Analysis and Charts of Global Markets

written by Gary Dorsch, Editor and Publisher

British Gilts vs Gold, - vying for “Safe Haven” Money

Aug 25, 2010

Ten-year gilt yields have fallen steadily from as high as 4.25% set in February, when worries about Britain’s record budget deficit were at their peak. The yield spread between the British 10-year gilt and the 1-year T-bill rate has shrunk by 130-basis points, to +225-bps today. The last time the yield spread was this narrow, the global economy was at risk of sliding into a 1930’s style depression.

Japanese style Deflation Strikes Global Bond markets

Aug 11, 2010

The US-economy has not experienced sustained deflation since the Great Depression of the 1930’s, when consumer prices fell 10% between 1929 and 1933. But Japan has been battling falling prices since 1995. Central bankers and macro-economists from all corners of the earth have studied Japan’s descent from its giddy economic prosperity in the 1980’s, and into the deflation trap in the 1990’s, that Tokyo’s financial warlords have still been unable to remedy.

The Fed Flashes the Nuclear QE Trump Card

Jul 29, 2010

Of ten people who hear the same story or speech, each one might understand it differently. Perhaps, only one of them will understand it correctly. Bernanke acknowledged that the US-economy faces an “unusually uncertain time,” but if necessary, he hinted the central bank would resort to “Quantitative Easing,” (QE), or printing vast quantities of US-dollars, in order to prevent a deflationary spiral.

How the ECB Engineered the Euro´s Recovery

Jul 14, 2010

The hysteria over the solvency of the Club-Med countries, - Greece, Portugal and Spain, was whipped into a frenzy, with questions being asked about the long-term viability of the Euro itself. But now, Euro-zone politicians are trying to refurbish the Euro’s stature, by adopting fiscal austerity measures to reduce their bloated budget deficits. At the same time, the ECB has begun to sterilize its debt purchases.

The Psychology of the Copper Market

Jun 16, 2010

Copper has been on a wild rollercoaster ride, famous for its “boom-and-bust” cycles. Gambling on copper’s next major move is always a high stakes bet. Last year, copper dealers found it profitable to focus solely on the demand side, while largely ignoring the supply side of the equation. After-all, “the market value of any commodity is only worth, what the highest bidder is willing to pay.”

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British Gilt Traders bet on sharp Slowdown in UK-Economy

Updated 6:27 PM, Aug-25, Wed

Ten-year British gilt yields have fallen steadily from as high as 4.25% set in February, when worries about Britain’s record budget deficit were at their peak. The yield spread between the British 10-year gilt and the 1-year T-bill rate has shrunk by 130-basis points, to +225-bps today. The last time the yield spread was this narrow, the global economy was at risk of sliding into a 1930’s style depression. ------------------------------- What’s the meaning of the sharp narrowing of the UK’s yield curve? While much of the downward move in Gilt yields is linked to fears about a “double-dip” recession in Japan and the United States, - in London, there’s also expectations that austerity measures introduced by the Conservative/Liberal Democrat coalition could push Britain’s economy back into recession. Britain’s ruling coalition produced the harshest budget in a generation on June 22nd, slashing public spending by over £100-billion, raising the VAT tax to 20%, and slapping a levy on banks, in order to cut a record budget deficit to almost nothing in five years. ---------------------------------- However, while Gilts have rallied strongly on bets the UK-economy will topple into recession by the first half of 2011, the FTSE-100 Index remains resilient. Chancellor George Osborne wrapped his tough austerity measures in rhetoric about fairness and burden sharing, but tilted the budget in favor of business. The corporate income tax rate is to be cut from its present level of 28% to 24-percent. This will give the UK the lowest level of corporate taxation in any developed economy.

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British Gilt Traders bet on sharp Slowdown in UK-Economy

Greek debt Crisis fuels Flight to British Gilts

Updated 6:22 PM, Aug-25, Wed

Bond traders are usually the first to sniff out trouble, - long before its recognized by the maniacal speculators in the stock market. The bond vigilantes have sounded an early warning siren at every stage of the global financial crisis. Historically, the lag-time between an inverted yield curve, and a subsequent bear market in stocks, has varied from several months to as long as a year. With the BoE’s base rate near zero-percent, an inverted yield curve is improbable, but a sharp narrowing of the curve could also do the trick, of unnerving die-hard stock market bulls. ------------------------------ One of the catalysts behind the stunning collapse in British gilt yields to historic lows is the Greek debt crisis, which is still brewing beneath the surface, despite the attempts of Euro-zone politicians and the IMF to conceal the gravity of the situation. The yield on Greece’s 10-year bond continues to ratchet upwards, climbing to as high as 11.30% today, and not far below its all-time high of 12.62%, hit on May 7th. The yield on Greece’s 10-year bond is nearly +850-bps above the British gilt yield, a clear sign of trouble that lies ahead. ------------------------------ On June 10th, famed hedge fund trader George Soros, said “we have just entered Act II” of the global financial crisis. “The collapse of the financial system as we know it is real, and the crisis is far from over. Indeed, we have just entered Act II of the drama. When the financial markets started losing confidence in the credibility of sovereign debt, Greece and the Euro have taken center stage, but the effects are liable to be felt worldwide. Credit default swaps, which insure bondholders against the risk of a default, are dangerous and a “license to kill,” Soros warned

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Greek debt Crisis fuels Flight to British Gilts

British Inflation far above BoE's 2% Target

Updated 6:17 PM, Aug-25, Wed

About a year after the BoE began a series of rapid-fire rate cuts, - slashing its base rate to an all-time low of 0.50%, and unleashing QE, - purchasing a total of £200-billion over 12-months, the BoE began to see the fruits of its labor. The BoE’s efforts to turn back a deflationary spiral in the UK-economy were greatly aided by a massive devaluation of the British pound, which lost a quarter of its trade-weighted value since the start of 2007. Most importantly, the Federal Reserve’s $1.75-trillion QE-scheme had fueled a sizeable rally in the Dow Jones Commodity Index. -------------------------------- By April 2010, British consumer prices (CPI) were +3.7% higher than a year earlier, aided by surging commodity prices. BoE chief Mervyn King, wrote a public letter to Chancellor of the Exchequer George Osborne, because the CPI figure rose more than 1% above the 2-percent inflation target. Retail Price Inflation, (RPI) a measure used to gauge the cost of living in wage negotiations, accelerated at a +5.3% clip in April, the fastest pace since 1991. But Mr King was still worried about deflation. -------------------------------- Much will depend upon the future direction of commodity markets, a key driver of the British CPI. There’s renewed fears that a still crumbling housing market and high unemployment will push the US-economy into a “double-dip” recession, - rattling world stock markets. Rallies in key industrial commodities are unraveling, as China’s housing bubble has peaked and factory output is falling, following tightening moves by its central bank. Japan’s economy is suffocating from a strong yen, and Greece’s 10-year bond yield is +900-basis points above German yields, indicating the Euro-zone debt crisis is still brewing beneath the surface. Any of these time bombs, if they explode, could rock the global economy and industrial commodities.

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British Inflation far above BoE's 2% Target

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Analysis and Charts of Global Markets

Global Money Trends Audio Broadcasts Audio Broadcasts are uploaded Monday and Wednesday evenings, to our subscriber section, with the latest news and analysis moving markets

Global Money Trends
Audio Broadcasts

Audio Broadcasts are uploaded Monday and Wednesday evenings, to our subscriber section, with the latest news and analysis moving markets