“The forthcoming Group of 20 meeting is a make-or-break event. Unless it comes up with practical measures to support the less developed countries, which are even more vulnerable than the developed ones, markets are going to suffer another sinking spell just as they did last month when Tim Geithner, Treasury secretary, failed to produce practical measures to recapitalise the US banking system.
This crisis is different from all the others since the end of the second world war. Previously, the authorities got their act together and prevented the financial system from collapsing. This time, after the failure of Lehman Brothers last September, the system broke down and was put on artificial life support. Among other measures, both Europe and the US in effect guaranteed that no other important financial institution would be allowed to fail.
This necessary step had unintended adverse consequences: many other countries, from eastern Europe to Latin America, Africa and south-east Asia, could not offer similar guarantees. As a result, capital fled from the periphery to the centre. The flight was abetted by national financial authorities at the centre who encouraged banks to repatriate their capital. In the periphery countries, currencies fell, interest rates rose and credit default swap rates soared. When history is written, it will be recorded that – in contrast to the Great Depression – protectionism first prevailed in finance rather than trade.”
George Soros, writing in today’s Financial Times
FX Trading – me•an•der
-verb (used without object)
1. to proceed by or take a winding or indirect course: The stream meandered through the valley.
2. to wander aimlessly; ramble: The talk meandered on.
To meander or not to meander, that is the question!
And to answer said question, we likely must answer another: Have stocks been launched into a sustainable multi-week or -month rally?
For the premise is this: Stocks are the risk thermometer globally i.e. risk appetite (money moving away from the center into “riskier” asset categories) has been bad for the dollar versus risk aversion (money moving to the center) which has been very good for the dollar.
Technically, assuming we can have a modicum of confidence in them in a world that has become so news driven, Mr. Market appears due for a bounce of the multi-week variety:
S&P 500 Index Weekly:
…a bit mirror image-like with the greenback when viewed weekly:
US$ Index Weekly:
Mr. Soros says the G-20 meeting is a “make or break event.” If the G-20 follows Mr. Soros prescription, and pumps money into the developed world (periphery), by default it likely means US dollar-based credit plays the role of asset bubble-blower again.
Thus the devil’s bargain has been sealed: Sacrifice the dollar to the altar of global demand stimulation and maintain a world of massive leverage to boot. Thus, forget about Mr. Market’s attempt to de-leverage; we can’t have that when China and the vested interest of the world’s biggest players are so nakedly exposed to crashing export models. Let’s keep this nasty symbiotic long-term destabilizing relationship alive. Good idea! Yeah….
So, if we meander into the G-20 and our esteemed leaders follow Mr. Soros lead, and there is a good chance they may, it could be time to dump the world’s funding currency (the buck) with both hands and feet and buy all things risky. For it may signal our leaders want be déjà vu all over again–an implicit weak dollar policy to spur global demand and save the export model.
But we still wonder if Mr. Consumer may throw a hard slider (which was the hardest among most pitches for me to hit) into the global seer’s big plans. After all, with about $12 trillion or more wiped off Mr. C’s balance sheet we’re not so sure that volunteering Mr. C to pull a bigger share of the IMF wagon is a way to make him happy.
“Life is like a blanket too short. You pull it up and your toes rebel, you yank it down and shivers meander about your shoulder; but cheerful folks manage to draw their knees up and pass a very comfortable night.”