China sends markets into a tailspin

China fired a missile across the bow of the Trump Administration early Wednesday morning when news came out said Beijing was looking to cut back on buying US treasuries.

The Bloomberg headlines below sent US markets cratering:

– CHINA OFFICIALS ARE SAID TO VIEW TREASURIES AS LESS ATTRACTIVE.
– CHINA OFFICIALS SAID TO RECOMMEND SLOWING OR HALTING TSY BUYING Continue reading

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Saudi ‘reverse coup’ bolsters bitcoin, while dollar forex, crude may crater

Bitcoin soared past $7,600 in early Sunday trading as news came out of a Saudi Arabian crackdown on the royal princes in a consolidation of power for the new king.

Among the 50 royals detained on Saturday evening was Prince Al-Waleed bin Talal, the billionaire investor behind Twitter, News Corp. and Citigroup. Continue reading

Trump calls out China over strong dollar

Well, we knew it had to happen soon — just not this quick.

President-elect Donald Trump came out to beat down the strong dollar. In an interview with the Wall Street Journal, Trump called out China as a currency manipulator by only giving the yuan token support.

I have written about this since last month, when I said that the strong dollar was going to take the knees out of Trump’s plan to move jobs back to the US.

Now why should we care so much about the machinations going on in the currency trading pits?

As the value of the dollar falls 1.0% this morning — on the back of Trump’s comments — the Dow futures are down 100 points and the price of gold is up $20. Crude futures also rise on a weaker greenback.

So as I have often told you the biggest market mover is the dollar. As it has strengthened 4% since the election, equity markets have followed the same trajectory while commodities have lost ground.

The battle of the strong dollar is going to be the major meme of 2017, as central banks — struggling under massive debt by issuing bonds to create “wealth” for banks to bolster their balance sheets — cannot fight a currency war. The central bankers need a stable currency market for their inflation plan to have any chance to work.

Jim Rickards’ book “Currency Wars” can give you insight into what will unfold over 2017.

It's early for stocks, bonds and bitcoin

While the US equity market appears to be buoyed by the second day run up in European stocks, I am looking at a big sell off in government bonds.

Yields on US treasuries — especially on the long end — are soaring this morning as China overnight attempted to strengthen the yuan by pulling currency from markets through short-term repo operations. Nearly 350 billion yuan have been yanked out of the Chinese markets in the last three weeks, which coincides perfectly with the run up to more than $1,000 in bitcoin pricing.

As I wrote late last year, 2017 will be fought in the forex markets, with currency devaluations and manipulations to keep the status quo as the dollar goes on a tear over the Trump election. It’s not only the yuan that is taking it on the chin versus the dollar, the euro is at 1.03 level and moving toward parity with the greenback.

The rotation, if that’s what is the driver, of bond sales going into stocks will be short-lived as we move into the month. A strong dollar with a hint of inflation will not bode well for US equities in the longer term, especially with the new administration coming in with a new agenda.

So stocks will open higher, but let’s see where they close after the initial enthusiasm has a chance to dissipate.

 

2016 sowed the seeds of change. Now what?

As 2016 draws to a close, I am one who thinks the year has been monumental for the change it will bring to the world both economically and politically in the near future.

Historians will begin to see the import probably ten years from now, but the seeds were sown for a dramatic shift towards nationalistic politics in an attempt to pull these economies out of the decade-long malaise.

You could start with Iceland’s treatment of bankers and the enormous debt the island nation took on to pull itself out of the financial crisis as the possible ignition switch.

Then in 2016 you have Brexit. The surprising vote from the UK, where the British people approved the leaving of the European Union. Whether it was right or wrong, the exit party played on the fact that the unelected EU regulators had too much control over their daily lives.

The fear that Brussels could dictate policy more than Parliament, played to the voter fears that hordes of immigrants would be coming ashore because of these continental dictates.

Brexit — you could say — greased the skids for President-elect Donald Trump’s win over Hillary Clinton. Trump’s focus on keeping jobs in America and draining the swamp of life-long political hacks directing policy regardless of who occupied the White House, also resonated with voters in the same way as the British felt with Brussels.

History tells us that a turn to nationalism is generally seen as a negative, as countries turn to look inside generally leads to bellicose attitudes by the leadership. However most of the nationalistic warring leaders are far left-wing politicians.

Over the last 75 years with Germany, Russia and China the moves towards a socialistic society have had dramatic effects on their people and for the planet. Generally speaking a right-wing leadership takes on a globalist view, so these moves under the UK with Prime Minister Theresa May and in the US under a Republican Trump is something of an anomaly.

How 2017 will play out with all the developments, which happen this year is still too early to tell, but as the Chinese proverb states: May you live in interesting times, seems to have come to fruition.