A few days ago it was Joe Biden, today it's Laura Tyson. Laura Tyson is smart. Joe Biden is...well...Joe Biden. Anyway, they seem to be in agreement that they were really not on target with the state of the economy on January 20 and suggested that another stimulus might be in the offing. The Leader chimed in all the way from Russia with the thought, as here predicted, that it possibly the fault of the previous administration for not having and supplying good data. Aside from a debate as to what the present stimulus package has accomplished, the stock market at least took one look at the thought of another gazillion dollars in deficit spending and said, "Nope," and traded down 161 points on the Dow. The big auction of three year notes, however, went off reasonably well with adequate demand and while the yield was pushed up to 1.51%, some observers had expressed concern that there might have been real trouble brewing. What appears to be brewing is a return of the "flight to quality" syndrome given the growing concern as to the current and future state of the economy. The maturity of this auction appeared to be short enough to attract safe money; whether the longer-dated stuff will fare as well remains to be seen. Clearly, our Chinese friends continue to shorten the maturity profile of their portfolio so the coming months will be a test both for real demand and if that is absent, the willingness of the Fed to continue to monetize to any further extent.
And speaking of our Chinese friends, their movement to move away from the dollar as a reserve currency continued apace. It was reported that the monetary authorities have begun to allow trade settlement to occur in Renminbi as between Hong Kong and the mainland and in certain other locations in southeast Asia. Despite statements that the dollar will remain supreme for the foreseeable future and the smoke-screen concerning Special Drawing Rights (the Chinese are anything but stupid) the ascendence of the Chinese currency is proceeding far more rapidly than anyone anticipated...except for a few of us, that is. Look for a more accommodative attitude on the part of the Chinese in the coming months and perhaps a bi-lateral agreement involving commodities denominated in Renminbi. With whom is immaterial.
Finally, it would appear that Michael Jackson is still deceased and will remain in that state. Hopefully, he is at peace.
Tomorrow, thoughts on the G8 conference and whatever else might pop up.
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