FX currency Wars - A major South America FX intervention on the cards (update 1)

Get ready for a week (starting from the 4th October 2010) of massive South American central bank intervention

Colombian Peso: @1797 multi month high (vsUSD)
Brazilian Real: @16802 multi month high (vsUSD)

A devaluation spill over effect from South America will lead to major Asia FX intervention; more specifically Japan.

Could get very out of hand if trading is hedged on EUR bids as opposed to short positions on everything else as European exports markets will now be effected by a strong Euro.

Market is overpricing risk (update 9) - eveything is bid

Therefor an age all warning sign basically to get out everything (or begin fixing put positions). China says it will prop up the EUR (well not really just rhetoric intervention, but....) , buy Greek 'junk' bonds and help to stabilize Europe. A bad joke especially if it's a refinance job via China's HUGE bubble as it buys up parts of Europe. Frightening. Good example of risk on/risk off China market distortions.

China is about to crash (update 2): China 'Tea' Bubble

China with it's planning economy that has embraced 'bail out economics' (Keynesian) in a way that Micheal Keynes could have never imaged possible via massive stimulus programs, has also caused (and is still causing) market distortion/s from the sheer weight of Chinese risk on/risk off demand on markets, market manipulation and fuggey economic statistics.

But as everyone knows, you pump money (in China's case a flood of money) into the economy it's goes into speculation (in a feverish way); China now has a tea bubble:

"The rare tea made from bushes from the tea gardens of the Ming Dynasty emperors has become the latest craze for wealthy Chinese investors with their sights on a quick profit.

Prices for the Dahongpao tea, which is only grown in a small mountainous area of east coast province of Fujian, have increased tenfold since the middle of last year with online tea traders selling a single kilo for more than £1,000, the country's state media has reported.

"I never thought it would get so expensive," a tea producer, Wu Zongyan said. "It's one price one day, another price another day. Between when we pick the leaves and when it's ready to sell, the price has already gone up."

Chinese traditionally prize tea as the symbolic heart of national culture and believe that in varieties and taste differentials rival that of wine. China is prone to extreme speculative bubbles as opportunity-starved investors seek a home for their cash outside the traditional venues of the stock and property markets which are themselves notoriously volatile and speculative.

In the past year auction houses in China and Hong Kong have all reported fetching record prices for everything from Imperial artwork to French claret and, most recently, Communist-era stamps as speculators search for an outlet for their money."

Inches away from an Asian/US trade war (update 6) -China's PMI up 53.1%, South Korea's PMI down 48.8% (contraction)

As the rest of Asia contracts and China expands via a re-pump of cheap products swamping the world + China's housing bubble (the mother of all bubbles)

You can guarantee that Japan and South Korea will devalue the currencies like no tomorrow and the US will' go all out war' with trade tariffs.

FX currency Wars - Brazil

As discussed in Commodity producing countries under pressure (political/economic), most exports nations are now amidst a global FX war, sparked by the Japan's Bank of Japan/Ministry of Finance intervention into the FX markets on September 14th 2010, although somwhat a failure, Japanese FX intervention will continue. Commodity producing countries from South Africa to the export tech orientated countries of South Korea and Taiwan have now all begun a currency devaluation. Brazil made the verbal call that a 'FX War' had broken out, yet when a country embarks on currency devaluation it shifts it's growth (lack of) issues or problems onto other countries, a dangerous form of protectionism as all countries start to devalue currency to stay competitive.

At this point intervention rhetoric by Guido Mantega of the Brazil's Finance minister won't be enough with the REAL now at close to post Lehman 'crash' highs refer to chart now @ 1.6961 (close 30 Sept 2010) from the open of 1.6682 (9th Nov 2009)



If the US dollar weakens and falls through further supports and goes into a devaluation cycle, 'hot flows' of money will pour into other countries namley the export giants like Brazil, that are desperately trying to curb inflation and assets bubbles. A devaluation of money is a 'cheap' way of shifting that flow of hot money from (USD weakness) away from a country with a higher yield, or safe haven . Rather than pass on interest rates to the consumer (to tackle asset bubbles from inflows of money, speculation etc), central banks, like Brazil will simply devalue its currency and pass on the problem to other country. If governments do not want civil strive (but unfortunately an inevitable aspect of our human psyche) in their own countries as exports become more expensive then (a short term solution) a devaluation cycle occurs, i.e foreign exchange war.

Doomsday Trading - Anglo Bank of Ireland bailout costs, Spain downgrade (update 2)

Expect an eventual IMF bailout as Ireland will struggle to raise bailout amount. Civil protests and disruption will ensure

Bloomberg 29 Sept 2010

"Anglo Irish Bank Corp. and Allied Irish Banks Plc may need as much as 14.4 billion euros ($19.6 billion) in extra capital, the country’s central bank said.

Anglo Irish, nationalized last year, may need up to an additional 6.4 billion euros of capital from the government in a so-called base case scenario, the Dublin-based central bank said in an e-mail statement today. That may rise by another 5 billion euros in the event of unexpected losses.

“The market had come to expect the Anglo Irish figures,” said Dermot O’Leary, chief economist at Goodbody Stockbrokers in Dublin. “The surprise here is Allied Irish.”

Ireland has pumped 22.9 billion euros to date into Anglo Irish since it seized the lender in January 2009 as its bad loans soared following the collapse of a decade-long real-estate bubble. The government has injected a total of about 33 billion euros into Irish banks and building societies. Allied Irish may need 3 billion euros in capital, and the government will announce plans to recapitalize the lender, the statement said."

(Above photo Spain protests Sept 2010)

Spain looses it's AAA credit rating down a notch to Aa1. Moody's was lite. Still the people of Spain should be appalled at the reckless spending and speculation that their government embarked on prior to their debt crisis. Spain is a great country, good food, good people.

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Watch any overbided risk assets on HFT's for major sell signals. October market 'crash' omens

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Commodity producing countries under pressure (political/economic - Canada) - GDP going negative (update 8)

Should be a good bell weather sign that a global slow down is priced in for the final 3mths of 2010 going into 2011

WSJ Sept 29 2010

" OTTAWA (Dow Jones)--Canadian Finance Minister Jim Flaherty said Wednesday that July's gross domestic product figure may be "a bit negative." Statistics Canada will release the data at 8:30 a.m. EDT Thursday. The market expects output to have contracted 0.1% in light of soft retail, wholesale and manufacturing sales data. A weak figure may cause the Bank of Canada to hit the pause key on rate hikes after three consecutive increases. "We may see a figure for July tomorrow that's a bit negative, but in July a lot of things happened in Canada, like the introduction of the HST (harmonized sales tax) in two of the largest provinces and a 2% increase in the sales tax in the province of Nova Scotia. So there are reasons for that," Flaherty told reporters after Question Period in Parliament."