Beggar-Thy-Neighbor Currency Devaluations Proved Ruinous For The Global Economy In The 1930s, But The World Is Setting Off Down The Same Slippery Slope Again
The Global Currency War Is Escalating
According to numerous high-level insiders, we’re in a dangerous global currency war:
- Current Bundesbank president Jens Weidmann
- St. Louis Federal Reserve President James Bullard
- Outgoing Bank of England chief Mervyn King
- Russian Central Banker Alexei Ulyakeyev
- European Central Bank board member Benoit Coeure
- Reserve Bank of Australia Governor Glenn Stevens
- Brazil’s finance minister Guido Mantega
- Billionaire investor George Soros
Actually, we’ve been in a global currency war for years.
As the Wall Street Journal asked in 2010:
Beggar-thy-neighbor currency devaluations proved ruinous for the global economy in the 1930s. Is the world setting off down the same slippery slope again?
Yes, we are.
Insider selling pace now fastest in several years
This is worrisome because corporate insiders — officers, directors and the largest shareholders — presumably know more about their companies’ prospects than the rest of us do. If they were confident that the shares of their companies would soon be trading markedly higher, they wouldn’t be selling them now.
Yet selling they are — at an alarming pace.
Consider an insider indicator calculated by the Vickers Weekly Insider Report, published by Argus Research. The indicator is a ratio of all shares that insiders have recently sold in the open market to the number that they have purchased.
For the week that ended last Friday, this sell-to-buy ratio for NYSE-listed shares listed stood at 9.20-to-1. That means insiders of these companies, on average, were selling more than nine shares of their firms’ stock for every one that they were buying.
They were right about a January gain. But danger, says Michael Sincere, is imminent.
Do we dare call this a bull market? The indicators were on target in January, and showed that the market had enough strength to go higher. Nevertheless, we’ll turn to the indicators to warn of potential dangers.
On the technical side, the Standard & Poor’s 500-stock index (SNC:SPX) is well above its moving averages, which indicate the bullish trend will continue. Obviously, a so-called Black Swan event can occur at any time, but after four years, we’re still waiting. The higher the market goes, the louder the crash warnings will get. But the market keeps advancing. MACD is also signaling that the upward trend will continue.
Is now the worst time to invest? I would go further and argue there has never been a riskier juncture in the history of investment at which to put money to work.
Let’s take a quick look at some of the typical choices.
Corporate bonds. These, on an outright basis, have never offered such a low yield. Implied company-default rates are almost preternaturally low, thus almost certainly not reflecting reality.
Government bonds and interest-rate swaps, expressing the rates governments can borrow at and the rates banks lend to one another at, are also at or near all-time lows. Being so close to zero, how much lower can they realistically go?
$11.25 million that fear will spike.
From this morning’s Cashin’s Comments (emphasis ours):
A Very Big Bet In A Somewhat Unlikely Instrument – My friend, Jim Brown, the ever-alert consummate professional over at Option Investor pointed us to a rather unusual trade. Here’s what he wrote in last night’s edition of his valuable newsletter:
In past years I have reported on trades that were so large it appeared someone had inside knowledge of a pending event. Sometimes those were massive put positions on the S&P. A new trade just appeared that suggests there will be a market event in the near future. Last week somebody put on a call spread on the VIX using the April 20 and 25 puts. They bought 150,000 contracts for a net of $75 per contract. That is an $11,250,000 bet that the VIX will move over 20 over the next 60 days. You would have to be VERY confident in your outlook to risk $11 million on a directional position with the VIX at five year lows and the markets trying to break out to new highs.
Jim then goes on to list some of the scheduled events and deadlines visible over the next 60 days (mostly in Washington). When you add in the broad variety of geo-political possibilities, it’s a decent reason to stay extra alert.
Monte dei Paschi.
SIENA, Italy (Reuters) – Monte dei Paschi <BMPS.MI > was expected to raise its estimate for the loss on derivatives trades that recently came to light and are now at the center of an investigation against former executives at Italy’s third-biggest bank.
A source close to the situation said the final loss would be announced Wednesday and should be higher than a preliminary estimate from October of around 720 million euros ($974 million).