Tuesday, November 3, 2015


With apologies to Miss Peggy Lee, writing about the Yuan's entry into the SDR world of the IMF is about as exciting as the jump in 10 year yield to 2.21% at the close today signaling a "repricing of the bond market" which reflects a resurgence of belief in the Fed going for 0-25b.p. to 25 b.p. in December based on the rise of the equities markets which is based on nothing at all.  But that's all I got, Peggy, so we go with it.

Fortunately, My Really Smart Friend, Larry, came out with a great piece on the Yuan just the other day, which can be found only if you are a subscriber to his publication.  (I never asked him if I could name it but I will).  As you know he and I differ as to whether the Fund is going to let the Yuan in as a result of its year-end review and while I still  have my doubts, he has added a very persuasive argument that I had mentioned but to which I had given little weight.  Added to every other thing on the world stage that Il Duce and his mob continue to ignore is the Fund; this is not good for the thousands employed by the palace on 19th Street (tax free for many) known lovingly as, "Headquarters 1" by its adoring staff...especially when most people are beginning to realize that its functionality is somewhat in question.  The Fund needs a friend and China needs acceptance; a match made in heaven the implications of which are yet to be fully understood.  MRSF,L, does point out one thing that most of the watchers and commentators have not.  A good part of the implications have a great deal to do with China alone--or at least for the time being.  The move towards SDR status for the Yuan may have little practical effect for the world at large but will indubitably have a great deal of effect domestically, for in order for China to reach the point of acceptance of it currency, certain bridges had to be crossed which were navigated by what one might refer to as the reformist element in the economic leadership of the country.  The political leadership moved grudgingly to comply but make no mistake, the "market driven considerations" have never been welcomed, and if the IMF grants Yuan SDR status we may well have seen the high water mark of the reformists for some time.  Nothing more of value from the standpoint of President Xi can be gained and a consolidation of power on all fronts will resume.  The implications stemming from that reality are yet to be considered.

We might also ponder another effect mentioned in this space not too long ago.  Il Duce loves to speak about "smart power" in regard to foreign affairs...like sanctions.  With the loss of influence within global organizations such as the IMF and the emergence of new "reserve currencies," bye bye "smart power."  The dollar and its friends, the Euro, the Yen and Sterling held sway.  We are about to enter a new era with new realities and, surprisingly...or not..less options.  Leading from behind.  It's kinda like the two dog on a dog team; the view never changes.  Anyway, my two-bit bet is looking a bit more problematic.

As for bonds, I find more amusement in George Soros pulling half a billion that he put in just a year ago out of Janus, his buddy Bill Gross' new amusement since his departure from PIMCO.  Gee, it's harder and harder to make an honest buck these days although as some would tell it, Georgie never cared what kind of buck it was as long as it was made.  If things go on like this Billy is going to be left with managing just his own money, $700 million of which was supposedly the seed money for Janus.  Oh, the humanity!  Having said that, a decision if there is to be one will be more important for it having simply been made than for any economic effect it will have.  Further, if the discount rate is increased it's is going to be interesting to see the rationalization presented vis-s-vis the opposite direction in which the Euros are heading.  Thought there was this cooperation among central banks thingy. It will certainly provide copy which is desperately needed in these times.  I will also be interested on the discussion of with China slowing, the Euros going nowhere and Asia more or less dead how the United States is making it happen all alone.  We can call it the John Donne Rejection; you know, "No man is an island..."  Or maybe you don't know.

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