It ought to be fairly quiet this week. The markets are open this week but everyone’s in transit to 2010. The airport here in Melbourne is full of people going home for the holidays, including your editor. But just because something ought to be so doesn’t make it so.
For example, oil ought to be heading lower – or at least not higher – as the U.S. dollar rallies. But news reports out of Iraq this weekend showed that some Iranians had taken control of an Iraqi oil field. It didn’t look like anything serious, to be honest. But it shows you what a hair trigger there is for oil.
On a totally domestic note, Bloomberg is reporting that Westpac raised $2 billion selling residential mortgage backed securities last week. It’s notable because it’s the first time one of the big four has managed to sell a batch of RMBS since the financial model of the world began to fail in 2007. So have things finally turned the corner for funding Aussie mortgage growth through securitization?
It’s probably too early to say. The Australian Office of Financial Management continues to support the market for non-bank lenders. Non-bank lenders have to fund new loans via securtisation. Without the AOFM’s backing, you have to wonder how many first home buyers would have been able to find housing finance.
Of course, when you take a closer look at the institutions which sold RMBS to the AOFM, you find that some of them are simply off-balance sheet vehicles for the Big Four. These used to be called Special Investment Vehicles before they got a bad name. They allowed backs to make high-risk loans without doing it on the balance sheet of the parent company.
Same day. Different mortgage bubble.
Gold reversed its big slide earlier in the week and closed higher along with the greenback. February gold futures on Comex closed up $4.50 to $1,111.50. That’s neither here nor there. But it does tend to confuse the popular press, who like to report that gold rises when the dollar falls and falls when the dollar rises.
That used to be true a few years ago. But since then, gold seems to have “decoupled” from the dollar on the downside. That is, there are enough different sources of gold demand that it doesn’t automatically fall when the dollar rises. Not that it matters too much, mind you. The dollar IS generally going to get weaker, and gold stronger. Lots of noise in the interim though.
The wires are reporting that 60 U.S. Senators have now lined up behind a health care bill. It’s not the same bill that passed the house. Those two bills have to be “reconciled” in a conference between both bodies before final legislation can be voted on by each house and sent to President Obama for approval.
In other words, there’s a long way to go yet. But it will be worth watching to see how the market reacts. The U.S. government is adding to its long-term liabilities just when it ought to be reducing them. And absurdly, Obama is presenting the health care plan as a way to reduce the country’s long-term deficits.
How you reduce deficits by adding more coverage, which will push up costs, is beyond us. It’s beyond most people, in fact. That’s why the healthcare bill is polling badly lately. But what will the market think of the Feds making more promises which must be kept by borrowing more money?
We quoted comments from Chinese central banker Zhu Min last week about how the current situation isn’t stable. Zhu was at it again this week. “The United States cannot force foreign governments to increase their holdings of Treasuries,” Zhu said, according to the Shanghai Daily.
U.S. officials are hoping they can keep piling up the bills and selling debt to foreign governments and bond buyers who will simply increase their holdings of US debt. Zhu says not! “Double the holdings? It is definitely impossible.”
“The US current account deficit is falling as residents’ savings increase, so its trade turnover is falling, which means the US is supplying fewer dollars to the rest of the world… The world does not have so much money to buy more US Treasuries.”
The Fed can always make more money. But the secret is out on this little trick of quantitative easing. The thing is, central banks in the Western world (including Japan) may have to resort to even more QE to pay the bills in the coming years. This will provoke what we’ve been talking about: a sovereign debt crisis.
But you wouldn’t guess any of that from the Christmas spirit here at the airport. Paper money from all over the world is changing hands like it’s actually worth something. And it is. It’s just less and less by the moment. We’ll report back from sunny Colorado when we get there in about 18 hours. Until then!
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