InvestMacro Forex News

By MoneyMorning.com.au

In the context of the global currency war, Australia’s central bank doesn’t pack a lot of firepower. In fact, the Reserve Bank of Australia’s balance sheet is downright puny compared to the trillions sloshing around global capital markets.

It’s the big boys who determine the currency cross rates.

But our take this week is that the RBA’s decision to allocate 5% of its $38 billion foreign currency reserves to Chinese sovereign bonds (CNY) is still a telling move. It could prove the continuation of a major trend away from the USD and toward the long term rise of the Chinese yuan…

The Currency to Watch Over the Next Decade

In case you missed it, here’s a snippet of the story from CNN on Wednesday:

‘This decision to invest in China is an important one. It reflects the broader economic relationship between China and Australia and our increasing financial ties’, Philip Lowe, deputy governor of the Reserve Bank of Australia, said in a speech on Wednesday in Shanghai. “It provides greater diversification of our investments and will help with our understanding of the Chinese financial markets.

‘Earlier this month, Australia became only the third country to establish a direct currency trading link with China, after the US and Japan. The RBA and the People’s Bank of China also set up a currency swap facility in March 2012. The RBA had around A$38.2bn ($39bn) in foreign reserves at the end of March.’

The only other country in Asia that Australia directly invests in the government bond market is Japan. So watching the Chinese yuan is going to be fascinating over the next decade.

If China liberalises its currency, it will cause a profound shift in financial markets. It could even push the focus of global currency trading from London and New York further east to Shanghai and Hong Kong.

The first key date to watch is in 2015 when the IMF looks to rebalance the currency weightings that underpin its Special Drawing Rights (SDR’S). Of course, it won’t just be the yuan to keep your eye on. You could also get a shift in the balance of power in the IMF from the G-8 to the BRICS. That could mean the Brazilian real, Russian ruble and Indian rupee gaining more importance in world currency markets.

So Australia has been invited to join the party. And where Australia goes, eventually others will surely follow. You’d think over time more and more central banks will look/be invited to add CNY assets to their reserves as the Middle Kingdom opens up. This could go along with gold nicely to spread their bets away from the current top two central bank reserve holdings, the euro and the US dollar.

In the meantime, though, the yuan is hard to get at because of China’s closed capital account. That means China proxies like the Australian dollar attract flows of money.

That goes some way to explaining the divergence between the CRB commodities index and the Aussie dollar since the beginning of last year. This is something Slipstream Trader Murray Dawes pointed out on Thursday.

Murray made the case that, in the short term, he sees more risk to the downside for the Aussie than upside potential against the USD. He says the Aussie is in an intermediate downtrend.

Time will tell. At the very least, you should start thinking about insuring your wealth against the possibility that the Australian dollar falls…

Consider Global Blue Chip Stocks

The Australian stock market isn’t very diversified compared to other major stock markets. For example, the big four banks make up (at the time of writing), 29% of the ASX/200. That’s an enormous percentage. It means buying the index gives you a very large exposure to one industry. That’s not great. The whole point of buying an index is to diversify your holdings over different industries with different business cycles.

So one idea is to take a look at global blue chips. This gives you a chance to buy large companies that operate in different countries. This should make them less susceptible to one economy or industry running into trouble. Big companies will have the cash flow to withstand the current volatility in the financial system.

Australia doesn’t have a lot of companies with global reach. But don’t let that put you off. Consider that, amongst other things, foreign shares can give you exposure to industries where Australian businesses don’t have a major presence.

Technology is a great example. Most of the innovation here still comes out of the USA. This is something our new technology analyst Sam Volkering will be covering for you in much more detail soon.

In the long term, as long as the RBA continues to sit on the sidelines in the currency war, we think the case for a relatively strong Australian dollar holds. But it can’t hurt to consider using it to get exposure to overseas markets while it stays that way.

Callum Newman
Editor, Money Weekend

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By www.CentralBankNews.info     The Central Bank of Trinidad and Tobago held its benchmark repo rate steady at 2.75 percent, saying the current accommodative policy stance was appropriate as the recovery of the economy is likely to be subdued with inflationary pressures contained.
    The central bank, which cut rates by 25 basis points in 2012, said headline inflation rose to an annual rate of 6.9 percent in March from 5.9 percent in February but on a monthly basis the headline inflation rate for the two consecutive months slowed to 0.2 percent from 0.3 percent in February.
    Core inflation, which excludes food, inched up to 2.2 percent in March from February’s 2.1 percent while growth in private sector credit remained relatively slow in February, with credit to the private sector up by 2.1 percent from 1.9 percent in the previous month.
    “While economic activity is expected to pick up gradually over the course of 2013, the recovery is likely to be subdued,” the bank said, adding that “continued stability in core inflation suggests that underlying inflationary pressures remain well contained.”
 
    www.CentralBankNews.info

By www.CentralBankNews.info     Colombia’s central bank held its benchmark interest rate steady at 3.25 percent, as expected, saying the economy continues to grow below its potential and inflation is below 3.0 percent but it is “particularly difficult to interpret current trends in economic activity and its projection.”
    But recent rate cuts and proposed fiscal policy measures should help raise economic growth toward the country’s productive capacity and this will help inflation move closer to the central bank’s target.
    “In this context, the balance of risk assessment indicates the need to maintain the policy interest rate at 3.25%, while waiting for more information,” the central bank said.
    The Central Bank of Colombia central bank has cut rates seven times by a total of 200 basis points since July last year, most recently by 50 basis points in March.
    Economic activity in the first quarter of this year has slowed from 2012, the central bank said, with household consumption growing at a slower rate along with a deterioration in industry.
    But the recent behaviour of some components of aggregate spending and fewer working days in the first quarter compared with last year has made it difficult to interpret current trends, the bank said.
    “However, economic growth is expected to increase throughout the year in reaction prior monetary policy actions and programs recently announced by the national government,” the bank said.

    The central bank’s staff forecasts that Colombia’s Gross Domestic Product should expand by 3-5 percent this year, with 4.3 percent the most likely figure, up from 2012’s 4.0 percent last year. In 2011 Colombia’s economy grew by 6.6 percent.
    Colombia’s government has proposed a wide-ranging 5 trillion peso stimulus plan to revive industry and agriculture,  boost housing, reduce energy costs and measures to cut company costs.
     Colombia’s inflation rate accelerated slightly to 1.91 percent in March from a 60-year low of 1.83 percent in February, but still well below the central bank’s target range of 2-4 percent.

    www.CentralBankNews.info

By www.CentralBankNews.info     The Reserve Bank of Fiji maintained its accommodative monetary policy stance and held its Overnight Policy Rate (OPR) steady at 0.5 percent, saying domestic demand and the labour market was continuing to improve and there are signs of rising investment activity.
    But the Reserve Bank, which last cut its rate by 100 basis points in November 2011 to support economic growth, said the performance of various sectors was still mixed with a notable decline in gold production due to lower quality ore being extracted and greater focus on capital work.
    The number of visitor arrivals to Fiji also fell by 7.9 percent in January from the same month last year, led by lower visitors from Australia, New Zealand, China and Europe.
     Consumer spending was trending upwards and growth in new consumption lending more than doubled to $132.5 million in the first three months of this year compared with first quarter 2012.
    Consumer prices rose by an annual 3.3 percent in March due to higher food prices, while foreign reserves were around $1,458.8 million as of April 26, sufficient to cover 4.2 months of imports of goods and non-factor services, the central bank said in its Economic Review.

    www.CentralBankNews.info
   

By Aaron Gentzler

We are on the cusp of a profound change in our system of money…
the biggest change since President Nixon severed the link between the
dollar and gold.

I call it the “end of money.” Because it will profoundly change our attitudes toward how we save and store capital.

The fiat money system Nixon ushered in has been around for four
decades. Now central banks are taking it to its logical conclusion.
They are “trashing cash” by flooding the system with new dollars,
pounds, euro, yen and renminbi.

This debasing of currencies is supposed to trigger a “recovery.” But
all it’s triggering is the junking of paper money and frothy stock
markets. Central banks don’t see this. And they continue to promise to
print money until they see higher inflation rates.

They should be careful what they wish for. They risk not only
trigger inflation, but also a widespread flight out of paper money and
into “unconventional money” alternatives.

Why should you care? Because how you choose to store capital is of
vital importance. As fund manger Edelweiss Holdings puts it:

Saving involves sacrifice. Sacrifice requires fortitude.
Fortitude should be rewarded over time by an accumulation of capital…
There is unlikely to be a second chance to re-accumulate a lifetime’s
savings. When it’s gone, it’s gone. That capital is precious to the
saver.

This is an important point… and one that most wealth builders fail to take account of. How you save is as important as what
you save. Lose your capital due to the collapse of a currency… or
other form of “money”… and your savings will go with it.

As the fiat money system unravels… and as the “end of money”
approaches… gold and silver will offer protection. In stark contrast
to the avalanche of new paper money issuance, these metals are in
finite supply. This means central banks can’t inflate their value away
by creating more of them.

I recommend you start with silver coins. Buying what’s called “junk silver” is an easy, quick, direct way to begin.

Don’t let the name fool you. “Junk silver” simply describes a circulated coin that may show some wear.

Junk silver gives you exposure to silver price increases. It’s also a
strong contrarian buy right now because gold and silver prices are
deeply unloved… and have taken a beating in recent months.

Junk silver gives you a tangible, portable store of wealth AND the benefit of long-term silver price appreciation.

You want to focus on coins of 90% silver content. The famous John F.
Kennedy-faced half-dollar that was minted between 1965 and 1970, for
example, contains 40% silver by weight. That’s not bad. And it is a
large coin. But for maximum portability, you can do better.

George Washington-faced quarters from 1934-1964 are 90% silver by
weight. Somewhat tougher to find are Franklin Roosevelt-faced dimes
minted between 1946 and 1964. These are also 90% silver by weight.

To get started, you can find rolls or even bags of junk silver on
websites such as eBay or Etsy. Or you can set up an account with metals
dealers providentmetals.com or apmex.com.

It’s important to shop around and compare who has the lowest markups and cheapest shipping. Use a site such as kitco.com
to compare the silver content (by weight) of the coins you’re buying
to the current spot price for silver so you know what markup you’re
paying.

And don’t forget about local dealers. A simple Google search will
put you in contact with reputable and established dealers near you.

In fact, starting small and local is a great way to begin a collection of physical gold and silver.

Junk silver is just the first step to protecting yourself from the
“end of money.” In future updates, I’ll be recommending some other
unconventional ways to store wealth and protect your capital.

Best regards,

Aaron.

By The Sizemore Letter

Listen to Charles discuss the GDP numbers and what they mean for the Fed’s quantitative easing with Peggy Tuck and Dave Dyer on Straight Talk Money radio.  Dave offers some unorthodox–and possible illegal!–ways for the Fed to put the brakes on QE Infinity without roiling the markets.

SUBSCRIBE to Sizemore Insights via e-mail today.

By Bill Bonner

Gold seems to be coming back fast. It rose $38 per ounce yesterday.

Of course, the Fed’s monetary meddling doesn’t work. And it will most likely cause a financial disaster.

But the biggest scandal of today’s central bank policy is that it is essentially the grandest larceny of all time.

The normal ways in which wealth is distributed may not be perfect,
but they are the best nature can do. People earn it. They save it. They
steal it. Or they get richer by investing.

Or they just get lucky…

Normally, in other words, wealth ends up being distributed in an unplanned and uncontrolled way. People do their best. The chips fall where they may.

But along come the central banks. They’re creating a new type of
wealth. It is not wage income. It is not the product of capital
investments. It is not the result of technology or productivity
increases or hard work or self-discipline… or any of the other things
that lead to wealth and prosperity.

Instead, it is created by the central bank “out of thin air.”

Not Your Grandfather’s Wealth

This new wealth is not like the regular kind. These chips don’t fall where they may; they get pushed around first.

The Fed creates new money (not more wealth… just new money). This
new money goes into the banking system, pretending to have the same
value as the money that people worked for. And people with good
connections to the banks take advantage of the cheap credit this new
money creates to aid financial speculation.

That’s what we’ve been watching in the financial markets for the last four years.

From Chris Martenson at PeakProsperity.com:

The central plank of Bernanke’s magic
recovery plan has been to get everybody back borrowing, spending and
“investing” in stocks, bonds and other financial assets. But not equally
so, as he has been instrumental in distorting the landscape toward
risky assets and away from safe harbors.

That’s why a two-year loan to the US
government will net you only 0.22%, a rate that is far below even the
official rate of inflation. In other words, loan the US government $10
million and you will receive just $22,000 per year for your efforts and
lose wealth in the process because inflation reduced the value of your
$10 million by $130,000 per year. After the two years are up, you are up
$44,000 but out $260,000, for a net loss of $216,000.

That wealth, or purchasing power, did
not just vanish: It was taken by the process of inflation and
transferred to someone else. But to whom did it go?

Where do the chips come to rest?

While the Fed punishes honest savers, stocks and bonds rise every
time a hint of more money printing is announced. And the yacht sales
continue to rise, too, as long as the Fed promises more.

A Recovery for the Rich

The result? From Pew Research:

During the first two years of the
nation’s economic recovery, the mean net worth of households in the
upper 7% of the wealth distribution rose by an estimated 28%, while the
mean net worth of households in the lower 93% dropped by 4%, according
to a Pew Research Center analysis of newly released Census Bureau data.

From 2009-2011, the mean wealth of the 8
million households in the more affluent group rose to an estimated
$3,173,895 from an estimated $2,476,244, while the mean wealth of the
111 million households in the less affluent group fell to an estimated
$133,817 from an estimated $139,896.

These wide variances were driven by the
fact that the stock and bond market rallied during the 2009-2011 period
while the housing market remained flat.

Affluent households typically have
their assets concentrated in stocks and other financial holdings, while
less affluent households typically have their wealth more heavily
concentrated in the value of their home.

From the end of the recession in 2009
through 2011 (the last year for which Census Bureau wealth data are
available), the 8 million households in the US with a net worth above
$836,033 saw their aggregate wealth rise by an estimated $5.6 trillion,
while the 111 million households with a net worth at or below that level
saw their aggregate wealth decline by an estimated $0.6 trillion.

There may be a “recovery” going on. But it is a recovery for the rich, not for the middle class.

Regards,

Bill

To learn more about Bill visit his Google+ page or Bill Bonner’s Diary

By www.CentralBankNews.info Here’s today’s Central Bank News link list, click through if you missed the previous link list. The list comprises news about central banks that is not covered by Central Bank News. The list is updated during the day with the latest developments so readers don’t miss any important news.

By The Sizemore Letter

The language of Wall Street is infused with pithy maxims.  “Don’t frown; average down.”  “The trend is your friend.”  And perhaps most relevant to us at this time of year, “Sell in May; go away.”

The last one is perhaps the most dangerous because, at least for the past several years, it has held true.  Since 2010, we’ve had strong first quarters followed volatile, choppy springs and summers.

VIDEO: See Charles discuss “Sell in May” with InvestorPlace’s Jeff Reeves. 

But it is important to not be fooled by randomness here or, more accurately, be swayed by the recency bias.  I’ll never forget a simple study that money manager Ken Fisher published years ago in The Only Three Questions That Count.  Using data back to 1926, Fisher calculated the average return of the S&P 500 by month.

What did he find?  Well, as it would turn out, May happened to be one of the least profitable months, with an average return of 0.30%, though February, at 0.26%, was lower.  The only negative month was September.  Interestingly enough, October—which was the month of the 1987 Crash and the 1929 Crash—had an average return of 0.62%.

Yet the summer months of June, July and August were three of the most profitable months of the year, with returns of 1.37%, 1.87%, and 1.25%, respectively. July was actually the most profitable of all months; even December and January, the two months believed by many investors to be the best, were lower at 1.78% and 1.69%, respectively.

My point by now should be clear: “Sell in May, go away” is a losing strategy if you are basing it on seasonality alone.  In any given year, there could be legitimate reasons for selling in any particular month, but selling because it is a particular month is sloppy analysis that will lead to sub-par results.

So, what about this year?  After the great start we had, I’m not expecting much from the next quarter.  And in fact, given that the market has traded sideways since mid-March, you could argue that we are currently in a mild correction.

But any weakness here should be used as an opportunity to put new funds to work.  There is never an “ideal” time to invest, but I like to see valuations that are modest and sentiment that is lukewarm at best.  Today, both of these conditions are in place.

I’ve recommended income investments such as dividend paying stocks and master limited partnerships as the best way to generate returns in a sideways market.  If you haven’t loaded up your portfolio with them yet, do so on any weakness.  For “one-stop shops” I continue to like the Vanguard Dividend Appreciation ETF (NYSE:$VIG) for dividend-paying stocks and the JP Morgan Alerian MLP ETN (NYSE:$AMJ) for MLPs.  I own both personally and in client accounts.

SUBSCRIBE to Sizemore Insights via e-mail today. This article first appeared on TraderPlanet.

By www.CentralBankNews.info     Mexico’s central bank held its benchmark target for its overnight rate steady at 4.0 percent, saying the recent rise in inflation was temporary and there are no widespread pressures so inflation should resume its downward trend in June and then gradually move toward’s the bank’s 3.0 percent target.
    The Bank of Mexico, which last month cut its rate for the first time since July 2009 but stressed it was not embarking on a new cycle of easing, said inflation was expected to remain high in April and May and then settle around 3-4 percent during the second half of the year before declining to around 3 percent in 2014.
    A rise in Mexico’s inflation rate to 4.72 percent  in the first half of April from 4.25 percent in March and 3.55 percent in February strengthened expectations that the bank would not cut rates further.
    Mexico’s core inflation rate is expected to remain close, and even below, the bank’s 3.0 percent target for most of 2013 and 2014, the central bank said, adding that it would keep a close eye on prices to ensure that there are no second-round effects of the rise in inflation.