Key News

- The rate banks say they pay to borrow in dollars for three months declined for the first time in 14 days, British Bankers' Association data showed. (Bloomberg)


This is good. Read from bottom up, as you would when getting this on your Reuters feed as I did yesterday at 8:50 a.m. Eastern; I have bolded the key points:







1. These comments are reminiscent of the old Abbot and Co comedy routine Who's on first?

2. The fundamentals are morphing fast and currencies are reflecting that reality.

3. If the euro is a solid currency why will it not survive another Greece.

We don't envy the role of an ECB official. But we think it shows how they are groping to say something meaningful. Not a confidence builder to say the least.

FX Trading - Hodgepodge Friday

The Crisis is over...yeah, okay!

If you were worried about the euro, you can stop now. We saw a story on Bloomberg that quoted Paris-based money manager Emeric Challier as saying, The crisis is over. Now that the euro has plunged against the dollar, it will be a big boost to exports for Europe and allow them to turn this ailing ship around nicely, goes Mr. Challier's thematic.

Well, we can't dismiss that view out of hand, even though we would like to. It is true that a lower value for the euro, compared to its three key trade competitor countries-US, China, and Japan-should make European exports more competitive in the market place. Thus, it may be good for Germany, but we don't see this as a big stimulus to the other weak eurozone countries. With all using the same currency, any trade advantage from the currency to Greece is the same advantage to Germany.

And this thematic still runs up against the concern: Where are all these new exports going, or which country will absorb them? US drunken sailor consumption seems like history.

Thus, the teetering countries in Europe may not benefit much at all from the initial decline in the euro. If they take the hard steps necessary to transform themselves into more efficient producers of goods, then yes the euro fall makes it relatively easier for them to create wealth. But in the mean time, there is plenty of opportunity for the crisis to rear its ugly head again.

Euro Seems Due for a Decent Correction

The crisis may not be over, but does seem due for a rest. Thus, the dollar seems due for correction and euro a bounce.

Euro-USD Futures Daily:

Needless to say, there are a ton of acting bears, as John Percival would say. With a respite on the crisis, makes sense the euro would be due to move higher as the acting bears lock in profit, and buy stops are triggered for price-led traders. The red line at the bottom of the chart above represents open interest i.e. the number of open contracts in the euro futures contract. It is in flashing red light territory; usually a pretty good indictor the current trend may be near an end.

Larry Larry Quite Contrary

Funny, earlier in the week I was telling David Newman, our marketing person extraordinaire and a great guy to boot, that I had trouble sleeping and to prove just how exciting I am I got up and started re-reading one of my favorite economic books of all time, something I hadn't touched for a while; the title is The Failure of the New Economics, written by the brilliant Henry Hazlitt, published in 1959. The entire book deconstructs John Maynard Keynes leftist-loved masterpiece (claptrap)-The General Theory of Employment Interest and Money, published in 1936.

And sure enough, yesterday I was reading about the US illustrious economic czar, a pure Keynesian accolade through and through, Mr. Larry Summers warning once again we needed more government stimulus, and threw in the claptrap Keynesian term liquidity trap to make things sound even more ominous.

Keynes created many catch phrases in his book. None have any relevance to how real people operate in the real world; but mathematicians like to play games with them and pretend they do. Many of his phrases are simply nonsensical on the face. But no matter, as liberals rarely ever let real world facts impinge on their world view.

Sadly, Keynesian nonsense is force-fed to our future leaders who attend the most elite schools, the place where professors tell precocious children that, Yes, you will one day rule the world. Sadly, it is true. General Theory at their side as Das Kapital was there for Lenin.

Larry Summers is a walking textbook case of a man with a high intellect and many talents, but simply completely wrong at so many levels when it comes to economics thanks to his devotion to Keynes. We know Larry is a big believer in fiscal stimulus to create jobs. He buys into the liquidity trap nonsense, a conjured theory based on market fallacies of Keynes creation. These two beliefs will only prolong the pain.

Below are some critical criticisms from Hazlitt of key Keynesian dogma, many of which our Czar would defend:

- Keynes's definitions of his key terms-Income, Savings, and Investment-are merely circular.

Keynes's list of eight motives for saving is arbitrary. It could either be expanded to a much larger amount, or reduced to one-to build up a reserve against future needs or contingencies.

- Keynes's investment multiplier is a myth.

- Keynes's arguments against liquidity and against speculation are untenable. Speculative anticipations and risks are necessarily involved in all economic activity. Somebody must bear them. What Keynes is saying is that people cannot be trusted to invest the money they have themselves earned, and that this money should be seized from them by government officials and spent or invested in the directions in which those officials (seeking to hold onto political power) deem best.

- It is not helpful to explain interest rates as the reward for parting with liquidity, any more than it would be to explain the price of tomatoes or a house as the reward to the buyer for parting with the cash for them. Without previous savings, moreover, there can be no liquidity to part with. If Keynes's theory of interest rates were right, interest rates would be highest at the bottom of a depression and lowest at the peak of a boom, which is almost precisely the opposite of their actual tendency.

- Inflation is at once an uncertain remedy for unemployment, and unnecessary remedy for unemployment, and a dangerous remedy for unemployment.

- Elasticity of demand is not measurable.

- Keynes's proposals for the euthanasia of the rentier, of the functionless investor, were proposals to rob the productive and expropriate their savings.

- Keynes plan for the socialization of investment would inevitably entail socialism and state planning.

- Domestic laissez faire and an international gold standard, blamed by Keynes as among the economic causes of war, were, in fact, powerful forces for peace and international cooperation. It is the national planning policies recommended by Keynes that would tend to provoke wars.

- If we try to use the term with scientific or objective precision, full employment is not even definable.

- Efforts to determine national income rest on certain arbitrary (and sometimes) false assumptions.

....and this one we hope Larry reads....

It is not true that deficits in the government budget cure unemployment. It is not true that low interest rates cure unemployment. The Keynesian prescription leads to a constant race between the money supply and the demands of the trade unions-but it does not lead to long-run full employment.

Very powerful criticisms of Keynes I think Mr. Hazlitt provides us. And yet, most of these beliefs are still embedded in the brains of those who drive economic policy in the US and other places at the moment.

Is it any wonder our taxes continue to go up and the productivity of western economies falls?

Who is Milton Friedman?

Have a great weekend.

Black Swan Capital