BRICS growing in stature
A couple of years ago, when we offered a BRIC MarketSafe CD鈥� I would talk to groups of people, and warn them that the BRICs not only hold the reserves of the world, but have a large percentage of the world鈥檚 population, and they would love nothing more than to be looked at as the 鈥渓eaders of the world鈥濃�� OK鈥� There鈥檚 a BRIC Conference going on, so let鈥檚 see what鈥檚 on their minds鈥�
But first, let鈥檚 look at the markets 鈥� specifically those of currencies and metals鈥� Well, that bias to sell dollars that I talked about yesterday didn鈥檛 last too long into the morning, and by noon, the currencies were weaker. Gold and silver remained bid, but not well bid, as they had been in the early morning. In the overnight markets, the currencies have been all over the place鈥� The trading ranges have been blown out, and one minute you see the currencies rally, and the next you see them sell off鈥� It鈥檚 been pretty amazing watching this since I arrived here and climbed into the saddle this morning.
And鈥� We got to see the color of the president鈥檚 plan to cut the deficit鈥� The president unveiled a framework Wednesday to reduce borrowing over the next 12 years by $4 trillion 鈥� a goal that falls short of targets set by his deficit commission and House Republicans 鈥� and called for a new congressional commission to help develop a plan to get there.
In his most ambitious effort to claim the mantle of deficit cutter, Obama proposed sharp new cuts to domestic and military spending, and an overhaul of the tax code that would raise fresh revenue. But he steered clear of fundamental changes to Medicare, Medicaid and Social Security 鈥� the primary drivers of future spending.
So鈥� We get another 鈥渃ommission鈥� to develop the plan.. What happened to the previous commission? Hey, as I shrug my shoulders, at least someone in Washington DC is looking at this ever exploding deficit, and thinking that something should be done about it鈥� And the overhaul of the tax code? Oh brother! Did he really say that 鈥渨e all have a secret desire to pay more taxes鈥�? Can I answer that one? NOT!
In the case of the deficit, personally, I believe it needs to start at the annual budget鈥� When you can tame that monster, then it will flow to the national deficit鈥� But that鈥檚 just me thinking logically鈥ecause鈥� If you don鈥檛 tame the monster at the budget level, you won鈥檛 make the necessary cuts on the national debt level鈥� It鈥檚 that simple鈥� Or at least that鈥檚 how I see it鈥�
OK鈥� Let鈥檚 get to the BRICs, and see what鈥檚 up with these wild and crazy guys!
Well鈥� First of all, the BRIC countries (Brazil, Russia, India and China) have added a new member, and now they are the BRICS with a capital 鈥淪鈥� representing South Africa鈥� And they are pounding their chests with new data that shows that the BRICS鈥� combined economies will eclipse the US economy in 2014, and by 2016, they will be putting 100 miles of desert between their economies and that of the US ($21 trillion versus $18.8 trillion)鈥� Of course those are projected numbers, so there could be some changes鈥�
But nonetheless, these countries are the straws that stir the global growth drink鈥� Their problem, though, is how they act as a group, when they have very different political systems and economies? But for now the BRICS are feeling strong, and making statements like: The BRICS want to put an end to the dominance of the Western economies鈥� And 鈥渢he BRICS oppose use of force in Libya.鈥� This just shows me that they are feeling like they are strong enough now to direct things鈥� I don鈥檛 think that the time is here鈥�
The most important thing about the strength of the BRICS is that they will have a lot of pull in the future, to demand what currency is considered the reserve currency of the world鈥� Think about that for a minute, folks鈥� I don鈥檛 know about you, but it puts shivers down my spine!
OK鈥� Let鈥檚 talk about something else besides BRICS! Let鈥檚 see鈥� Oh! Here we go鈥� You鈥檙e going to like this one, kids鈥� European Central Bank (ECB) Board member Bini Smaghi was talking last night and said that further ECB rate hikes would depend on 鈥渢he economy and inflation.鈥� He went on to note that, in trade-weighted terms, the euro () is roughly in line with its level in 2005 and in real effective terms is still 10% below the level at that time. Personally, I think that we鈥檙e hearing central bank parlance from this ECB member that the euro doesn鈥檛 enter into the decision for rate moves.
That鈥檚 a good thing to know up front, because with the euro above 1.40 (currently 1.44), it鈥檚 above the ECB鈥檚 comfort level for the currency, but that did not enter into the discussion of the recent rate hike鈥� I like knowing that, for when we get to June or July, and the ECB is greasing the tracks of another rate hike, if the euro is stronger than it is now, we don鈥檛 have to worry about that getting in the way!
And, there was an interesting thing that happened overnight in Asia鈥� The Monetary Authority of Singapore (MAS) announced that they would re-center the currency band, and allow faster appreciation of the Singapore dollar (), to help combat inflation. This was in reaction to the news that the Singapore economy grew at an annualized rate of +23.5%, more than double the forecasts for +11.4% growth! WOW! The Sing dollar rallied on the announcements.
For some time now, I鈥檝e stated at this time and place, with the Chinese renminbi () still manipulated every day and traded on a non-deliverable forward, that I prefer the Sing dollar as a proxy for Chinese renminbi appreciation鈥� These Asian countries will all keep their currencies going in the same direction, as they are all in competition for exports鈥� And the MAS does something that most countries don鈥檛 have a clue about, and that is鈥� Using the Sing dollar鈥檚 strength to help offset inflation.
I also saw a blurb go across the screens yesterday regarding Indian investors and silver鈥� According to the FT, Indian investors, long known for their enthusiasm for gold, are switching to silver bullion, as they expect it to generate higher returns鈥� I wonder if they read that in the Pfennig, or the NewsMax story that I appeared in, claiming that silver was the new gold? HA!
This morning, the US data cupboard will print March PPI, which is expected to continue to show increases in wholesale inflation鈥� Yesterday, the data cupboard printed March retail sales, which were less than forecast at 0.4%, less autos they were 0.8%鈥� A major contributor to the sales were gas receipts鈥� Which is not a good thing for our economy, as we鈥檙e spending our disposable income on gas, which lasts about a week in the gas tank, and then is gone, used up鈥� And all the other things that consumers would normally be spending their hard earned cash on, get passed by, because there鈥檚 nothing left for them鈥�
Speaking of gas鈥� Have you heard of the new 鈥済as coupon鈥濃�� You probably already have a few of them in your pocket, and didn鈥檛 realize that they were 鈥済as coupons鈥濃�� Look again, they have President Lincoln on the face鈥� OOPS! Those are $5 bills! HA!
There will be some Fed Heads on the speaking circuit today鈥� They are all hawks, so look for more talk about ending early鈥� It鈥檚 not going to happen, but they can talk about it to make themselves feel good鈥� Sort of like buying a HYBRID SUV鈥� HA!
Then there was this鈥� From The Telegraph, as quoted by in his essay in yesterday鈥檚 鈥�
The Centre for Economics and Business Research (CEBR) said soaring inflation coupled with low pay rises means household peacetime disposable income is at its lowest since 1921.
Rising food, clothing and energy prices mean the average British family will have 拢910 less to spend this year than they did in 2009.
The CEBR calculates that household disposable income will fall by 2pc this year, more than double last year鈥檚 fall of 0.8pc and the biggest drop since the savage 1919 to 1921 post-First World War recession.
It forecasts inflation will average 3.9pc in 2011, its highest since 1992, as January鈥檚 increase in VAT from 17.5pc to 20pc and the rising cost of oil and other commodities continue to drive up prices.
At the same time, salaries will rise just 1.9pc as unemployment remains high and the public sector makes cutbacks.
Geez, Louise鈥� This is not getting any better is it?
To recap鈥� The bias to sell dollars was taken off the table yesterday mid-morning. I think it鈥檚 more of a reaction to the fact that the currencies moved too far, too fast, and needed to retrace some steps鈥� The president announced a plan to reduce the deficit by $4 trillion over 12 years鈥� UGH! The BRIC countries added an 鈥淪鈥� to make BRICS, with the 鈥淪鈥� representing South Africa. The BRICS just concluded a meeting of the countries, and they are feeling their oats a bit, making statements about the West, etc. Indians are opting for silver this year, instead of gold, and the MAS will allow faster appreciation of the Singapore dollar after Singapore鈥檚 economy grew +23%!
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