Apparently what you do not want in a Mexican stand-off is a German – especially not one from the Finance Ministry.
The German FinMin pulled the trigger last night and to mix metaphors rather disgracefully the shit has well and truly hit the fan. A large fan. Personally I think they were RIGHT!
So far this morning Hong Kong and Sydney are down nearly another 2%. India is down 2.5% – something very wrong going on in India. Everywhere in Europe is down around 2.5 with Paris falling MORE than Frankfurt. A telling fact. Paris Banks are in trouble and if the German’s are no longer with them then one or two could well be not long for this world.
In Italy, going for the comedy prize, the Italian Financial authorities decided to suspend mark-to-market accounting of all eurozone bonds. They did this to protect Italian banks from finding their capital holdings have decreased, as the value of the euro zone bonds they are holding, have fallen. Of course they HAVE fallen in value and so the Italian banks DO have less capital. But perhaps, if we don’t talk about it, no one will notice. This is from the Ostrich book-of-financial-acumen. And to add to the sense of ironic humour Bank of American complained about this lack of transparency and honesty about the worth of Italian bank assets – Er, excuse me? The BoA is complaining about mark to mythology valuations of assets!
Could it be true that some Americans just can’t do irony?
At the same time it looks as if various rate changes around the world have finally unravelled some very large carry trades. A carry trade is where you borrow money in a currency where the rate you can borrow at is almost zero and then invest this borrowed money in another place where rates are higher. There appear to be huge moves between AUS dollars and US dollars. Why should you care? Well the carry trades really do effect currencies. They are like the currents in the seas and atmosphere – like the Gulf Stream – they are conveyors.
Currency values are on the move. Mainly because of what I have mentioned before – competitive currency devaluation. It can now be said, that between the ECB bail-out and the German move, the USA is definitively losing the devaluation race. This will significantly HURT any US recovery and exporting US industries, such as Boeing and Caterpillar for example. Expect action.
Last piece of potentially canary-in-coal mine news the market for first time home buyers in Western Australia ‘collapsed’ according to a the Real Estate industry out there. Due they said to the six rate rises the Central bank has imposed over the last year. Does that have a ring of familiarity to you? Could be nothing. But it could, combined with continuing moves by China, be the popping of the bubble that is long overdue.
Losses in Europe have not recovered as of now. Friction between Germany and the UK has increased over the new Uk government’s decision to encourage all naked shorting of all things German and Euro to continue out of London .
Once the shooting in a Mexican Stand-off starts it can be hard to stop.
I have often thought, that IF there is a guiding hand behind all this chaos, then their ultimate goal may be to pop the bubble in China.
I think I said yesterday that no politician would deliberately provoke a collapse – perhaps I was wrong?
I was thinking that through too Rob. It seems like the music needs to stop somewhere for the losses to be taken on. The US, China and the Eurozone seem to the be the three items on the menu from which to choose from. I think the music stopped. Europe didnt get a chair.