Plunging MZM = bullish. MZM has been historically high, and is now dropping rapidly.
Plunging commercial lending ( = TOTCI) = bearish. Commercial credit is also at a secular extreme — although the 2001-04 plunge was also a secular extreme.
The dollar has tanked a lot in recent days, which implies that MZM is falling with it (more so than the graph suggests, because MZM data is about 2 weeks old). The dollar is at $1.47/euro again, and 112 yen per dollar instead of 114.5 or so. So the dollar is once again pretty weak. I previously thought it would strengthen dramatically, as the disparity between MZM and USD converged, to the benefit of general asset prices and the value of the dollar.
But that doesn’t seem to be happening … and probably won’t, until the US trade deficit is below 2.5% of GDP. The most recent figures clocked in at 5.1 percent, but dropping.
The sterling has tanked along with the dollar. All of the sudden nobody wants to invest in the UK anymore. Its budget deficit is about 3.5% of GDP, and its trade deficit is even bigger than the United States’.
I wonder if the forex market is pricing in a seismic shift in the yuan/dollar relationship by knocking DTWEXM out of line with MZM until the yuan revalues. The US trade deficit ex-oil is overwhelmingly centered on China, which means it won’t come down as long as the yuan remains unconvertible. And as long as China continues its bull(####) market, commodities will keep going up, so the US deficit will, if anything, increase. But as the dollar goes down, the yuan will come down with it, and continue exacerbating the problem.
In the PBOC’s “dollar sterilization” procedure, as I understand it, dollars are handed over to the central bank in exchange for yuan, at what is basically a state-set rate. Those yuan are not useful outside of China, so China has what amounts to a domestic inflation glut, in line with its accumulated foreign exchange surplus (its “savings glut”). Only massive, systematic rioting will force Beijing to change their ways, and nobody is convinced that that will happen until after the Olympic Games.
Gold, however, is still rising at a blistering rate. I’m surprised the “GOLD AT 28-YEAR HIGH” canard hasn’t been plastered all over the headlines by now. I guess that will come over the weekend and Monday after everybody has gotten the point about Bhutto.
| VALUE | CHANGE | % CHANGE | |
| EUR-USD | 1.4706 | 0.0080 | 0.55 |
| USD-JPY | 112.9300 | -0.8055 | -0.71 |
| GBP-USD | 1.9919 | -0.0042 | -0.21 |
| VALUE | CHANGE | % CHANGE | |
| Oil | 96.72 | 0.10 | 0.10 |
| Gold | 842.70 | 10.90 | 1.31 |
| Natural Gas | 7.23 | 0.03 | 0.42 |
