more damaging.
Quote:
...
The other story in the March data? The big rise in US purchases of foreign securities. US residents bought about $40b of foreign securities, including an usually large amount of foreign debt -- $32b.
...
http://www.rgemonitor.com/blog/setser/194459/
Re: foreign money is leaving the US ...
^^^ apparently quite a few Americans are also trying to front-run the US dollar's additional loss of 'world market' purchasing power by switching some of their US dollar denominated investments into foreign Euro / Yen / AU$ / CA$ denominated investments instead (as I have already done).
Quote:
Didn't we discuss this some months ago???
We certainly did ... but the 'predictive' discussion was met with some complaints of unwarranted pessimism. However, with the 'predictive' nature is now turning factual (at least in terms of official cross-border capital flows), I would say that your point #3 is no longer much of a 'prediction' either but simply a case of 'when'.
All I can say is that my Euros have taken an 8% gain since our discussion, and my gold bars are still glittering !
~
Re: foreign money is leaving the US ...
Gold will flirt with 500 before the next time it breaks 700.
EDIT: almost forgot, DJIA 15000+ will be a reality as well.
Re: foreign money is leaving the US ...
I'll buy the Dow 15000 ... all that requires is 10% more inflation of the US dollar, but which equates to no gain in purchasing power whatsoever versus today's Dow at 13,400 ! If one looks at the inflation adjusted purchasing power of today's Dow, it's still below the purchasing power of its 2000 peak !
As to gold flirting with $500, there isn't enough gold left in the central banks to drive the price down that far, and the naked short sellers (i.e. hedge funds) were burned badly short selling oil such that they're not likely to take that sort of risk again with gold.
Re: foreign money is leaving the US ...
Actually, we're entering a deflationary cycle. Ben just doesn't get it, and even if he did, his hands are tied. We don't have any real wage growth in this country, if our imports (due to lowering interest rates) rise any more, it will just contribute to the deflationary cycle, cause none will be able to afford anything.
You are probably thinking: Deflation? The Dollar? BULLSHIT!
Ask yourself, where does money come from?
If you answered the government, you're wrong!
You need to watch the first ~35 minutes of this video:
http://video.google.com/videoplay?do...51279&hl=en-CA
As foreclosures accelerate, it causes the money supply to contract! Welcome to Japan, circa the early 90's.
Re: foreign money is leaving the US ...
^^^ but the other half of the equation is POMOs/TOMOs, which allow the fed to print money and monetize it immediately via 'primary dealer banks' passing it through with leverage to the stock and bond markets. The air escaping from the housing bubble is being blown straight into a Wall St bubble ! I do totally agree with you, however, that once the US runs out of bubbles deflation will set in like a boat anchor. But by shifting the bubble of the month from housing back into Wall St, the personal bankruptcies and foreclosures of a few million middle class Americans can be more than balanced via a few hundred inflating hedge funds and/or private equity investors and/or merger and acquisition investors who still have access to credit / leverage ! Of course this further concentrates the distribution of wealth away from the middle class and towards the millionaires / billionaires, but the game of 'musical chairs' is still able to continue.
Japan missed the boat by not shifting bubbles.
If you are seeking additional proof, consider that right now a primary motivator for corporate borrowing is to allow corporations to buy shares of their own stock ! Talk about a self-fulfilling prophecy !
Re: foreign money is leaving the US ...
Ever seen a hundred from 2006/2007? I haven't. Most of mine are 2001 and 2004.
I know, that is pretty thin, but trust me, it's worth keeping an eye out for.
Re: foreign money is leaving the US ...
8% on your euro trade! Nice work. Somehow though, I think you will do much better than that.
As for the gold, it's gonna blast off sooner or later. As you know, I'm a silver investor myself. The price has eased of late, but the fundamentals are still intact - it too will rocket before long.
Only time will tell...
Re: foreign money is leaving the US ...
I think PM's will blast off later. In the meantime, I think they are going to sell off or just trade between 650-700, at least until we hit a black swan. I'll buy when I see new money, and hold on till we see 3500-5500.