the strong usd

[thriftyandboringinohio]

Re: the strong usd



hmm.
A cool half trillion dollars in 30 days. If they keep it up all year, at this rate they will print one third of total U.S GDP next year and hand it to wall street.
I suppose its only fair to point out these are loans, not gifts.
As my oldest and dearest ne'er-do-well friend likes to tell me, "I'd rather owe it to you than cheat you out of it."

[thriftyandboringinohio]

Re: the strong usd

More chatter about the repo markets triggering a stock market collapse in the next 30 days

https://seekingalpha.com/article/431...ay-precede-qe4

This article says it won't happen. But it reads like someone whistling past the graveyard.

[jk]

Re: the strong usd

i think the fed has pretty much made clear that, echoing draghi, they'll do "whatever it takes" to accomplish their goals. i have no doubt that should there be tremors in the markets, the fed will rain dollars on any problems.

[GRG55]

Re: the strong usd

My thesis at the moment is we are stuck globally in a "nearly endless Ka".

I don't think we have much chance of an inflationary Poom anywhere unless and until there is a complete loss of confidence in a national currency. There are a few examples of that now. And we are seeing signs the usual trouble spot nations are now being joined by a few others.

The most recent IMF data I could find (April 2019) shows the usual suspects Argentina at 43.7% and Zimbabwe at 73.4%. Venezuela is officially shown as "No data available", but the IMF chart is showing >10 million% (Yikes! ). Sudan is 49.6%, Iran now 37.2% with neighbouring countries in the teens: Turkmenistan (13%), Uzbekistan (16.5%) and Turkey (17.5%). A smattering of African nations are also all in the teens; Nigeria, Libya, Egypt, Zambia and Angola. At the other end of the spectrum the only nation showing negative inflation in the IMF data is Saudi Arabia at -0.7% (but its currency is still a US$ proxy).

I expect this inflationary bias will slowly spread to other fiscally marginal small economies as capital flows continue to become more discriminating on the approach of the next global recession. Central Banks will, of course, continue to fight this by desperately pumping as much cheap money into the global economy as they collectively can, using ZIRP and NIRP to try to increase the velocity of that money. We should all be listening for the sound of rotor blades revving up.

North America, Europe (including the eastern block and Nordic nations), ANZ, the west coast of South America and China are all officially printing <3% in the IMF dataset.

Mainland China still appears to be grappling with capital outflows. My long standing scepticism about the strength, durability and resilience of the Chinese miracle economy may yet prove correct. If I am right this will continue to contribute to the global deflationary bias currently in place.

But if I had to pick a developed economy region where I think confidence cracks appear first it is the Euro zone. The ECB is rapidly approaching "zero degrees of freedom" for its policy choices (there is talk of a two-tier interest policy, so the banking system can be relieved of the cost of having to pay the ECB for reserves on deposit in this crazy NIRP world). The EU does not have the social cohesiveness of Japan to see it through as its accelerating NIRP policy combined with Germany's austerity demands continue to tear at the fabric of European society. Brexit is just the beginning. It seems inevitable at some point Germany is going to be asked to exit so the Euro currency can be devalued more aggressively. When that finally happens it will be a marker milestone on the way to a European Poom. But as we have seen so many times before, things can go on much longer than anyone expects, so who knows how long before we see something like this.

In the meantime, despite its problems and its politics, betting against the US economy still seems seriously bad odds. It is, by far, the least dependent on exports of all the major economies. And although agriculture has been hard hit in the tariff wars now underway, ag exports will be redirected to alternate markets that are left short if China tries to source elsewhere. Frankly, I don't see how the Trump Administration is going to be able to prevent continued yield seeking and safe haven capital flows into US Dollars and US Dollar denominated assets as the building credit problems in the rest of the world start to play out first.

Well, here we are 7 months later.

• The Euro's long secular decline against the US$, which started in the spring of 2008, continues. It fell below 1.10 this week. As noted before, these trends can continue for a lot longer than one might imagine. Difficult to see the US$ falling as long as the Euro, the largest component of the DXY, continues to trash.
• If the wealthy and influential Chinese were trying to get their families and their money out of mainland China before, just imagine how motivated they are now. In addition to melamine laced baby formula the miracle Chinese economy has become the #1 manufacturer of new and exciting viral breakthroughs - birds, pigs, humans, you need it, they seem to have it. Maybe the Prez should start putting tariffs on them to curb their export?
• If Central Banks were having difficulty generating their target 2% inflation before, imagine the challenge they face as this new Chinese originated deflationary impulse spreads through the global economy.
• To quote Mega..."Oil is Getting Killed!!!!!!". Blood in the streets time? Smells like it is close. Maybe not quite time to "back up the truck" (who knows for certain), but I would be warming up the engine in preparation. The world is not going to stop using hydrocarbons. In fact I remain unconvinced the world is yet ready to use less hydrocarbons than it does now. There's perhaps still a wash out low coming in this "triple waterfall" cyclical oil price decline that started in 2014, but the decline part of the cycle is nearing its end.
• From a standing start in October of 2018 my company now supports the natural gas fuel management for 145 Megawatts of newly installed gas turbine power generation in the Permian basin. That is expected to double by year-end 2020. Last year I posted pictures of an XTO/Exxon superpad with 6 diesel-electric triple rigs side-by-side, drilling simultaneously. Last week I saw one of the newest XTO/Exxon pads with 8 triples on it. The first two of those are running on power from natural gas turbine generators supported by our equipment. That means zero diesel fuel being consumed by those rigs. They are powered entirely by the associated natural gas from oil production. This technology change to direct drive electric motors is huge. It is going to result in the permanent scrapping of large numbers of diesel prime mover engines, and all the related fuel hauling, mechanics, oil and filter changes and overhauls (think of it as the Tesla-fication of the oil patch , only faster and much more effective). Exxon's target is to drive its full cycle development and lifting cost in the Permian down to $15 per barrel. That's cheaper than Saudi Arabia. We shut our Seattle office last fall. This week we signed a lease for office space in Houston. We are thinking of a new slogan: "Goodbye Green, Hello Hydrocarbons" (calm down Millennials, it's just a joke )

[Chris Coles]

Re: the strong usd

• If the wealthy and influential Chinese were trying to get their families and their money out of mainland China before, just imagine how motivated they are now. In addition to melamine laced baby formula the miracle Chinese economy has become the #1 manufacturer of new and exciting viral breakthroughs - birds, pigs, humans, you need it, they seem to have it. Maybe the Prez should start putting tariffs on them to curb their export?

As I see it, the problem in China now is the closing down of whole cities; where no one, it seems, has given any thought to the impact on food supply logistics. A city of say 10 million population needs to supply up to 30 million meals per day. If we take a meal weighs 8oz, that requires 6,700 tons of food per day; every day. So the question becomes, how long before food supplies in the homes run out?

From what I can make of it, no one inside the decision loop that switched off access to the cities has any concept of the difficulties caused by shutting down those food supply logistics.

[Southernguy]

Re: the strong usd

Don't worry. If there is something the Chinese are good at, it is central planning. I suspect every little detail of that logistics is carefully taken care of.

[/LIST]
As I see it, the problem in China now is the closing down of whole cities; where no one, it seems, has given any thought to the impact on food supply logistics. A city of say 10 million population needs to supply up to 30 million meals per day. If we take a meal weighs 8oz, that requires 6,700 tons of food per day; every day. So the question becomes, how long before food supplies in the homes run out?

From what I can make of it, no one inside the decision loop that switched off access to the cities has any concept of the difficulties caused by shutting down those food supply logistics.

[jk]

Re: the strong usd

i will take the liberty of reposting here something i posted in the 1,2,3,4....inflation! thread, as it dovetails nicely with grg's post above:

highly recommend this short article:

https://themacrotourist.substack.com/p/moas-is-coming

re the title of THIS thread, the strong usd, i think we'd better clearly distinguish the value of the dollar vs other currencies, like the euro and the value of the dollar vs "stuff." the line below made me think of finster:

Although I understand how a deterioration of the situation should be deflationary, that's assuming the unit we use to measure everything stays the same. It won't.

[GRG55]

Re: the strong usd

i will take the liberty of reposting here something i posted in the 1,2,3,4....inflation! thread, as it dovetails nicely with grg's post above:

highly recommend this short article:

https://themacrotourist.substack.com/p/moas-is-coming

re the title of THIS thread, the strong usd, i think we'd better clearly distinguish the value of the dollar vs other currencies, like the euro and the value of the dollar vs "stuff." the line below made me think of finster:

Although I understand how a deterioration of the situation should be deflationary, that's assuming the unit we use to measure everything stays the same. It won't.

"...Although I understand how a deterioration of the situation should be deflationary, that's assuming the unit we use to measure everything stays the same. It won't.

Now, you might say we need to first get that deflationary panic before the response comes. Could be. But that's the bet you are taking. You are assuming we get deflation before inflation. Not only that, I would argue many are positioned for that outcome.

Few are looking two steps ahead and asking themselves what's the bigger risk; commodities falling 25% as the virus spreads or governments panic and send them up 50%. Given we have already tumbled 10%+ in economically sensitive commodities such as copper and oil, I believe risk reward favours betting on the latter..."

A 10% decline in oil or copper is barely a blip. Commodities fall like an elevator with no brakes. The typical decline is a minimum of 30%. I think we have an excellent chance for another waterfall washout (oil sub-$35?). I agree the unit we use to measure everything is important.

But the hunt for US Dollars appears to be continuing. Which is the main reason oil, nat gas & copper can't break out to the upside. The coronavirus is just a side show to the secular trend. If the Chinese and the Europeans stimulate, isn't the main effect going to be to create more liquidity to drive the demand for more US$ as everyone else tries to get out of their sinking currencies?

I'm not so sure this Ka phase, and its attendant strong US$ is quite near its end yet.

But then the US$ would appear to be in a terrible inflationary depreciation when assessing it against "stuff" like TSLA, AAPL, GOOG, etc.

[jk]

Re: the strong usd

"...Although I understand how a deterioration of the situation should be deflationary, that's assuming the unit we use to measure everything stays the same. It won't.

Now, you might say we need to first get that deflationary panic before the response comes. Could be. But that's the bet you are taking. You are assuming we get deflation before inflation. Not only that, I would argue many are positioned for that outcome.

Few are looking two steps ahead and asking themselves what's the bigger risk; commodities falling 25% as the virus spreads or governments panic and send them up 50%. Given we have already tumbled 10%+ in economically sensitive commodities such as copper and oil, I believe risk reward favours betting on the latter..."

A 10% decline in oil or copper is barely a blip. Commodities fall like an elevator with no brakes. The typical decline is a minimum of 30%. I think we have an excellent chance for another waterfall washout (oil sub-$35?). I agree the unit we use to measure everything is important.

But the hunt for US Dollars appears to be continuing. Which is the main reason oil, nat gas & copper can't break out to the upside. The coronavirus is just a side show to the secular trend. If the Chinese and the Europeans stimulate, isn't the main effect going to be to create more liquidity to drive the demand for more US$ as everyone else tries to get out of their sinking currencies?

I'm not so sure this Ka phase, and its attendant strong US$ is quite near its end yet.

But then the US$ would appear to be in a terrible inflationary depreciation when assessing it against "stuff" like TSLA, AAPL, GOOG, etc.

one theory which has some weight with me is that the fed has ALREADY had its wake-up crisis: the repo spike in sept. the fed is ALREADY pumping, hard.

also, muir's thesis is not so much that europe and asia will just use a monetary pump to push up financial markets: it is that specifically they will use a fiscal pump to utilize idle factors of production- build more highways and bullet trains, more ghost cities, whatever, and that those projects will need cement, steel, copper, diesel fuel for the machinery, and so on.

[santafe2]

Re: the strong usd

...they will use a fiscal pump to utilize idle factors of production- build more highways and bullet trains...whatever, and that those projects will need cement, steel, copper, diesel fuel for the machinery, and so on.

That may be the plan in the US. Just fix 20th Century stuff that no one needs in the 21st Century. I don't see any real vision here. In the US the leading candidate against fascism is an old school socialist. It's a 100 year old ideological struggle that makes no sense to me. Let's rewind 100 years of history and move back to a socialist bent from a fascist trend. This isn't a revolution, it's devolution.

The most powerful man in the world is the richest man in the world and when he was asked what he wanted to do with his billions of dollars he said space flight. Ask Musk what he wants, space flight. Ask Branson what he wants, space flight. No one with any real power cares about humans or the Earth, they're planning to move. The rest of y'all can go vote and fight about the count of angels on the head of a pin.

The strong US dollar...it's a carny side show.

[jk]

Re: the strong usd

That may be the plan in the US. Just fix 20th Century stuff that no one needs in the 21st Century.
.

i think it would be nice if the bridges stopped falling down, and we had modern airports, local and intercity transit and so on. that's all 20th century stuff, i know, but it would be a big improvment.

muir's point in the linked article is that china will be doing this in spades. their economy is approaching a full stop, they will do anything and everything to get it going again.

[santafe2]

Re: the strong usd

i think it would be nice if the bridges stopped falling down, and we had modern airports, local and intercity transit and so on. that's all 20th century stuff, i know, but it would be a big improvment.

muir's point in the linked article is that china will be doing this in spades. their economy is approaching a full stop, they will do anything and everything to get it going again.

Yes, it would be nice but no one with the money to re-build a bridge in the US cares about bridges or modern airports or safety for other humans. Because we've built a system where all of the real money accrues to those who have made it, everyone with money feels that they should be able to spend their money any way they see fit. And apparently for the real billionaires, that's designing great ways to get the hell out of here. China missed the 20th Century and they're trying to recreate it when that time has passed. See their fake US style Disney cities without occupants for an example. China is not the future. China is trying to make up for their mistakes, misfortunes and lack of imagination in the 20th Century.

My point is that no one in the US political class really knows where to go from here. We have a fascist dictator and our answer is a socialist. The MSM is putting their money on the fascist. There is no vision. Andrew Yang was at least interesting but he dropped out today. In the US we're apparently quite bored with Democratic Socialism. It works well. Everyone pays taxes, has health care and gets an education without debt but there's no juice. No risk. No chance of real failure. We love to gamble and some of us do it quite well while the great majority of rubes continue to believe they can jump on the train an day now. It won't happen and a lot of those folks are pissed off.

The next big move, and I think it's an unfortunate move, will be revolution. I don't know where, I don't know when and I don't know how it will come about but people will revolt in the hope they can continue to do traditional work when almost none of that work will exist. Arab Spring in spades. When does that happen? Where does that happen? When are most people's skills so inconsequential that they're more of a problem than a solution? For me, these are interesting 21st Century issues/questions. I've no hope we'll ever rebuild a bridge to the mid 20th Century.

[Chris Coles]

Re: the strong usd

Yes, it would be nice but no one with the money to re-build a bridge in the US cares about bridges or modern airports or safety for other humans. Because we've built a system where all of the real money accrues to those who have made it, everyone with money feels that they should be able to spend their money any way they see fit. And apparently for the real billionaires, that's designing great ways to get the hell out of here. China missed the 20th Century and they're trying to recreate it when that time has passed. See their fake US style Disney cities without occupants for an example. China is not the future. China is trying to make up for their mistakes, misfortunes and lack of imagination in the 20th Century.

My point is that no one in the US political class really knows where to go from here. We have a fascist dictator and our answer is a socialist. The MSM is putting their money on the fascist. There is no vision. Andrew Yang was at least interesting but he dropped out today. In the US we're apparently quite bored with Democratic Socialism. It works well. Everyone pays taxes, has health care and gets an education without debt but there's no juice. No risk. No chance of real failure. We love to gamble and some of us do it quite well while the great majority of rubes continue to believe they can jump on the train an day now. It won't happen and a lot of those folks are pissed off.

The next big move, and I think it's an unfortunate move, will be revolution. I don't know where, I don't know when and I don't know how it will come about but people will revolt in the hope they can continue to do traditional work when almost none of that work will exist. Arab Spring in spades. When does that happen? Where does that happen? When are most people's skills so inconsequential that they're more of a problem than a solution? For me, these are interesting 21st Century issues/questions. I've no hope we'll ever rebuild a bridge to the mid 20th Century.

One of the primary reasons why I have continued to push for a return to mid 20th century . . . free enterprise, is precisely because I see no other way forward that does not involve an antagonistic revolution; instead, simply a return back to an investment system that simply . . . worked. Again, being still, to this very day, being regularly invited to major finance related conferences, not just in London, but across the planet; leaves me convinced that others are listening and like what I have to say. There is only one solution, an immediate return back to free enterprise investment of equity capital drawn from every local community; with the first stage pump primed from the likes of any central bank holdings . . . to get the whole thing into constant motion.

[Woodsman]

Re: the strong usd

So the time for roads, bridges, railways, and airports have passed. That's all oh-so 20th Century.

Who knew? Maybe the fascist dictator took 'em away? Though it might be the Russians. One can never tell about these things.

[GRG55]

Re: the strong usd

Don't worry. If there is something the Chinese are good at, it is central planning. I suspect every little detail of that logistics is carefully taken care of.

I see the myth of the omniscient Chinese government persists...