The US stock market should muddle upward until we see something more dramatic happening in the currency markets. The carry trade recipient currencies have been trading more or less upward in a business as usual mode the pass 2 months.
the GBP/JPY has retraced just about all of the ground lost since the high at 241.51 on Jan. 23rd, and especially the very dramatic plunge from 238.19 on Feb 23rd down to 221.19 on March 5th. Make no mistake there was some serious turmoil in a number of key asset markets during that period.
If you want to see a fairly parabolic market look at the EUR/JPY since jun 27th of 2005. Thus Ultimately as this year plays out, we should expect a turn in that cross rate and that will reduce liquidity in a number of global markets.
Now interestingly, our secretary of treasury seems to be having a bit of a disagreement with his German counterpart. This appears to be partly based on differing perspectives on Hedge fund and private equity transparency ( and I also understand there are concerns about counterparty risk in the credit default swaps portfolios of many of these global hedge funds, private equity firms and several investment banks).
Treasury Secretary Paulson is set to skip the G8 meeting occurring in Potsdam. It appears to be partly a snub to Peer Steinbrück, the German finance minister who is more proactive in creating laws to increase transparency in Private equity firms and hedge funds.
Now it would simply be way to easy to just ascribe this as some type of analogue to the disagreement between Treasury Secretary James Baker and his German counterpart back in October of 1987.
Baker made perhaps, an illconceived retort that the US would just let the USD decline precipitously. He made this comment on Oct 15th or 16th of 1987 and after the crash of Oct 19th and 20th of 1987. The New York Times in shifting through the wreckage of why the market crashed, stated it was most directly related to Secretary of Treasury Baker's comment to the Germans that the US would let the US Dollar Free Fall.
Make no mistake, Big and fast shifts in the Currency Markets can reverberate through the other asset classes very quickly.
But, I would not expect something so repetitive and unimaginative as this difference of opinion to cause the havoc we experienced in 1987.
We do need to watch the cumulative effects of Foreign central bank interest rate increases. And then really keep our eye on the USD - RNB exchange rate and the dialogue with the Chinese this week.
Paulson hosts the second session of the new twice-yearly Strategic Economic Dialogue with China on May 22-24 in Washington.
"Paulson’s decision illustrates his focus on the talks with China, which he has repeatedly said in the past month have to yield “tangible results” amid tensions over the record bilateral trade gap."
We'll need to see how aggressive some of the presidential candidates, particularly Hillary Clinton get in criticizing and magnifying not only the Balance of Trade Deficit, but more significantly the Huge 1 Trillion dollar plus stockpile of US Dollar Reserves that the Chinese Central Bank controls.
The Chinese have limits as too how much verbal reprimands they will put up with before they do something precipitous such as dump 400 to 600 billion USD of their Reserves in an effort to both excoriate the US and asceed to the so called concerns of US politicians.
some commentary on this German transparency initiative:
"Germany said Tuesday that it would introduce a law to regulate private equity firms and hedge funds, even as it becomes increasingly isolated in efforts to win international support for reining in the booming industry.
The Finance Ministry said that it hoped to come forward with a proposal by the end of May that would force investors who build up a stake of 10 percent in a German company to make their intentions clear. It hopes to make it law next year.
The announcement came just hours after the German finance minister, Peer Steinbrück, failed at a meeting of European Union finance ministers to win backing for a voluntary code of conduct for hedge funds to promote transparency.
Germany, which currently holds the chairmanship of the Group of 8 industrialized nations, vowed to bring up the code again at a meeting of the G-8 next week. But there has been resistance in particular from the United States and Britain, home to many of the private equity firms and hedge funds that have been taking stakes in Germany companies.
"We need to make sure that creditors and investors enjoy enough transparency," Steinbrück told a news conference in Brussels after the EU meeting, according to Bloomberg News.
The new legislation that Germany floated Tuesday would be the country's latest effort to put the brakes on investors that some politicians here refer to as "locusts."
In a debate that heated up during Germany's most recent federal election, some politicians complained that private equity firms and hedge funds would swarm from great distances, like the United States or Britain, and strip German companies of valuable assets, costing hundreds or thousands of jobs. |
