6/24/2013 Portland, Oregon – Pop in your mints…
And then there were two.
The liquidity drain initiated by the People’s Bank of China has caused a fire sale on financial assets across the globe as Chinese banks scramble to make various margin calls in the face of double-digit overnight rates. Lee Adler, over at the Wall Street Examiner, offers some insight into the big squeeze currently underway:
US and Japan Pump It, Chinese Dam It and Suck, And Europe Sullenly Suffers Shrinkage
For the uninitiated, we beg of you to take a step back and to leave, just for a moment, any thought of “efficient market” hypotheses and market fundamentals behind and see the financial world for what it is: A bunch of corporations with large credit card bills to pay and margin calls to meet.
Like anyone who has a large credit card bill to pay or margin call to meet, the ability to meet the obligation is more often than not determined by the willingness of other large corporations in similar situations to lend them money. If they can, great, the credit rolls over. If not, assets must be liquidated so that the debt can be paid.
The flaw in efficient market theory, with regards to financial markets, is that it implies stability when, in fact, most debtors, especially big ones, only liquidate assets as a final option. As such, this type of liquidation often occurs suddenly and with little warning, hence the feeling of panic and cascading financial markets.
At their core, equity markets represent decisions at the margin. They often reflect this type of liquidation in an exaggerated manner. In an odd way, this sort of whiplash seems to be the only way to spur Central bankers into action.
The actions of the PBoC suggest that they have had enough of the easy money policy that has dominated Central Bank actions for the past five years. They have pulled the plug. Does it have anything to do with Mr. Snowden? Who knows, but it is what it is.
As it stands now, the Federal Reserve and Bank of Japan now stand alone on the mountain of insane monetary policy, watching the smoke plumes rise.
Anyone who has perused The Mint no doubt has noticed that we keep a relatively small collection of coins online. This serves a dual purpose. First, it allows us to quickly grab marketing copy should we have a particular coin in stock. Second, it allows us to savor the coin as we attempt to put its dual faces into words. Normally, this can be a tedious and relatively dull process.
Today was different, as we came across a relatively rare 1 OZ .999 Fine Silver First Anniversary Mount St. Helens Harry Truman Commemorative Round, minted in 1981. For those who are unfamiliar with Harry R. Truman, we offer our marketing copy as a brief descriptor:
On one side of this coin is a bust of Harry R. Truman, the caretaker of the Mount St. Helens Lodge at Spirit Lake who stubbornly refused to leave his home even as the historic eruption was imminent. Truman was 84 when the Mount St. Helens erupted and is presumed to have died along with his 16 cats and 56 others that fateful day on May 18th, 1980. Truman’s bust is surrounded by the inscriptions “Courage,” “Spirit,” “Determination” above and his name, “Harry R. Truman” and the years he was born and died, “1896 – 1980″ below. The letters “KU” appear to the right, their meaning is unknown.
On the other side of this reeded coin is a depiction of Mount St. Helens erupting flanked by the inscriptions “One Troy Ounce” and “.999 Fine Silver,” to indicate its weight and silver content. The top of the coin, just above the smoke plume, is adorned with the inscription “First Anniversary.” Below the mountain are inscribed “1980 – 1981,” and the words “Mount St. Helens.” These beautiful coins are a great way to inspire your friends, loved ones, and co-workers by recalling the finer qualities of a man who became a hero for sticking by his desire to ride out a violent act of nature, come what may.
Mr. Truman, may he rest in peace, in many ways represents the Fed and BoJ today. The other Central Bankers of the world have stepped cautiously back, away from the dreadful inflation for which the eruption of Mount St. Helens will serve as a handy metaphor of today.
Not Mr. Bernanke and his Japanese counterparts. Both the US Dollar and Yen have been on the mountain longer than many of their counterparts, and their current caretakers are convinced that the bubbling inflation that their policies are stoking will simply blow over as they has in the past.
Are they right? Or is it time to move away a safe distance from the mountain?
Stay tuned and Trust Jesus.
Stay Fresh!
Email: davidminteconomics@gmail.com
Key Indicators for June 24, 2013
Copper Price per Lb: $3.03
Oil Price per Barrel: $94.85
Corn Price per Bushel: $6.53
10 Yr US Treasury Bond: 2.55%
Mt Gox Bitcoin price in US: $122.89
FED Target Rate: 0.10% ON AUTOPILOT, THE FED IS DEAD!
Gold Price Per Ounce: $1,283
MINT Perceived Target Rate*: 0.25%
Unemployment Rate: 7.6%
Inflation Rate (CPI): 0.1%
Dow Jones Industrial Average: 14,660
M1 Monetary Base: $2,432,200,000,000
M2 Monetary Base: $10,621,100,000,000
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