This is why we pondered the following in our last conversation "Singin' in the Rain":
"If the dollar goes even more in short supply courtesy of Bernanke's "Tap dancing" with his "Singin' in the Rain", could it mean we will have wave number 3 namely a currency crisis on our hands? We wonder..."
Already some countries have had to take drastic measure to preserve their balance of payments, for instance Vietnam's central bank just devalued its currency for the first time since 2011 as reported by Bloomberg on the 28th of June:
"Vietnam’s central bank devalued its currency for the first time since 2011 and cut the interest-rate cap on dollar deposits to help “improve” the balance of payments and boost foreign-exchange reserves.
The State Bank of Vietnam weakened its reference rate by 1 percent to 21,036 dong per dollar, effective today, according to a statement released yesterday. The currency, which can trade up to 1 percent either side of the rate, fell 0.8 percent to 21,195 as of 12:01 p.m. at banks in Hanoi, the most since Aug. 9, 2011, according to data compiled by Bloomberg. The fixing has been kept at 20,828 since Dec. 26, 2011, and the spot rate touched a record 21,036, the lower limit of the band, on most days in June.
The change in the reference rate is the biggest since a record 8.5 percent cut in February 2011 and comes after the government announced yesterday that imports exceeded exports by $1.4 billion in the first half of this year. " - source Bloomberg.
To summarize the deflationary forces at play in the current environment, we have read with interest Russell Napier's CLSA note from the 7th of June entitled "Great reset revisited":
Moving on to the subject of the evolution towards a European Banking Union following the discussions which took place this week in Brussels surrounding the Bank Recovery and Resolution Directive (BRRD), European Finance ministers (ECOFIN) came to an agreement on the 26th of June which will have to go through the European parliament, with the objective of adoption before year end.
No timing has been given for when the resolution authorities will have to use the bail-in tools and earlier indication were for 2018, but countries will have the flexibility to adopt it earlier it seems. National resolution authorities will be in charge of the implementation of the resolution plans which comply with some common rules, in particular bail-in measures imposing losses following order of seniority.
What will be included in the bail-in?
All bank creditors will see haircuts on the principal in line with the following order of seniority:
Shareholders > Hybrids > subordinated debts > Senior debt (including CP > 7days) + unguaranteed deposits of large corporations
What will be excluded in the bail-in?
-Guaranteed deposits of individuals and SMEs (<100 -covered="" bonds="" br="" days=""> -Payables to employees
-Some commercial claims
Debts with payment systems maturing in less than 7 days, and interbank market debts with an initial maturity of less than 7 days before debts <30days days--="">30days>100>
"•Italy EUR404bn (26% of 2013 GDP) up on EUR177bn at the end of 2008
•Spain EUR303bn (29% of 2013 GDP) up on EUR107bn at the end of 2008
Now, recall that over the last few years:
•European authorities and nation states have pushed for banks to 'play a greater role' in 'supporting recovery' - euphemism for forcing or incentivising (or both) banks to buy more Government debt to fund fiscal deficits (gross effect: increase holdings of Government by the banks, making banks even more too-big/important-to-fail);
•European authorities and nation states have pushed for separating the banks-sovereign contagion links, primarily by loading more contingent liabilities in the case of insolvency on investors, lenders and depositors (gross effect: attempting to decrease potential call on sovereigns from the defaulting banks);
•European authorities and nation states have continued to treat Government bonds as zero risk-weighted 'safe' assets, while pushing for banks to hold more capital (the twin effect is the direct incentive for banks to increase, not decrease, their direct links to the states via bond holdings).
The net result: the contagion risk conduit is now bigger than ever, while the customer/investor security in the banking system is now weaker than ever. If someone wanted to purposefully design a system to destroy the European banking, they couldn't have dreamt up a better one than that..." - source "true economics", Dr Constantin Gurdgiev.
While the "Daisy Cutter" is no doubt an impressive military ordnance, it looks like the European politicians have built the ultimate bomb, similar to the "father of all bombs", equivalent to the Russian Aviation Thermobaric Bomb of Increased Power (ATBIP),but we ramble again...
On a final note, stocks and housing may take down US confidence as indicated by Bloomberg in a recent Chart of the Day (25th of June):
bond buying, according to Brian G. Belski, chief investment strategist at BMO Capital Markets.
As the CHART OF THE DAY depicts, consumer sentiment has typically mirrored a ratio of household net worth to disposable income during the past decade. The confidence figures come from surveys by the Conference Board. The Fed compiles data on net worth, and the Commerce Department tracks income.
Swings in stock and house prices largely explain this relationship, Belski wrote in a June 21 report with a similar chart. That’s why it has lasted through the economy’s four-year expansion even though jobs and income have risen more slowly than in past recoveries, the New York-based strategist wrote. “Consumers should not become overly reliant on these ‘paper gains’ for self-assurance,” Belski wrote. “Obstacles are beginning to develop” that may hamper further advances.
Fed policy looms over stocks and housing, the report said, because possible cutbacks in bond purchases have lessened the appeal of equity dividends and made home loans more expensive.
More houses may be put up for sale as the number of homeownerswhose debt exceeds their properties’ value falls, Belski wrote. The U.S. economy has added an average of 105,000 jobs a month in the current expansion. The pace trails an average of 178,000 in similar post-World War II periods, according to data cited in the report. The comparable growth rates for disposable income are 0.9 percent and 3.8 percent, respectively." - source Bloomberg
"There is no IQ in QE but no QE = NO IQ" - Macronomics