Jack the Pipper

You might remember last year, when commodity prices were rising, Ben Bernanke referred to the pressure of rising prices as being transitory … and refused to recognize it as plain and simple inflation.

I got a bit of a chuckle out of IMF Chief Christine Lagarde. She recently praised China for its “rebalancing efforts.” What a pain it must be to have to lie publicly on a regular basis in an effort to keep the key players agreeable so you can attempt to conduct coordinated global policy.

We don’t specialize in the stock market, but we spend a lot of time trying to understand why the stock market, as a whole, might rise or fall. It helps us understand capital flows across and between global financial markets.

Watching the rise in US long-bond yields got me to wondering: What if the fall in the Japanese and Chinese current account surpluses continues, i.e. this trend is for real?

We talk a lot about why the shift to sufficient levels of consumption will be tough for China to achieve with any efficiency. Basically, the consumer faces pressures from inflation and redirected capital flows, from the central government to local government investment projects, which prop up the current system, despite the need for a shift.

So we have witnessed a roughly streak of risk appetite across the markets. A whopping 10 out of the last 13 weeks the S&P 500 has closed higher than the prior week’s close.

It has been quite the move in the last two weeks. Especially after crude oil lulled everyone to sleep for about three months, even though the tension in the Middle East (particularly Iran) grew slowly and steadily.

In the last installment of as the world turns towards chaos, aka Currency Currents, I discussed the massive debt problems we face and described why this may lead to below-capacity growth in the global economy for years to come.

Soros has an ability to put a finger on global capital flow and its catalysts like few others. The Alchemy of Finance is one of Soros’ books that predated the 2008 credit crunch and its fallout, but explains some of the key reasons why capital moved the way it did during that time.

I think by most conventional measures, used by most professional investors, European Central Bank Chief Mario Draghi has been a success. He has bolstered the returns for equity funds considerably since his decision to utilize a three-year term, instead of one year, in the ECB recent liquidity injection to European banks.