Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Don't Underestimate the Central Banks

By

Uncanny correlation between currency declines and efforts to raise private-sector bank capital, don't you think?

PrintPRINT
I'm just back from the road and have two thoughts this morning.

First, contrary to every press report that you've read, consumer credit didn't shrink during August. Once again, the media have focused on the "seasonally adjusted" figures instead of the actual figures. For what its worth, those show an increase of $7.3 billion.

But considering the components, I wouldn't get too excited. Government-extended credit -- largely student loans -- increased by a little less than $5 billion as college students headed back to school, while other non-revolving credit -- likely Cash for Clunkers-related auto loans -- rose by about $6 billion. These were offset by reductions in revolving debt -- largely from credit cards.

Second, in the context of the US dollar and the euro vis-a-vis gold, I wouldn't underestimate the role of central banks as the caretakers of their related financial systems. And to me, it's very interesting to note the correlation of currency declines with private-sector bank capital raising efforts.

Or put differently, are weaker currencies the price being paid by the public sector for the re-syndication of risk (i.e. additional capital raises by the major banks) back into the private sector?

But once this effort is complete -- and I'd note the enormous issues in just the past two weeks alone by Nomura (NMR), SocGen, BNP Paribas (BNPQY), and Santander (and by many US regional banks during the month of September) -- I don't know how important equity values may be to the central bankers, particularly as their foreign debt holders have likely already had more than enough.

Not sure?

Check out the chart for gold. From May 1 to June 1, while the US banks were issuing equity left and right in the post Stress Test euphoria, gold rose 10 points from $87 to $97. But once the banks were done, both gold and the equity markets both declined into the July low.

And of late, it all feels eerily familiar.

Register For Minyanville's Holiday Festivus '09 Here
Position in SPY options and JPM
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
PrintPRINT
 
Featured Videos

WHAT'S POPULAR IN THE VILLE