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| Europe | |
| Asian funds are shorting the euro | |
| 2010-05-20 | |
Multibillion sales of euro investment assets come as Asian investors have begun to lose their nerve over the European economy. In Beijing, policymakers are trying to assess how prolonged weakness of the euro will affect their plans to project the Chinese yuan as an international currency. Prominent economists in Japan, addressing an audience where hundreds of thousands of households play the international foreign exchange markets, are already describing the €1 trillion rescue package as being like a “picture of a rice cake' — attractive, but without nourishment. Several of Asias powerful national or “sovereign' wealth funds said that currency traders in Hong Kong had started to build sizeable “short' positions in the euro — betting that the currency has farther to fall and hedging against the losses that they would make if previous bets on the bonds of Greece, Portugal, Spain, Ireland and Italy turned sour. However, analysts said that a decision by Kokusai Asset Management could be a critical point for the euro. Within the past few weeks the Kokusais famous Global Sovereign Open fund, which is closely followed in the market, has twice reduced the amount of euro assets that it holds in favour of what it calls more “stable' investments such as Canadian dollars and Swedish kronor. In late December, the fund issued a financial vote of no confidence in Greece. Having been the largest non-governmental investor in Greek bonds in 2009, it sold its entire holding in the last few trading days of the year. The fund, which manages more than $60 billion (£41 billion), usually expects to have about a third of its money in euro-denominated bonds. That was recently reduced to just under 30 per cent and was lowered again a week later. The company has not ruled out lowering it farther still, and Tokyo foreign exchange dealers believe that it will do so tomorrow. | |
| Posted by:lotp |
| #3 Pretty simple, really. The US economy is the engine of world growth, and of recovery from recession now. That economic engine is still ca. 70% dependent on the US consumer, ie, on millions of households buying stuff they DON'T NEED with money they DON'T HAVE. Aside from purchases of iPhones, laptops, alcohol, porn, and other forms of cheap stimulation, the US consumption engine is exhausted. There will have to be a reset, to a significantly lower level, as US households move from their recent negative savings rate to a positive savings one. Bottom line, the market's runup since March 2009 was a mirage. Stocks are way overvalued. |
| Posted by: lex 2010-05-20 20:44 |
| #2 Auction of Spanish debt close to failure Spain came close to its first debt auction failure yesterday, highlighting the funding problems for weaker eurozone economies. Spain was supposed to fund part of the Greek bailout, but its ability to do so is in question. The government's difficulties in selling €6.44bn ($7.96bn) in one-year and 18-month bills sparked worries over its 10-year debt auction tomorrow. It planned to issue €8bn yesterday, but only just attracted that amount of bids, with yields at record highs. This prompted debt managers to reduce the size of the sale by €1.56bn. Normally a government bill auction would be covered at least 1.5 times. Steven Major, head of fixed income at HSBC, said: "The Spanish auction was very disappointing and does not bode well for further issuance. It's becoming more apparent just how difficult it is for Spain, which is a big worry so soon after the launch of the international rescue package. |
| Posted by: Anguper Hupomosing9418 2010-05-20 01:04 |
| #1 Karl Denninger sees a broader perspective: The entirety of the rally off the 2009 lows was predicated on the US borrowing and spending $1.5 trillion a year, or 11% of GDP, for the last two years! The extreme volatility you've seen the last couple of weeks is not about Greece. Nor is it about Merkel, or Sarkozy, or any of the clown car brigade in Washington DC. The volatility is the market debating whether governments worldwide can continue to borrow and spend 10% or so of their GDP on an ongoing, continual and perpetual basis. It's that simple folks, because the underlying economic fundamentals and private activity has not come back at all - there has been zero advancement in private activity sufficient to allow any pullback of that support! If this cannot be continued, and the recent events in Greece strongly suggest that it cannot, then market prices are dramatically too high, as they reflect a fully-priced in "V" shaped recovery that is being created and sustained as a consequence of this deficit spending! |
| Posted by: Anguper Hupomosing9418 2010-05-20 00:53 |