Unregulated Banking

The dangers of unregulated banking were pointed out by Henry Kaufman, former partner at Salomon Brothers, in his memoir, "On Money and Markets."

On page 82, Kaufman wrote,"This is not to say that the market should be left to regulate itself. Such a laissez-faire approach would not work, nor serve the public interest."

Down the page a few lines, he continued, "The rapid proliferation of financial derivatives is outpacing the ability of investors and regulators alike to assess risks in timely and responsible ways."

Seems like a pretty fair perspective on what actually did happen, doesn't it?

All is well in China?

Today's grand news from China touts its wonderful, new relationship with Russia. That's "Yet Another New and Wonderful Relationship with Russia." The Russians maneuvered the Chinese into encouraging the Korean War back in 1950. That worked well for the Russians, less well for everyone else. And the Chinese leaders seem to have forgotten that Russia encouraged Saddam to invade Kuwait, in part because they wanted to field test their "impregnable" tanks. That didn't work out at all well for Saddam, and it scared the Russian generals into messing in their pants when US antitank missiles splattered Russian tanks somewhat like putting compressed air into a shell-reinforced soft-boiled egg. That worked out well for no one. And the tale goes on, with many variations on the years since1948.

In China the rain continues to fall, flooding the rice lands in the South and about a third of the prospective corn crop. China routinely substitutes wheat and rice for corn, but where will the wheat come from? Cropland that is bone-dry throughout the winter, even if well watered since (a questionable bet), is not likely to produce 130% or so of its normal crop. Rice likes water, but having the rice plants washed into the South China Sea does not an abundant crop produce. So make nice to Russia, hope that their wheat fields, only totally devastated by drought and fire last year, produce a 200% or 300% crop. On the other hand, sometimes Mother Nature is bountiful, even if Mother Russia isn't.

Today's roundup in the financial sector find the panic over a probable Greek default didn't carry through. Moves to buy USD were reduced to zero, but there was no rush to sell them, either. The stock market recovered a bit, and is now slightly above where it was Friday. Bonds tried to go up, but were only slightly successful, while neither gold nor crude cared to make a statement. Shorter trading trends are bonds still up, and the USD neutral.

Despite my skepticism about the abundance of grain above, wheat is down about $1/bu in the past six days, and both corn and beans have done little but fall since last Thursday's WADSE. Wheat is somewhat oversold (down $1 should make it very oversold, but the charts gadgets don't see it that way) and tomorrow could well be dull in the grain markets.

Greece in the Grease?

When the London exchanges opened, Forex players begin to buy USD against Euro area currency (GBP, Euro and ChF). Why? Because Greece is perceived as having already fallen into the grease, taking the Euro area from the frying pan into the fire. The world's stock markets were down, hitting swing lows, crude was down, gold up slightly ($4), US bonds up as much (30yr) or more (10yr) than they lost yesterday and the USD up varying degrees of 'sharply.' The Loonie & the Ozzie were least affected of the five currencies I trade (the others being Euros, ChF and Cable).

Euros stopped right on top of their long-term moving average; GBP closed below its long term MA but ChF remains well above its presumptive breaking point. If today's negativism towards the Euro-zone financial situation remains in the market, Euros can be expect to drop to 1.35 or lower. 

Absent some good news, the DJIA seems headed down, at least to 11,400. Similarly, without a pick-up in demand, crude seems headed to the $83-$85 range. If the damn fools in D.C. cease to allow Wall Street banks hedger status, another $25 - $20 will come out of that price. Even oil company economists are now saying that the supply & demand 'value' of crude is $65-$70, and the difference between that an $100 is ALL hedge funds & Wall Street banks.