One of the long-term recurring themes both here and in other more objective media, has been the encroaching domination of the central planning regime, or monetary authorities, read central banks, in the domain of capital markets and overall broad sovereignty, to the point where there is neither technical nor fundamental analysis left, but merely the question of where is the next batch of excess liquidity going to come from. Welcome to the death throes of the fiat system. Artemis Capital has released an extended must read presentation that summarizes just how global changes in trade, currency exchange, global monetary excess liquidity in recent decades, and especially in the coming future, will increasingly determine and define risk, and more troubling, the centuries old anarchism of state sovereignty. Anarchism, because as Europe has demonstrated so very well, in the current world the only real actors are the central banks. And with each passing day they become ever more powerful players in the global capital markets arena, as confirmed by correlations that rise every higher, approaching 1.000 across all asset classes. Anyone wondering why the only fulcrum variable for the future of risk will be FX exchange rates, and why any and all wars in the future will be primarily in binary “currency” format, we urge a careful reading of the attached slideshow by Artemis Capital titled “Fall of the House Of Money: Changes in Global Trade and Currency Exchange.”
None of this will come as a surprise to regular readers, but some of the concepts bear repeating.
Artemis’ Chris Cole starts with the premise of “World War €urrency”
Countries are artificially devaluing their currencies to generate competitive trade advantages or to finance deficits
United States
Ultra-loose monetary policy (ZIRP & Quantitative Easing)
Massive government deficits and high debt levels
Unsustainable fiscal spending and entitlements
Japan
ZIRP and debt-GDP-ratios above 200%+
Japanese government intervened in foreign exchange markets for the 4th time in over a year (selling yen and buying dollars & euros)
China
Yuan is pegged to the dollar and estimated to be as much as 40% undervalued against the US dollar
China keeps buying dollars and “printing” Yuan to maintain this peg
Switzerland
Swiss Franc was a popular safe haven appreciating +28% against the Euro and +50% against the dollar since 2003
SNB devalued Franc in September pegging it at 1.20x to the Euro
Brazil
Central bank cuts interest rates twice in the last quarter despite highest inflation in six years
At its core, the primary source of tension, volatility and margina price influence is the relationship between the developed (debtor) and emerging (Creditor) nation.
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