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.

Stocks and Bonds June 11

After reading oversold on Wednesday, the stock market put in a weak, one day rally Thursday then posted fresh lows on Friday.The door is open for another 500 point decline as a result. Whether that will happen remains to be seen. This decline has been, it seems, based on the lack of economic recovery outside the executive suites of the Fortune 500 companies. It may seem strange that Wall Street could be so very insular as to expect the recovery of the Wall Street banks and increases in the executive's pay at the largest companies means that the economy will prosper, but Wall Street has its own set of delusions, fostered, in part, perhaps, by implicit Federal guarantees.

The bond market has been overbought almost forever, it seems, and still shows no signs of heading down. It will happen someday, just not today. Too bad we couldn't have had a second version of William M.Martin or Paul Volcker at the Federal Reserve rather than that damn fool Reagan appointee we did have. We might not have an economy so thoroughly shattered. In another life, perhaps, prudence will reign over politics.

Forex update June 11

The Euro & the Ozzie showed surprising weakness against the USD. The Euro got almost to 1.47 but now seems headed back to 1.40. The Ozzie bulls have made two efforts in two weeks, both unsuccessful. Hard to say whether the bears are in control, but for the moment it looks like 1.0360 will be the next buying zone.

The USD rallied weakly against ChF, went sideways against the $C and against the Yen. The BoJ will be happy if the dollar rallies magnificently, but it is far from obvious that such will be the case. The $C often wanders like a blind mouse against the USD, as it seems to be doing now. The ChF, on the other hand, is very high and looking like it will go higher.

Finally, the Cable or GBP had a small rally, but now looks like it wants to go down to 1.60. A decisive break there could open the door for a move to 1.54

Grains June 11

Thursday's WASDE was not a huge market mover, although there had been some caution going into it.Corn came away looking distinctly bullish in price, but the CoT, late as usual, reflected position reduction that took place going into the report.

Beans, occupying a middle ground with respect to price action -- going nowhere, in other words -- saw expanding longs by funds with a corresponding increase in shorts by commercials. The hoped for bullish surprise wasn't there.

Wheat saw the funds net neutral, commercials long and farmers short. The price actio was not pretty this week, though I'd not rate it as a bear market. 

Just now the price action can be summarized as: corn - bull market; beans-bullish; wheat - bearish. That can all change dramatically by October, though surprises still seem more likely to be bullish than bearish, based on history.

Moody's Says Greece a 50% bet to Default

There you have it, folks, this rating brought to you by the same folks that rated the sub-prime mortgage hodge-podge debt, the collapse of which caused the Greeks to assume. While the likelihood of a Greek default may or may not be 50%, why would anybody put any trust in the 'estimate' of a company that has been shown to give anything a good rating if paid enough?