Five Things You Need to Know: Dog Day Afternoons, Fedspeak, History Rhymes, Nationalize It, Lady Liberty
What you need to know (and what it means)!
Minyanville's Five Things You Need to Know to stay ahead of the pack on Wall Street:
1. Dog Day Afternoons
This week is a relatively data-light week on the economics front with only Durable Goods orders (Friday morning) and Housing Starts (Tuesday) among the most widely followed releases due out. In what could be a preview of the Dog Days of Summer, what will we be watching? Three things:
- Dollar: Risk aversion is the word of the month... at least so far. See?
Risk Aversion Boosts the Dollar
Monday, 19 June 2006 10:27:09 GMT
Emerging debt-Inflation fears boost risk aversion
Tue Jun 13, 2006 1:53pm ET
Stocks tumble on risk aversion, dollar strong
Jun 13, 2006
Dollar rallies vs euro, yen on rates, risk aversion
Tue Jun 13, 2006 10:07 AM GMT
- Commodities: Energy, metals, all taking a hit to kick off this week with gold and silver each off more than 1.5%,Crude below $70/bbl and Natural Gas lower by 4%.
- Treasuries: Higher rates are the conventional wisdom... but Minyanville Professor Bennet Sedacca noted last week the Bernanke Box: "If he tightens, we get NASTY inversion or ugly selloff in bonds and if he doesn't it will be viewed as economic weakness. Either event, IMHO, leads to recession."
- Interesting cocktail: higher dollar, lower commodities, the Bernanke Box? Why, in an economy fueled by asset speculation over production, that sounds almost like... shhh... deflation.
- As we noted last week, while the Fed is wearing its Inflation Hawk mask, gearing up to fight yesterday's war, the markets are worried about something else.
2. "Oh, and one more thing..."
This morning, FOMC voting member and Atlanta Fed President Jack Guynn will have the opportunity to get in one last word before the traditional "quit period" ahead of the FOMC meeting next week.
- In a little more than a week, on June 29, the Federal Reserve is expected to raise the Fed Funds rate another 25 basis points to 5.25%.
- Meanwhile, Atlanta Fed President (and FOMC) member Jack Guynn is speaking this morning (at 9:30 a.m.), getting one last shot in before the Fed talkers take a break ahead of next week's FOMC meeting.
- You should be able to see the full text of Guynn's remarks via the Atlanta Fed Web site.
- While you're there, check out this interesting little paper on The Origins of Bubbles in Laboratory Asset Markets. "When these tests indicate the presence of probability judgment error and speculation, bubbles are more likely to occur," the paper concludes.
- The presence of probability judgment error and speculation, you say? Interesting. Sounds familiar.
3. History Really Does Rhyme
On this day in 1934, Congress passed the American Silver Purchase Act, which called for the nationalization of silver stocks and for silver to equal one-third of the Treasury's gold stocks.
- Ah, history. That's "interesting," we guess, but so what?
- They say history doesn't repeat, but rhymes. As we stumbled upon the "This Day in History" Silver Purchase Act factoid, a little further investigation indeed revealed a very interesting rhyme.
- This paper takes a look at the profound effects on the Chinese economy as a result of the 1934 ASPA.
- At the time of the ASPA, China was a silver standard economy. As a consequence of the passage of the act, the US Treasury purchased massive amounts of silver at home and abroad, thereby effectively draining China's money stock, causing real exchange rates to rise and significantly reducing China's export competitiveness.
- As China's currency rose, the effects were deflationary, eventually forcing China off the silver standard altogether and to a paper money, fiat currency regime.
- All of these points are debatable, and the arguments in the paper are interesting, well presented and easy to follow.
- Most striking, however, are how closely related the 1934 events are to those of today, in a rhyming sense.
- Today, the United States and China are co-dependent enablers. On the one hand, China needs us to purchase their exports so their economy continues to expand. On the other hand, we depend on the cheap imports from China to counter-balance hyperinflation fueled by financial assets speculation.
- Since we have no savings to speak of, only access to credit, in order for this relationship to work we need the producers whose goods we consume (China) to help us get more credit by buying Treasury debt.
- Perhaps most ironic in light of the ASPA of 1934 (which some academics argue forced, or at least hastened, China's abandonment of the silver standard) is that should the US dollar debasement continue unabated, China may move to the gold standard as a result.
Venezuelan President Hugo Chavez sent congress a proposed law to expand his drive to gain control of the country's natural resources. The move has raised fears of a renewed wave of nationalization of mining and energy resources following Bolivia's energy nationalization in May.
- Venezuelan President Hugo Chavez is proposing that the country take control of "non-productive" gold and diamond fields.
- Under the proposed law, Venezuela would take a majority stake in all joint mining ventures formed to explore non-operating fields.
- Some of the areas will be taken over completely by the government and handed over to small local miners or mining cooperatives.
- The fear among exploration companies is that this is another step toward nationalization, which could cause industry investment to evaporate.
- Recently Chavez forced oil companies to pay higher taxes as a result of coerced partnerships with the government.
5. Lady Liberty
On June 19, 1885, the Statue of Liberty arrived in New York Harbor...
- In 1865, a number of Frenchmen were at a dinner party hosted by Edouard Rene Lefevre de Laboulaye, discussing America's successful independence movement.
- According to reports, Laboulaye asked, "Wouldn't it be wonderful if people in France gave the United States a great monument as a lasting memorial to independence and thereby showed that the French government was also dedicated to the idea of human liberty?"
- Sculptor Frédéric-Auguste Bartholdi agreed and sometime later began work on the monument.
- After he finished it, the statue was disassembled into 350 sections and shipped in 214 crates to New York Harbor.
- The statue's pedestal bears the words of poet Emma Lazarus, written in 1883:
"Give me your tired, your poor, Your huddled masses yearning to breathe free, The wretched refuse of your teeming shore. Send these, the homeless, tempest-tossed to me. I lift my lamp beside the golden door."
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