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Australia could also learn from the Chilean experience of resources boom-bust cycles and adopt similar policies to those being considered by Mongolia. Gregory Smith explains:
Eric Parrado, former head of the Chilean ‘Economic and Social Stabilization Fund’, tells us that “if natural resource booms are well managed they can be a blessing” and that “an important general lesson is that governments should avoid temptation to spend significant temporary surpluses”.
Yves Smith reports on attempts to undermine the Volcker Rule and why the rule is so important:
In the US, depositors have actually been put in a worse position than Cyprus deposit-holders, at least if they are at the big banks that play in the derivatives casino. The regulators have turned a blind eye as banks use their depositaries to fund derivatives exposures. And as bad as that is, the depositors, unlike their Cypriot confreres, aren’t even senior creditors. Remember Lehman? When the investment bank failed, unsecured creditors (and remember, depositors are unsecured creditors) got eight cents on the dollar. One big reason was that derivatives counterparties require collateral for any exposures, meaning they are secured creditors. The 2005 bankruptcy reforms made derivatives counterparties senior to unsecured lenders.
Read more at When You Weren’t Looking, Democrat Bank Stooges Launch Bills to Permit Bailouts, Deregulate Derivatives « naked capitalism.
Translation from an interview by Marcel de Boer & Martin Visser with Willem Buiter, chief economist at Citgroup:
Is Europe creating zombie banks?
These already exist. Most of the banks are zombie banks. There is little new lending to businesses and households. Zombie banks will not offer credit even on good projects — that is already evident on a large scale.
Full article (in Dutch) at ‘De meeste banken zijn zombiebanken’ | Het Financieele Dagblad.
The euro is headed for a test of primary support at $1.26 on the monthly chart. Respect would confirm the primary up-trend, while failure would signal a down-swing to $1.20.
* Target calculation: 1.35 + ( 1.35 – 1.20 ) = 1.50
Pound sterling is testing the new medium-term resistance level at $1.53 against the dollar. Respect would confirm the primary down-trend, with a target of $1.43*. Declining 63-day Twiggs Momentum, below its 2011 lows, strengthens the signal.
* Target calculation: 1.53 – ( 1.63 – 1.53 ) = 1.43
The Aussie Dollar retraced this week to test short-term support at $1.04, but the up-trend is intact and we should expect a test of resistance at $1.06. Failure of support at $1.03 is unlikely, but would warn that primary support at $1.015 is again under threat. Narrow fluctuation of 63-day Twiggs Momentum around zero suggests a ranging market.
Canada’s Loonie rallied off medium-term support at $0.97 against the greenback. Expect some resistance at $0.99, but the CAD is just as likely to test the descending trendline at parity. The primary trend remains down and a test of primary support at $0.96 remains on the cards in the next quarter.
The US dollar is encountering increased resistance as it approaches ¥100 against the Japanese Yen. The 30-year down-trend is over. The advance is extended and a correction likely, but breakout above ¥100 would test the 2007 high above ¥120*.
* Target calculation: 100 – ( 100 – 80 ) = 120
The S&P 500 managed to close at a new high, with most fund managers reporting good results for the quarter, but does this signal a new bull market or a last-gasp effort to lock in performance bonuses before the market subsides into a correction?
While markets may be rising, there is strong risk aversion.
“@bespokeinvest: Utilities P/E now up to 16.75, higher than the P/Es of Tech, Financials, Industrials, Health Care, Energy and Materials.”
— Downtown Josh Brown (@ReformedBroker) March 28, 2013
This is definitely not a classic bull market.
One also needs to be wary of September and March quarter-ends. They often represent significant turning points, with new highs (red arrows) and new lows (green arrows) frequently proving unsustainable.
* Target calculation: 1530 + ( 1530 – 1485 ) = 1575
While there is no sign of divergence on 13-week Twiggs Money Flow, which would indicate unusual selling pressure, it is important to remain vigilant over the next quarter rather than blindly follow the herd. Bearish (TMF) divergence or reversal of the S&P 500 below 1500 would warn of a correction.
Ian Johnson highlights how China’s strategic blunders have painted it into a corner:
Just as [Pre WW I] Wilhelminian Germany should surely have seen that building a blue-water navy would cause Britain to form alliances against it, so too should China understand that demanding control over islands far from its shores but close to its neighbors’ would cause a backlash. (Here one thinks not so much of the Senkaku/Diaoyus but of the shoals, reefs, and islets in the South China Sea.) Even the battle for the Senkaku/Diaoyus seems to have no satisfactory endgame for China except a permanent state of tension with its most important neighbor.
……..today the country’s tactics have left it surrounded by suspicious and increasingly hostile countries; indeed, it’s probably no exaggeration to say that China has no real allies.
Read more at Will the Chinese Be Supreme? by Ian Johnson | The New York Review of Books.
Geoff Dyer points out why China’s Remnibi cannot compete on the international stage with the dollar, even if China’s economy grows larger than the US:
For the renminbi to assume a central role, China would also have to make massive reforms to its own economy. The key to Chinese state capitalism is control over a relatively closed financial system, which allows the Communist Party to funnel huge volumes of cheap credit to select projects, industries, and companies. But to have a truly international currency, one that the world’s central banks want to hold, China would have to let investors from around the world buy and sell large volumes of Chinese financial assets. As a result, Beijing would have to dismantle that system of controls. It would need to permit capital to flow freely in and out of the country, let the market set interest rates and allow the currency to float. An independent legal system and transparent economic policy-making would also be useful. China has a choice. It can have an international currency that might challenge the U.S. dollar or it can keep its brand of state capitalism that has driven the economy and kept the Communist Party in power. But it cannot have both.
Read more at China’s Glass Ceiling – By Geoff Dyer | Foreign Policy.
Felix Salmon makes this succinct observation:
If a gaffe is what happens when a politician accidentally tells the truth, what’s the word for when a politician deliberately tells the truth? Dutch finance minister Jeroen Dijsselbloem, the current head of the Eurogroup, held a formal, on-the-record joint interview with Reuters and the FT today, saying that the messy and chaotic Cyprus solution is a model for future bailouts.
Those comments are now being walked back, because it’s generally not a good idea for high-ranking policymakers to say the kind of things which could precipitate bank runs across much of the Eurozone. But that doesn’t mean Dijsselbloem’s initial comments weren’t true; indeed, it’s notable that no one’s denying them outright…..
Read more at The Dijsselbloem Principle | Felix Salmon.
Houses & Holes at Macrobusiness reports on macroprudential steps being considered by the RBNZ. Macroprudential regulation are measures aimed to mitigate the risk of the financial system as a whole, or systemic risk, as opposed to the risk to individual participants.
The [Reserve Bank of New Zealand] says it wants to increase the amount of capital the country’s big four banks must set aside to cover potential losses from high loan to valuation ratio (LVR) home loans. Such a move would, in theory at least, make such lending more expensive for the banks.
Read more at RBNZ steps closer to macroprudential | | MacroBusiness.
The ASX 200 rallied above 5000 at Monday’s opening but gradually retreated to close at 4990. While failure to hold above the short-term support level is disappointing, an early break above 5000 on Tuesday would suggest a rally to 5150.
The weekly chart shows the importance of medium-term support at 4950. Failure would signal a correction to test the rising trendline around 4700. Slight bearish divergence on 13-week Twiggs Money Flow warns of mild medium-term selling pressure. The index remains in a strong primary up-trend and only a breach of the rising trendline would threaten this.
* Target calculation: 5000 + ( 5000 – 4500 ) = 5500