Fed Toolkit, Meet Angkor Rice

Posted by: Tom Keene on October 17, 2010

Valles Marineris Wide

There is risk, uncertainty and ambiguity. Click on each link for some background, but the present-ground is simple: No one has a clue. The polarity between say, Ethan Harris of Bank of America/Merrill Lynch (BoAML? BOAML? BAML? Save us, can it just be BoA or ML? I’ll even go with MLPF&S) … Where was I? Yes, Ethan Harris and James Grant of Grant’s Interest Rate Observer aren’t just Grand Canyon wide. No, they’re 6.2 miles deep and apart ~2,500 miles. They’re Valles Marineris wide.

James suggests QE2 is printing money. Ethan suggests confidence that a central bank can remove the E in QE2. I hereby look down the road to QR1 (Quantitative Restriction 1).

QE2 Chartapalooza

Nominal Spirits

GDP CUR$ INDEX GP: This chart is everywhere. I first saw it with Olivier Blanchard at AEA. I used it with Ethan Harris and Steven Englander of CitiFX on Friday on Surveillance Midday (shameless plug). Neil Irwin does a wonderful treatment at the Washington Post. Check out the Washington Post/Bloomberg combined business section.

The nation’s economy had a persistent glide path that has been…interrupted. We are back to new highs in inflation-included GDP but that empty feeling is the gap from the glide path (about a trillion USD, the red line). Call it a search for nominal spirit (Todd E. Clark is very good,).

Pesek Moves the GDP Needle

SGD CRNCY GP Q ROLL: Here is Singapore Dollar to new strength against the USD. Beijing did not blink; Singapore did and you can see below the linkage this week of USD-SGD and USD-CNY. Let’s have a moment of silence for Bloomberg columnist William Pesek who moved the needle on Singapore GDP, here.

Singapore Leads; Beijing Follows

USD-SGD CRNCY GIP (yellow); USD-CNY CRNCY GIP (red): Note the plunge of Singapore strength as they widened their managed band.

QE2’s Fourth-Round Effect

.ADJRIRR INDEX GP Q ROLL: There is an action or event. A Newtonian first thing. Then there are knock-on effects. Used interchangeably are second-order or second-round…you get the idea. Here is something to watch.

The developed nations cannot QE in a vacuum. We have seen immediate adjustment (currencies, commodities, equities, etc.). But what about less-mediate adjustment? Here is Chicago Rough Rice adjusted for inflation and set in today’s dollars. It’s essentially real rice, except America (and the assembled in The Eccles Building) doesn’t care about rice. Others do.

We’re out one deviation after the near-4 deviation move of a few years back. Note the gift of cheap rice 2000 - 2006. And, oil hasn’t moved…yet. Is the ultimate outcome of Grantian or Harrisian QE2 a sustained higher rice price for say, Cambodia? Fed Toolkit, meet Angkor Rice.

Discuss.