'Beggar thy neighbor' continues: BoE, ECB, Sweden cuts rates

[c1ue]

The day is coming for the dollar will depreciate against all other currencies; one trigger will be as all other currencies complete their trips to the 'Zero Bound'.

China has cut interest rates several times from 7.02% in 2007 to 5.58% just in late November. BOE has now cut interest rates from 5% in the beginning of September 2008 to 2%. EU has also cut interest rates from a high of 5.25% to the present 2.75%. Australia, New Zealand, Switzerland, Sweden, etc etc all slashing.

http://biz.yahoo.com/ap/081204/eu_eu...est_rates.html

BoE cuts interest rates, ECB decision due shortly
Thursday December 4, 7:09 am ET Bank of England cuts official interest rates to 2 pct ahead of European Central Bank decision

LONDON (AP) -- The Bank of England has slashed official interest rates by 1 percentage point, bringing the rate down to 2 percent, as it attempts to ward off a prolonged recession.
Thursday's decision by the central bank comes shortly before the European Central Bank is also expected to announce a cut in rates, widely tipped to be at least three quarters of a percent to 2.5 percent.
The cut in Britain takes rates down to their lowest since 1951 and many economists are predicting they will fall further in coming months, to as low as 1 percent or even zero. Official figures have confirmed that the 15 countries that share the euro are in recession, while in Britain, the government has warned the economy will contract by over 1 percent in 2009.

followed shortly by:

http://biz.yahoo.com/ap/081204/eu_eu...est_rates.html

ECB cuts rates, following BoE, Swedish Riksbank
Thursday December 4, 7:59 am ET ECB trims interest rate to 2.5 pct after Bank of England, Swedish Riksbank cuts to 2 pct

BRUSSELS, Belgium (AP) -- The European Central Bank has cut its benchmark interest rate to 2.5 percent, following similar moves by central banks across the continent.
The rate was previously at 3.25 percent, and some analysts had predicted it could have cut rates even lower in light of the financial meltdown.
The move comes less than an hour after the Bank of England slashed its own interest rates by 1 percentage point. That brings its key rate to 2 percent -- the lowest since 1951 -- as it, like the ECB, works to ward off a prolonged recession.
The Swedish Riksbank has also cut its key interest rate, by a record 1.75 percentage points to 2 percent, its biggest cut since it started using the repo rate as its key rate in June 1994.

[GRG55]

Re: 'Beggarf thy neighbor' continues: BoE, ECB, Sweden cuts rates

The day is coming for the dollar will depreciate against all other currencies; one trigger will be as all other currencies complete their trips to the 'Zero Bound'.

China has cut interest rates several times from 7.02% in 2007 to 5.58% just in late November. BOE has now cut interest rates from 5% in the beginning of September 2008 to 2%. EU has also cut interest rates from a high of 5.25% to the present 2.75%. Australia, New Zealand, Switzerland, Sweden, etc etc all slashing.

http://biz.yahoo.com/ap/081204/eu_eu...est_rates.html



followed shortly by:

http://biz.yahoo.com/ap/081204/eu_eu...est_rates.html

The solution to a problem caused by too much cheap money is...cheap money?

[*T*]

Re: 'Beggarf thy neighbor' continues: BoE, ECB, Sweden cuts rates

The CA surplus countries are still trying to maintain a CA surplus despite the needed adjustment. China is still trying to depreciate the yuan (see Steser). Globally it's the 30's all over again.

In a game of competitive devaluation I am not sure that the mighty $ will hit the bottom first. Perhaps it still has a role to play as a reserve currency.

[c1ue]

Re: 'Beggarf thy neighbor' continues: BoE, ECB, Sweden cuts rates

In a game of competitive devaluation I am not sure that the mighty $ will hit the bottom first. Perhaps it still has a role to play as a reserve currency.

The dollar won't hit bottom first, but it will 'win' the devaluation race.

The point is that in this past several months and for a *few* more months, the rest of the world is cutting its interest rates. This is dollar positive.

Once the rest of the world is done cutting rates - via the expedient of not having any more rates TO cut, the other variables become influential: economy collapsing, massive debt burden (and more every day), trade flows shrinking hence reverse of 'savings glut' holding down inflation, etc etc.

Possibly coincident with this will be the popping of the Treasury bubble.

[GRG55]

Re: 'Beggarf thy neighbor' continues: BoE, ECB, Sweden cuts rates

...Once the rest of the world is done cutting rates - via the expedient of not having any more rates TO cut, the other variables become influential: economy collapsing, massive debt burden (and more every day), trade flows shrinking hence reverse of 'savings glut' holding down inflation, etc etc...

...and therein lies one of the reasons to have been holding Yen these past couple of years...the BoJ's inability to play the "let's depreciate the currency by cutting rates" game.

However, given the Yen's breathtaking run, that more carry-trade leverage has already been unwound than probably remains to be unwound, and pretty soon ZIRP will be a very crowded global strategy instead of a lonely vigil by the Japanese alone, it would seem time to start unwinding long Yen positions.

The age old problem is where to go? My own inclination is to increase Sing $ and Loonie [both cash positions that have not done terribly well for me recently]. Those holding US$ would seem to be in a similar dilemma [since it has been the second best performing major currency in recent months]. What are you doing? :confused:

[Prazak]

Re: 'Beggarf thy neighbor' continues: BoE, ECB, Sweden cuts rates

Buying physical gold held in other jurisdictions, picking up a few beaten down junior miners, and shorting all the other currencies except the Yen. :-)

But the timing is tricky. When the USD does drop it will be sudden and fierce.

[grapejelly]

Re: 'Beggarf thy neighbor' continues: BoE, ECB, Sweden cuts rates

The dollar won't hit bottom first, but it will 'win' the devaluation race.

The point is that in this past several months and for a *few* more months, the rest of the world is cutting its interest rates. This is dollar positive.

Once the rest of the world is done cutting rates - via the expedient of not having any more rates TO cut, the other variables become influential: economy collapsing, massive debt burden (and more every day), trade flows shrinking hence reverse of 'savings glut' holding down inflation, etc etc.

Possibly coincident with this will be the popping of the Treasury bubble.

I completely agree. I expect that mid next year but I am probably way off. But the speed of the descent to zero, isn't it truly breathtaking?

Buying physical gold held in other jurisdictions, picking up a few beaten down junior miners, and shorting all the other currencies except the Yen. :-)

But the timing is tricky. When the USD does drop it will be sudden and fierce.

I'm not sure how much the USD is worse than the Euro or the Yen. I think it is better than the pound and probably better than the Mexican Peso et al.

I see the USD dropping more against precious metals and commodities as a new wave of money takes after tangibles and flees *all* financial assets.

That hasn't happened yet but it will.

[Moe_Gamble]

Re: 'Beggarf thy neighbor' continues: BoE, ECB, Sweden cuts rates

What about competitive quantitative easing?

[goadam1]

Re: 'Beggarf thy neighbor' continues: BoE, ECB, Sweden cuts rates

What would you do? Wouldn't you gamble on inflation over a deflationary spiral? Or would you stick to some tight monetary policy quasi religion. Bad inflation seems the least worst choice.

[c1ue]

Re: 'Beggarf thy neighbor' continues: BoE, ECB, Sweden cuts rates

The age old problem is where to go? My own inclination is to increase Sing $ and Loonie [both cash positions that have not done terribly well for me recently]. Those holding US$ would seem to be in a similar dilemma [since it has been the second best performing major currency in recent months]. What are you doing? :confused:

As I noted before - the original investment was into Russia and the ruble.

I still hold firm to the belief that that nation will be well positioned in the future - and that its present leadership is still making the right moves overall.

Of course, to hedge my risk I also put the original investment in a business which itself is well positioned (I think).

So my currency risk right now is basically the repaid original investment plus the ongoing revenue stream - all in rubles.

There was a lot of talk about the ruble going to 30/$, lately the rumors are 35/dollar, but the problem with this talk is that Russia already has a highly punitive import tax: 36%. Normally a weak currency serves to amplify the effects of exports and drain the losses from imports - but simple enforcement of the existing import tax is more than enough.

The second part is Russia's true focus from a currency perspective is vs. the Euro.

The recent weakening of the euro is - in my opinion - the biggest risk factor for the ruble. While the ruble/dollar is near 28 now, the ruble/euro is again approaching 36.

So, short term I still see high interest rates (Russia now guarantees 1M rubles, the number is likely to go higher), still significant growth opportunities, and no major surprises by management.

The liquidity crisis does continue apace there as well, but the context is still important:

It isn't that Russia's national debt is out of control (it isn't).

It isn't that Russia's banks have more bad debt that Russia has GDP (they don't)

It isn't even that Russia overall economy is dependent on credit (it is not)

It is that the large companies - oil and otherwise - were playing the international borrowing game and got caught. And the government is now squeezing them back to regain influence, if not outright control over what was 'privatized' back in the Yeltsin era.

Ultimately I don't see the economy of Russia collapsing due to this maneuvering, although there will be at least some suffering due to the twin commodities bubble bursting and the bursting of the construction/real estate pyramid.

All in all, though, I'm still sticking to my guns.

[goadam1]

Re: 'Beggarf thy neighbor' continues: BoE, ECB, Sweden cuts rates

I looked Putin in the eye and thought, "here is a guy I could trust with my money."

Hmmm????

[Down Under]

Re: 'Beggarf thy neighbor' continues: BoE, ECB, Sweden cuts rates

I looked Putin in the eye and thought, "here is a guy I could trust with my money."

Fair comment; but, does that mean you trust Paulson, Bernanke & Wall Street more?

[Mn_Mark]

Re: 'Beggarf thy neighbor' continues: BoE, ECB, Sweden cuts rates

Fair comment; but, does that mean you trust Paulson, Bernanke & Wall Street more?

My two cents on this:

I believe that Paulson and Bernanke are genuinely trying to do the best thing for the country that they know how to. I don't think they mind if it helps their Wall Street friends in the process, but I don't think they are dishonest men whose goal is to rob us. I think they honestly think what they are doing is the right thing, just like I believe Obama (who I entirely disagree with on policy issues and worldview) honestly thinks his policies are right.

Putin is doing what he thinks is best for Russia, as he sees it. He has a vision for that country and I'm sure that vision includes him running it with ever more power.

So while Paulson and Bernanke might not be perfect, hell yes I trust them more than I trust Putin. Putin has our interests in mind not at all. I imagine he'd actively like to see us collapse.

It's like people who equate the CIA and KGB as if there was no meaningful difference between the two. Get real.

This kind of moral equivalency where someone always automatically equates our leaders to shysters around the world is really tiresome. I think only someone who's never lived under a really rotten government - a Saddam Hussein-type government - can blithely equate our leadership to rotten foreign leadership. It's a sign of a demoralized and decadent society that so many people are so ready to say that the U.S. and its leaders are no better than totalitarians. It's cheap, useless, counterproductive blather and I'm afraid it's not going to be until it's too late that we're all going to find out how really, really good we had it for all these years.

I should probably have just ignored the cheap shot about our financial system leaders, which wasn't really on topic (just like this isn't) but that kind of talk is rampant and once in a while someone needs to stand up and call it for the b.s. that it is.

[D-Mack]

Re: 'Beggarf thy neighbor' continues: BoE, ECB, Sweden cuts rates

1930s beggar-thy-neighbour fears as China devalues

China has begun to devalue the yuan for the first time in over a decade, raising fears that it will set off a 1930s-style race to the bottom and tip the global economy into an even deeper slump.

The central bank has shifted the central peg of its dollar band twice this week in a calculated move that suggests Beijing aims to offset the precipitous slide in Chinese manufacturing by trying to gain further export share abroad.

The futures markets are pricing in a 6pc devaluation over the next year. "This is clearly a big shift in policy and we are now on alert," said Simon Derrick, currency chief at the Bank of New York Mellon.

The move follows a Politburo speech by President Hu Jintao warning that China is "losing competitive edge in the world market".

China has allowed a crawling 20pc revaluation over the past three years. Any reversal risks setting off conflict with the incoming team of President-Elect Barack Obama in Washington. Mr Obama called China a "currency manipulator" during the campaign, a term that carries penalties under US trade law.

...

[phirang]

Re: 'Beggarf thy neighbor' continues: BoE, ECB, Sweden cuts rates

Clue:

you should hedge any long-russia postions with a short in oil(a bit late for that, perhaps!)

I don't know where you get your data from, but every credible report I've read has said russia needs $60/bbl oil to balance the budget.