Category Archives: Currencies

Some Anomalies

I am puzzled by some recent market anomalies, which are breakdowns of established patterns: 1. Long dated Treasuries rising (a deflation signal) as stocks stage a dramatic rally 2. Dollar weakening while long dated Treasuries rise (the dollar and bonds usually go together) 3. Oil stocks rallying more than the S&P (28% versus 18%) when […]

Japanese Float Idea of the Treasury Selling Yen-Denominated Debt

We have been mystified at the utter silence on behalf of our friendly foreign funding sources at their willingness to be patsies to continue buying Treasuries when the outlook for the dollar is far from rosy. The US’s funding needs are going to escalate sharply due to the need to pay for rescue programs. And […]

Bush and Obama Diss the G20 Financial Summit

The latest back-handed insult may be yet another variant of the Bush “we don’t do multilateralism” syndrome. Unfortunately, as various pundits writing at the Financial Times have pointed out, the US’s stranglehold on power is slipping. Even Obama in the campaign repeatedly said that a country cannot maintain military dominance if it is not a […]

"Mr. Yen" Advocates Much Stronger Yen

The Japanese officialdom signaled an interest in a cheaper yen when the Nikkei breached 25 year lows. But the concern was not the level of the yen per se, but trying to use a weaker yen (it had run up to over 92 to the dollar) as to a desperate effort to shore up the […]

"Fears mount in Japan over complex yen products"

This Times Online story is frustratingly vague about the exact nature of these complicated and risky foreign exchange products sold to Japanese retail investors. While the size of the problem ($90 billion) may seem not all that bad in comparison, say, to subprime exposures, recall that these trades are likely to be unwound in a […]

Fed Establishes New IMF Facility. Dollar Swap Lines with Brazil, South Korea, Mexico, and Singapore

As Senator Everett Dirksen famously said, “A billion here, a billion there, and pretty soon you are talking real money.” Today, the Fed provided Brazil, South Korea, Mexico, and Singapore with dollar swap lines of $30 billion each (hat tip readers Robertm, Dwight). From the Fed’s press release: Today, the Federal Reserve, the Banco Central […]

Despite Fall in Yen, Risk for Emerging Markets Not Over

Over the last few weeks, and accelerating late last week and early this week, it looked as if a full bore run on emerging markets was in progress. Now with the yen taking its biggest dive in two decades and carry trade unwinds a temporary thing of the past, emerging market and currencies are staging […]

Dollar Falls on Rate Cut Expectations as High as 75 Basis Points

I’ve kept seeing mention of a possible 75 basis point cut by the Fed. As much as some traders seem to be lobbying for it, your humble blogger would regard Fed setting its policy rate at that level as entering the famed ZIRP (zero interest rate policy) land that has played a big part in […]

"Currency crisis is gathering storm"

Ed Harrison sent us a link to his latest post, and it’s a doozy. Most of us in the US who are financially-minded have been sufficiently caught up with the three ring circus of market turmoil, seemingly-a-new-trick-every-day Fed and Treasury interventions, and continuing financial firm implosions that we haven’t looked up much to see what […]

Managing Down "Bretton Woods" Expectations

Hyperbole has become a mainstay of discourse in the US. The upcoming financial summit set for November 15 in Washington DC is being wrapped in the Bretton Woods brand, when it appears to be a different sort of beast. As a Wall Street Journal story reminds us, Bretton Woods was a three week session among […]

China Launches Salvo Against Dollar Hegemony (Updated)

We have seen reports on various China-focused blogs and even in the US media that China is increasingly chafing over the US dominance in financial affairs, and is particularly unhappy about the role of the dollar. Consider this quote from an August New York Times article: Victor Shih, a specialist in Chinese central banking at […]

Is Another Emerging Markets Crisis in Motion?

We mentioned earlier, focusing on a comment made in Brad Setser’s post “Where is My Swap Line?” that emerging economies had not internalized the lessons of the 1997 Asian crisis as much as was widely believed. Their central banks if anything overreacted, keeping their currencies cheap against the dollar and amassing large foreign currency reserves […]

Bretton Woods 2, R.I.P.

A wide range of commentators, including your humble blogger, have worried about the clearly untenable system known as global imbalances, or more formally, Bretton Woods 2. That was the tacit arrangement under which the US ran significant current account deficits which were financed by large purchases of Treasuries and more recently, Agency securities by foreign […]

Currency Bets Gone Bad Hit Companies in Developing Economies

Even though the dollar seems destined for a considerable fall (depreciating the currency is part of the “reflate” remedy that Bernanke is putting into action), it is all too easy to forget John Maynard Kenyes’ dictum, “The market can stay irrational longer than you can stay solvent.” But in this case, the lesson may be […]

Emerging Markets Banks Hoist on Foreign Borrowing Petard

A colorful and informative article by John Dizard in the Financial Times on how emerging markets may not have dodged foreign currency exposure risk despite their central banks having very large foreign exchange reserves. It turns out their banks and major companies weren’t so prudent. Dizard raises a second issue here, one that was discussed […]