Posted by: Tom Keene on September 15, 2010
Japan Is Not Switzerland
The Swiss National Bank is a respected institution that is drowning in success. As Europe transparently flails around, the Swiss take advantage of geography, culture, convenient and earned independence and a collective history of economic responsibility. Their currency has appreciated giving imbalance to all, particularly their terrific manufacturing economy (stronger currency, more trouble to export). So they intervene. (aside: Eichengreen is a good place to start… here and here). They (the SNB) buy up other currencies and sell (flood) the market with Swiss francs.
Much research says its a waste of time, nothing but a delay, unless everybody plays along. They did not. They are not. And barring collective crisis, they will not.
EURCHF CRNCY GP W ROLL: Uncoordinated Franc Strength
Japan is not Switzerland. I won’t dive into the compare & contrast, but for starters, there is China. Germany is not China. Then there are various “lost decades” and sundry domestic issues.
Research (On the Edge of Pentagon)
Stephen Roach, of Yale University and Morgan Stanley (or is it Morgan Stanley and Yale University?) writes that “America has yet to get it—-contemplating yet another quick fix that is unlikely to have traction in this post-bubble era. Roach’s next book could possibly be titled “The Next America.”
Derek Halpenny, Bank of Tokyo-Mitsubishi UFJ, cuts to the heart of the matter. He links Japan Ministry of Finance intervention directly to U.S. Federal Open Market Committee plans/hopes to launch QE2 (here’s the boat, not, the hope-and-prayer).
Summary: if the U.S. buys bonds and notes and drives yields lower, it makes MOF/BOJ efforts to weaken the JPY more difficult because the dollar won’t strengthen. Got that? I think I got a triple-negative in there plus extra bonus points for getting UFJ, JPY, FOMC, MOF and BOJ all in the same paragraph. To clear the FX air, here is the Rosenbergetta Stone. 4 New From $144.95!!!!!
BPFXJPYS INDEX GP M ROLL: BNP/Paribas Trade-Weighted Yen (See FXIP GO on the Bloomberg to Hang With Michael Rosenberg)
Cash in Pocket Does Not Burn Hole
Mohamed El-Erian, Planet PIMCO, prepares for Washington WB/IMF October meetings with this must-read essay. Please read then collide with his book. The back half should be mandatory reading for EVERY politician. Dr. El-Erian, and all of us, could do worse than a commonality of purpose.