Mervyn King’s Funny Valentine
Today was like so many days we've seen recently, with overnight markets on the quiet side. It is worth noting, though, that Moody's downgrade of a handful of European countries' debt literally had no negative impact on those bond markets. In fact, many of them rallied, while equity markets in Europe were plus or minus a small amount.
As for our stock market, though it initially tried to rally (I suppose on the lack of negativity surrounding the Moody's downgrades), it didn't take long before it had slipped modestly into the red. By midday, the indices had lost about 0.5%. I feel like some sort of a decline is imminent, given that psychology seems to be so warped, and the fundamentals really aren't very good at all. But as we have seen so many times over the last 20 years, when money printing manages to generate momentum, the market has an upside life of its own — until it doesn't.
The late-day rally, which we have seen nearly every day in the last couple of months, showed up again today, eradicating what had been a roughly 0.75% loss with 30 minutes to go.
For Whom the Yen Tolls
Away from stocks, the dollar was stronger against virtually all colored paper, and there was an interesting development in the FX market, in that the yen seems to be finally cracking. I don't know what other ramifications that could have, but it seems many people have been waiting for the Japanese bond market to have problems, and I don't see how that can occur while the currency is strong. I'm not sure what it will mean to the world if rates start to rise in Japan, but it would certainly be a new development, so we will just have to see if it matters.
As for our bonds, they were higher, perhaps on the back of the modest amount of red ink in stock land. Oil was flat and the metals were just slightly lower.
The Man Who Would Be King
Just to illustrate how completely out to lunch the money-printing central bankers are, Mervyn King, governor of the Bank of England, made headlines today when he said that he sees reaching his inflation goal in 2012, with "downside risk." In other words, even though inflation is running above his target of 2%, he is pretty sure it will collapse to a lower level, although he will make sure it doesn't get too far below where he wants it.
So that's how delusional these monetary madmen are: even when inflation (which is understated, thanks to bogus methods of calculation) is higher than expected, they tell us it is going to collapse, thereby giving them room to print more money. History is going to look back on this period and say, what were the citizens of these countries thinking as they allowed these lunatics to do what they did?
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