Quote of the Day:
The Fed is embarking on something new and, I think, highly questionable.
Which is: to enforce the symptoms of prosperity, rather than sound money.
Jim Grant [emphasis mine]
Macro Overview
The New Interest Rate
- Forget Central Bank Base Rates, they are rendered impotent in a balance sheet recession, Oil prices are the new economic accelerant and right now Mr. Oil seems hell-bent on tightening and decelerating economic activity.
- In a piece last week, I casually commented on oil… perhaps too casually.
- I read yesterday somewhere that “Oil was the new interest rates”… rates are irrelevant now and oil plays a bigger part in dictating economic activity. I don’t know why but it was an interesting comment and I thought I should share it with you. Any of you that peek at Google Trends will know that “gas prices” is one of the fastest growing searches at the moment.
- Ironically, by trying to boost consumption with monetary easing, the Fed must be careful that it does not stifle consumption by boosting the cost of energy.
- Now Oil is a big red flashing beacon on everyone’s radar. Indeed, the FT today frets: Oil price rise sparks profit concerns in Asia. Ahhh… you see? The Chinese weren’t so crazy to stockpile oil in the midst of a slow down when the price was $50-$70 – nearly half what it is now.
- Bloomberg quoted a Tom Keene interview with legendary bear David Rosenberg in an article which came out on Friday:
The price of oil rose above $109 for the first time in nine months today and is in the midst of its longest streak of advances in more than two years. Rosenberg said that for each additional penny at the gas pump, $1.5 billion is strained out of household cash flow.
“By May we’re going to be talking about gasoline prices breaking a new high, between $4 and $5,” he said.
- The Strait of Hormuz is only half the story, dear reader, the reality is we are in a brave new world where ALL the major central banks are simultaneously debasing their currencies. All business need a form of money to live, it is to the economy what blood is to the human body.
- But, by definition a money-form must not only be an exchange medium but a store of wealth and capital… it must be something for which the supply can be understood, even predicted. This is why investors (and China) seek oil… and gold. All the major paper promises (aka fiat currencies) are wearing thin – so much so that even the Swiss Franc is beginning to rise again.
- Here is what I wrote in a piece last summer and the attached video of a Bloomberg interview with the legendary Jim Grant:
I leave you, once again, with something I put in my piece (The Feral Reserve), Jim Grant’s wonderfully eloquent quote in this Bloomberg interview, after 11min 30 seconds:
“… the clarifying insight into Quantitative Easing came in the form of a letter to the editor of the financial times about a year ago. The writer says:
‘Ah! Finally I think I get it. I get what Quantitative Easing means. I understand now… what I no longer understand is the meaning of the word money.’
That is the definitive insight into what the enterprise of QE is all about…. Debasement.”
- See the Jim Grant Video above or click this link:
Market Overview
Oil
- I’m not going to comment on the markets really today. I’m only going to show a Chart of the Day – Brent Crude Oil (of course). This is not so much a rise in popularity of the metal per se, it is a representation of the lack of faith in paper promises.
- Some of you will note, that comment above was exactly the same as yesterday’s – it’s just I substituted the word “Gold” for “Oil”.
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Chart of the Day
Brent Crude Priced In Dollars (Source: Bloomberg)
Events
Macro Events:
Update:
- Nothing Significant
Alerts:
- Germany CPI
- Japan Industrial Production
- South Korea Industrial Production
Corporate Events:
Results:
- Nothing Significant
Dividends:
- Nothing Significant
Reading, Links:
For article on the history of monetary debasement read:
The Perils of Currency Debasement: Learning From The Romans.
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Tags: Ben Bernanke, China, David Rosenberg, Economy, Fed, Gold, Iran, Jim Grant, Macroeconomic News, oil, Politics, QE, Quantitative Easing, TIPSTER
Michael Kudrna
