There’s something happening here
What it is ain’t exactly clear….
Everybody look what’s going down
– For What It’s Worth – Buffalo Springfield, circa 1967
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The former safe havens – U.S. treasury bonds, gold, and the Japanese yen — have been swan diving of late.
Gold concerns us. We’ve been riding this bull for 8 years and we were even once mocked by the former Vice Chairman of the Federal Reserve Board on CNBC in 2005 for being bullish and linking it to easy monetary policy. The yellow metal now seems to need ever increasing marginal liquidity to keep it moving or even just levitated. We thought LTRO2 would blast it off and it didn’t.
Our biggest concern now is two of world’s largest current account surpluses, of China and Japan, are now shrinking or turning negative, thus diminishing the potential flow of surplus dollars, not only to be recycled into U.S. Treasuries, but also into the gold market. Petro dollars will have to pick up the slack and then some.
We kind of fancy what Jack Crooks of Money and Markets wrote this weekend,
If so, it means Japan and China recycle less of their yen and yuan, respectively, back into the U.S. capital markets. And that means the global economy could finally see some rebalancing between the major deficit country, the U.S., and the major surplus country, China.
It also means the U.S. current account deficit, which seems to worry many people and economists alike, is likely to improve, as Japan and China morph increasingly into capital importers instead of capital exporters.
Has this rebalancing begun?
We don’t know yet. But interestingly, given the needs for Japan to rebuild and China to change its growth model, it could very much be the next major global macro trend for the global economy.
Nevertheless, when seeing market moves this large, this fast, all confirming each other it behooves us to ask, as Yosemite Bear Vasquez did when viewing the now You Tube famous double rainbow,
What does this mean?
Global rebalancing, anyone? The coming moves in various markets, which may well have already begun, could be epic.
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