BIGCAPITAL's Blog

February 23, 2011

Inflation Building, Fed Should Back Off: LaVorgna

Filed under: Uncategorized — bigcapital @ 12:22 am
Tags: , , , , , , , , , , , ,

Inflation Building, Fed Should Back Off: LaVorgna

As government economists and Fed apologists continue to dismiss inflation pressures, the fear that easy money and commodity pressures are about to come home to roost is building.

While Michael Pento at Euro Pacific Capital and a handful of others have been pounding the table about inflation ever since the Federal Reserve began quantitative easing, the sentiment is beginning to spread.

The latest on board is Joe LaVorgna, chief US economist at Deutsche Bank, who warns in a note sent to clients Friday that “inflation pressures are inflating.”

The threat is two-pronged: On one hand this week’s producer and consumer price numbers show pressures are building in the crude, or initial, price pipeline that will spread to intermediate and finished products in the months ahead.

On the other hand is “energy inflation contagion,” in which surging prices in that space “have shown a significant capacity to breed inflation contagion among related categories and have destabilized inflation expectations.”

Taking both threats into consideration, LaVorgna posits that the Fed should reconsider completing the entire $600 billion of Treasury buys it has planned for the second leg of QE.

Unless the brakes are put on, LaVorgna argues that core finished PPI prices will increase at an annualized 4 percent rate, and he concedes that if his calculations are wrong they are on the low side.

Finally, he warns against the pervasive mindset that commodity price increases will not cause so-called “pass-through” costs into the broader economy. The rise in CPI and PPI comes as manufacturing activity and capacity are rising, as opposed to the last bout of commodity-induced inflation when the economy was shrinking.

An excerpt from the LaVorgna note:

“We believe the rise in commodity prices is significant, because it is occurring alongside robust factory activity and a general strengthening in underlying domestic demand—a crucial difference from the 2008 run-up in commodities, when the factory sector was shrinking and demand was slowing. Therefore, monetary policymakers should be cognizant of the pipeline pressure brewing in the PPI.

“The risk is that an overstay of aggressively accommodative monetary policy could lead to even larger gains in retail goods prices down the road—the Catch 22 of Fed folks worried that higher commodities will crimp demand. Rather it is ample demand that is pushing commodities higher. Consequently, as long as monetary policy remains extraordinarily accommodative, thereby further boosting demand, we expect these trends to persist if not become more durable.”

.

Advertisements

December 31, 2010

Estonia Joins Euro Club Currency 2011

Filed under: Uncategorized — bigcapital @ 10:21 am
Tags: , , , , , , , , , , ,

Estonia Joins Euro Club Currency 2011

via Bloomberg.com – Dec 31, 2010

Estonia Joins Euro Club as Currency Expands East Into Former Soviet Union

Estonia tomorrow becomes the first former Soviet republic to join the euro, putting at least a temporary cap on the currency bloc’s expansion as the sovereign debt crisis ripples through Europe.

Wedged between Russia and Latvia on the Baltic Sea, Estonia will at midnight become the 17th country to switch to the currency. Gross domestic product of 14 billion euros ($19 billion) makes it the second smallest euro economy after Malta.

As Europe grapples with the financial crisis, Estonia is likely to be the last addition to the euro club for several years. Lithuania and Latvia, the next in line, are aiming for 2014 and bigger eastern countries have shied away from setting target dates.

“The euro is still generally seen as a positive for the applicant countries as long as the conversion rate is somewhat competitive,” Elisabeth Gruie, an emerging-markets strategist at BNP Paribas SA in London, said in an email. High deficits are keeping Poland out and an “inner desire for independence” is the obstacle in the Czech Republic, she said.

Debt estimated by the European Union at 8 percent of GDP in 2010 will make Estonia the fiscally soundest country in a currency bloc plagued by budget woes that forced Greece and Ireland to fall back on European and International Monetary Fund aid.

Confidence in Euro

“It is a sign of the confidence of Estonia toward the euro, despite the current difficulties, which will be a positive signal to the markets,” Joseph Daul of France, floor leader of center-right parties in the European Parliament, said in an e- mailed statement.

Estonia’s central bank chief, Andres Lipstok, 53, will join the European Central Bank’s policy-setting council, taking part in his first interest-rate vote on Jan. 13 in Frankfurt.

Some 85 million euro coins featuring a map of Estonia and 12 million banknotes go into circulation tomorrow, according to the central bank, starting a two-week phase out of the national currency, the kroon. One euro buys 15.6466 krooni.

The 1.3 million Estonians have little experience of monetary autonomy. In June 1992, less than a year after regaining independence from the Soviet Union, Estonia shifted from the Russian ruble to a national currency that it immediately pegged to the German mark. The exchange rate was locked to the euro when the first 11 countries began using it in 1999.

Source: http://marketpin.blogspot.com/

September 15, 2010

Japan Intervenes To Weaken Yen And Warns Of More

JPY yen

Japan intervenes to weaken yen and warns of more

Japan sold yen in the market on Wednesday for the first time in six years and promised more to come in a bid to stop the currency’s relentless rise from hurting exporters and threatening a fragile economic recovery.

Fresh after victory in a party leadership contest, Japan’s Prime Minister Naoto Kan appeared to be stepping up efforts to wrench the country out of deflation by targeting yen strength, which has weighed on stock prices and corporate profits.

Estimates varied on how much Japan has spent in its first intervention in the foreign exchange market since 2003-2004, when its forked out 35 trillion yen ($409 billion).

Dealers suggested Wednesday’s intervention amounted to about 300-500 billion yen ($3.6-$6 billion), though some reports put it closer to 100 billion yen.

The U.S. dollar was boosted further after an official at Japan’s Ministry of Finance said intervention was not finished. It climbed about 3 percent on the day to more than 85.50 yen, having dropped to a 15-year low of 82.87 yen earlier.

Unlike in previous intervention, the Bank of Japan will not drain the money flowing into the economy as a result of the yen selling, sources familiar with the matter said.

That indicated the central bank plans to use the sold yen as a monetary tool to boost liquidity and support the economy.

Authorities that sell their own currencies to weaken them often issue bills to “sterilize” the funds and keep the excess money from becoming inflationary. In Japan’s case, it wants to promote inflation since the economy has been dogged with deflation for much of the past decade

The central bank may follow up with additional steps, such as buying more government debt, economists said.

“SYMPATHY”

Finance Minister Yoshihiko Noda, who will reportedly keep his post after a cabinet reshuffle, indicated Tokyo acted alone on the yen. He said he was in contact with authorities overseas and analysts expected Japan to be spared international criticism.

“Japan will be seen as a special case,” said Simon Flint, global head of foreign exchange research with Nomura in Singapore. “Obviously, its economy has been in significant trouble for a while, stocks have been depressed for some time, export performance relative to the Asian peer group has been very weak,” he said.

“To some degree there will be some sympathy in the rest of the world for Japan’s predicament.”

U.S. officials at the Federal Reserve and the Treasury declined immediate comment.

Analysts doubted whether Kan’s government was ready for a protracted battle with markets similar to the 15-month yen selling spree earlier this decade since that campaign prove ineffective at halting the yen’s strength for long.

WILL THE YEN STOP RISING?

Kan’s government has been trying to talk down the yen as it strengthened beyond 90 per dollar

“The government probably wanted to stamp out those views. But the question is: Will the yen stop rising from here? It’s not clear.”

USD/JPY’s recovery from around the session lows of 85.00 comes as a Japanese government official confirms the MOF/BOJ has intervened in European markets Wednesday

* Japan PM Kan: Intervened in fx because yen reached level where action was needed.

Japan’s Ministry of Finance said intervention was not finished. Japanese news agency Kyodo cited a ministry official saying Japan had intervened in European markets and will intervene in New York trading hours if need be.

www.Intermoney.org – Market Talk

Wednesday. September 15, 2010

UPDATE: 07:25 ET (11:25 GMT)

Create a free website or blog at WordPress.com.