backdoc » August 26th, 2014, 11:58 am
IMO.....I IN NO WAY WILL PREDICT WHAT RATE OR MECHANISM WE WILL SEE SHOW UP WHEN OZ DROPS IT INTO THE INTERNATIONAL SCENE THATS FOR SURE! (Oz=IMF, WORLD BANK, U.S.TREASURY, AND CBI)
WHAT MAKES SENSE TO ME IS THAT REAL REALISTIC VALUE NEEDS TO BE IN PLACE QUICKLY BECAUSE OF THE AMOUNT OF MONEY THAT IS GENERATED BY THE RESOURCES SOLD.
TOO LOW OF A PRICE WILL CAUSE DESTRUCTION TO THEIR CURRENCY AND ECONOMY.
IF THE PRICE IS TOO LOW, WEALTHY CURRENCY TRADERS WILL BUY AT A WHOLESALE DEVALUED PRICE MAKING IT HARDER TO RAISE THE CURRENCY TO ITS' REALISTIC VALUE!! IN ESSENCE THEY WILL MAKE A RUN ON THE CURRENCY!!
THIS WOULD BE DESTRUCTIVE TO ITS' ULTIMATE GOAL. COMING OUT AT A DOLLAR WOULD BE WAY TOO LOW AND COULDN'T STAY THERE LONG UNLESS THEY DID A FREE FLOAT MECHANISM!
PEOPLE FORGET THAT ONCE IT'S INTERNATIONAL VERY WEALTHY PEOPLE WILL BUY MASSIVE AMOUNTS IF THEY FEEL SOMETHING IS UNDERVALUED!
THIS WOULD BE VERY DESTRUCTIVE TO THE CURRENCY AND WOULD MAKE IT MORE DIFFICULT FOR THEM TO RAISE THE VALUE.
AFTER PULLING IN SO MUCH OF THE ORIGINALLY PRINTED CURRENCY, THE BEGINNING OF THE LAUNCH IS THE BEST TIME TO GET IT RIGHT! ESPECIALLY IF THEY ARE HIDING WEALTH.
WITH THE PRODUCTIVE ECONOMY THAT IRAQ HAS CURRENTLY AND ITS' POTENTIAL IN THE NEXT FEW MONTHS ESPECIALLY FROM THE KURD REGION, JUST ONE TO ONE IN MY OPINION WOULD BE DESTRUCTIVE TO ALL THEY HAVE DONE!!
JUST WAIT TILL YOU ALL HEAR MORE ABOUT THE GOLD MINING, THE PHOSPHORUS MINING, THE LITHIUM MINING,ECT.
I FOR ONE BELIEVE THEY ARE WITHHOLDING MASSIVE WEALTH FROM THE PUBLIC EYE UNTIL AFTER IT GOES INTERNATIONAL! THEY ARE TELLING US ONLY WHAT THEY HAVE TO. DOC
ALL IN MY OPINION backdoc
August 26, 2014 7:31 am
Rising risk of currency market volatility
By Mohamed El-Erian
FX instability will spread as POLICY divergence widens
The biggest threat to investors may come from the FOREIGN EXCHANGE market rather than the stretched prices of equity and bond markets. Judging by recent policy and technical signals, the FOREX MARKET may be about to exit an unusual phase of low volatility.
After a prolonged period of monetary policy alignment, advanced economies are embarking on increasingly contrasting paths. This “multi-track” world of central banks reflects notable divergence in underlying economic performance.
The UK and US have the economic lead, REGISTERING solid economic growth and consistent job gains. Already frail, the eurozone’s RECOVERY is stalling, doing little to counter alarmingly high unemployment in countries struggling to maintain the gap with the UK and US let alone close it. Meanwhile, the burst of Japanese growth is starting to feel like a memory.
The multi-speeds were illustrated last week by data and the contrasting narratives ADOPTED IN Jackson Hole by European Central Bank President Mario Draghi and Janet Yellen, his Federal Reserve counterpart.
Mr Draghi’s main POLICY question is how and when to step further on the monetary policy accelerator. His remarks point to additional credit and monetary loosening that, I suspect, will be announced in September or, at the latest, October.
In contrast, and despite a well-telegraphed exit from asset purchases that will be completed in October, Ms Yellen faces increasing pressure to ease her foot further off the accelerator. While there is agreement that “labour market conditions had moved noticeably closer to those viewed as normal in the longer RUN”, according to Fed minutes, officials disagree on when to start increasing interest rates.
Similar questions confront Mark Carney, Bank of England governor. Already, two Monetary Policy Committee colleagues have broken ranks by favouring an immediate interest rate rise.
This monetary policy divergence is not accompanied by meaningful adjustments elsewhere in the economic policy stance. Undermined by political factors, Europe and the US struggle to build momentum on the structural reforms needed to ensure overall policy effectiveness and counter financial market excesses. Political constraints also hamper responsive fiscal policy. Meanwhile, by affecting Europe more than the US, unfavourable geopolitical winds accentuate both economic and policy divergences.
So far, all these divergences have been reflected primarily in growing interest rate differentials. As an example, the gap between market rates on US 10-year government bonds relative to their German peers widened to almost 145 basis points at the end of last week, compared with 93 basis points a year ago and 108 basis points at the beginning of 2014.
This is quite a gap. Further widening from here is more likely to be accompanied by pronounced currency moves, including a CONTINUED strengthening of the dollar versus the euro and, to a lesser extent, the yen.
There are good reasons why history cautions against presuming that well-behaved and gradual currency adjustments will persist. True, volatility in FOREX MARKETS has, as elsewhere, been repressed by central banks. But this extremely low volatility is harder to maintain in light of increasing economic and POLICY divergences. Moreover, weaker currencies are implicit – and, increasingly, explicit – targets of monetary policy in the eurozone and Japan.
Due to the potential for technical tipping points, FX movements can be surprisingly sharp once they start in earnest. Corporate hedging activity is often pro-cyclical, meaning companies are more likely to protect themselves against unfavourable currency moves only after these have started to hurt.
Financial investors add to the procyclicality by switching capital flow regimes, including by turning weakening currencies into funding vehicles as opposed to recipients of capital (an area of particular vulnerability for the euro). Since many foreign STOCK INVESTORS do not separate the equity risk they take from its currency component, it is only a matter of time before FX instability is transmitted more broadly in the financial markets.
As the advanced countries increasingly embark on divergent economic and policy paths, and as sustained currency realignments become more explicit policy goals aiming to ensure the weaker economies do not fall further behind, central banks will find it harder to repress FX volatility. This could well pose a big challenge to the sustainability of investor gains elsewhere in financial markets.