The U.S. dollar is reaching a point where if it does not rally soon it is in danger of falling more sharply, says investor Jim Rogers. He also thinks the U.S. Treasury market may be a bubble that is about to burst. (more…)
Archive for the ‘Monetary Policy’ Category
Maybe the letters “QE” should stand for “questionable endeavor.” Luminous Capital Partner Alan Zafran called our attention via e-mail this morning to comments that Pimco’s Mohamed El-Erian made about the latest round of Fed security purchases, a policy known as quantitative easing. Zafran sent us a Bloomberg story about El-Erian’s op-ed piece in the Financial Times.
El-Erian writes that the Fed’s “QE2″ policy is likely to backfire because it faces three hurdles: 1) the Fed is effectively alone in trying to stimulate the economy; 2) the Fed’s move will likely be viewed by countries facing their own currency inflation as “unnecessarily disruptive”; and 3) the move further weakens the United States’ roles as provider of the world’s reserve currency and keeper of the deepest and most predictable financial markets.
Zafran writes in his note:
“One of the potential, unexpected consequences of the QE2 are laid out in the article below. Namely, excessive liquidity in the U.S. flows to emerging market countries, thereby further inflating the emerging market currencies and potentially leading to an asset bubble in those countries, forcing the emerging countries to impose capital controls (as Brazil has begun to do) or trade protectionism (like China has begun to do) or some other action that will be adverse to global economic growth and stability…
“Think of it this way. Countries have five levers to use when trying to stimulate (or weaken) economic growth:
“a) monetary policy
b) fiscal policy
c) government intervention of capital controls (limiting if/when/how much foreign exchange of currencies is permitted)
d) protectionism of products and services (subsidies on domestic industries; taxes/surcharges on imports; etc.)
e) real currency levels can decline in deficit countries (U.S.) or appreciate in surplus countries (China). This happens either because the nominal currency rate falls or because the inflation rate in a country falls (usually as a result of policies followed by the countries for some period of time)
“So the fed’s actions, focused on the U.S. economic malaise, may have longer-term, adverse global economic consequences…”
Weâ€™ve predicted it last week.
Ben Bernanke has now turned inflation hawk. But can he have it both ways?
So far, the Federal Reserve Board chairman also known as â€śHelicopter Benâ€ť was the champion of monetary easing. These days are over it seems.
In a speech in Massachusetts on Monday [June 9], Bernanke switched gear and made a hawkish comment prompting the dollar to one of its biggest daily gains today up more than 1% against the Euro to $1.55.
Mohamed El-Erian has a new book coming up this month. The veteran manager is well-known in the alternative investment community as the celebrated ex-president and chief executive of Harvard Management Company (HMC), the entity that manages Harvardâ€™s endowment. He joined Pacific Investment Management Company (Pimco) in December. His book called â€śWhen Markets Collideâ€ť puts the current credit crisis in a global macro-economic context, looking at market issues but also monetary policies. The book, according to an interview, in the latest issue of Barronâ€™s reveals that EL-Erian is not very favorable to the Federal Reserve Boardâ€™s recent actions. Well, he hardly is the only one. We haven’t read his book yet. But the interview provides an interesting aspect of his criticism, and that is the Fedâ€™s radical decision in March to open the discount window to investment banks.
The inflation hawks have been waiting for this for a while. For the first time, Federal Reserve Bank chairman, Ben Bernanke, addressed in a speech today [June 3] in Barcelona, Spain, a question thatâ€™s in everybody’s mind and bundled in one: Inflation and the Dollar.
Bernanke has no choice. After rescuing the banking sector and fighting the peril of a recession, the main concern now is the pain at the pump, which is almost $4 a gallon today versus $1.45 five years ago.
After all the gloomy talk over the past three months with pundits, economists and top bankers predicting a bad, bad remake of the Great Depression or even worse, itâ€™s time to reflect and look at the facts. No, itâ€™s not all over yet. Weâ€™re still alive.
Some of us at HedgeWorld have been saying for months that the Titanic is not sinking yet. But we didnâ€™t have a blog then to voice out our optimism. Of course, others on our team will not be so cheerful. This posting only reflects its authorâ€™s opinion. And that is: Cheer up! We may be heading for a disaster. But the economic picture in the US is not all that bad. Yes, of course, it may be a different story in four months. But one must live for today. And if really the US economy is like the Titanic sinking into frozen water, I’d say, right now, time for a Margarita. Because the sun is still shining on the deck.