More Dollar Shortage

ZeroHedge has this post showing the effects of the Fed pumping about $12 Billion to rescue Europe, and to a lesser extent, Japan.

Keep in mind the Fed drained $10 Billion, but now has added back $12 Billion. How is that supposed to work?

Perhaps this is an end-of-year thing.  We’ll see.  I suspect a few Trillion in overseas profits will be heading back to the USA pretty soon.

Overseas Dollar Shortage

This chart shows the cost to get US dollars in Japan. The chart for Europe is similar.

 

 

We are seeing the impact of lower US Corporate tax rates plus the zero tax for bringing back overseas profits home to the US.  The takeaway is that Japanese and Euro banks will be under a lot of stress.  Zerohedge points out that this could cause problems with selling US Treasuries.  I don’t think so.  In fact I think this will lower long rates.  Strong dollar plus high relative rates equals demand.

NOTE:  IF my analysis is wrong and long rates spike, the solution is simple, and basic economics.  Balance the budget, which reduces the supply of new Treasuries, i.e., act like adults.

Free Market

Do you want an example of a free market success?  The internet.  Barriers to entry are pathetically low, and the regulatory environment is tiny, at best call it min-archist.  So what has been the result?

It’s probably a trillion dollar industry.  Look at the total revolution in media and retail shopping.  When you consider the disadvantage of individual shipping vs. the modern distribution of places like Walmart, it is amazing to see the success of online retail.

Consider the media and the 2016 election.  In the free market of the online world, previously unknown media firms, down to a guy streaming with his I-phone, displaced the legacy media and got Donald Trump elected.  That is the power of the Free Market.

Now imagine if we eliminated fascism and socialism from our economy and this type of innovation and freedom, where the bulk of regulation is handled by one question: Am I exchanging value for value?,  was the norm.  Imagine the economic prosperity of such a place.  Think about the enormous price we pay to allow parasites, looters, and sociopathic power grabbers to exist in their current state.

The internet as we know it is marked for elimination by the power hungry nutcases.  We see it with social media.  They are acting now via fascism to shutdown the alt-media, with some benefit for 2018, though the prize is the 2020 election.  Alt-tech is providing alternatives, so support alt-tech.

Butter

From Zero Hedge:

According to Bloomberg, global butter prices have almost tripled to 7,000 euros ($8,144) a ton from 2,500 euros in 2016, according to Agritel, an Paris-based farming consultancy. In Europe, prices peaked at about 6,500 euros a ton in September, the highest since the European Commission began collecting such data in 2000…The problem can be traced to the end of (EU) milk-production quotas in April 2015 that led to a glut early last year in Europe, and a drastic drop in prices. This prompted production cuts by spring this year.

“The butter shortage in French supermarkets is the direct consequence of the 2016 milk crisis which prompted a 3 percent drop in production,” Xavier Hollandtsni , a Kedge Business School strategy teacher and an expert on agricultural matters, said in a note Thursday……..

“Global demand started to pick up, with China starting to buy again after having stopped for a few months to tap into its stocks, leading to a substantial rise in milk and butter prices,” Begoc said. French retailers have not adapted to the new market reality and have kept a cap on prices, Roquefeuil said. For French dairy companies, it’s easier to export to countries such as Germany,

 

This is known as the calculation problem. The EU and China were “deciding” the appropriate butter supply and price, and now the world markets are screwed up. France is short of butter. With these prices, expect a butter glut in another 6 months.

This is why communism, socialism, fascism, and distributism CAN’T work.

10 yr Action

Interesting action in the 10 yr treasury.  Fed selling may be showing an impact, though they have only sold $10 Billion.  The yield has increased to 2.4%.

Revisiting my theme, the long bond interest rate should head higher as the Fed sells.  This should show up also as a reduction in the excess reserves held on the Fed.  As liquidity is drained, I’d expect the Fed to have to purchase short term instruments to maintain the Fed Funds Rate at their target of 1.25%.

Some expected impacts will be a higher dollar, bearish gold, higher mortgage rates, and a slow down of the economy.

I find it hard to believe this small sale by the Fed is directly responsible, though the market could be front running, i.e. they take the Fed seriously and are selling bonds (raising interest rates) ahead of the Fed.

Chart action shows rates are heading higher.  Yields violated a declining trend line, came back and retested the old trend line, then moved higher.

Dollar Plunge

Looks like Lacey Hunt was on to something.  10Y Treasuries are rallying and the dollar is dropping like a rock.  World wide markets dropped.  There are many catalysts, though I believe the underlying economics are the root cause:

  • Major Hurricane will strike Florida.  Banks and insurance companies will get hit.
  • North Korea is a source of major uncertainty.
  • Fed has stopped raising.  Next move will be to bring back QE.
  • Debt ceiling was raised.  There will be no serious action on the budget until 2019.

The chart pattern for stocks still looks grim.  As always, I recommend selling half and moving to safety for now.  If I’m wrong, the other half will participate in any rallies, and your safe money will earn 1%.