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Brian Kelly
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Brian Kelly is Founder of Brian Kelly Capital. Brian has over 17 years investment experience trading US & international equities, forex, options, futures, metals, and commodities. He has traded for some of the largest hedge funds, pension funds, and mutual funds. Mr. Kelly is a CNBC... More
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  • Moody's Forces Germany's Hand Into Its Wallet

    Moody's long awaited ratings decision has finally arrived and, and, and…it is a non-downgrade. In its reasoning for the non-downgrade, Moody's cited the Eurozone's willingness to backstop Spain. From Moody's :

    Moody's assessment that the risk of the Spanish sovereign losing market access has been materially reduced by the willingness of the European Central Bank (ECB) to undertake outright purchases of Spanish government bonds to contain their price volatility. The rating agency believes that Spain will likely apply for a precautionary credit line from the European Stability Mechanism (ESM).

    Ultimately, the financial burden lies with Germany and markets have not lost sight of this fact. The spread between Spanish and German bonds has compressed dramatically to below 400 bps.

    (click to enlarge)

    Typically, a spread above 400 bps has signaled crisis, now the market is clearly of the belief that Germany will pay the bill for the periphery excess. This now sets up an interesting dynamic where any whisper of German opposition to a Spanish bailout could create a panicked risk off move. Thankfully the markets appear to be sufficiently conditioned to the random musings of European politicians.

    We have long held the belief that Europe needs a combination of debt monetization, currency weakness, and economic growth in order to reduce debt to GDP ratios. A Spanish precautionary credit line which triggers the ECB bond buying program would be the first step in this process.

    Oct 17 12:07 PM | Link | Comment!
  • A Bake Sale?

    In a speech given in Singapore, US Economic Advisor Laura Tyson suggested that the US economy has not stabilized and a second stimulus package must be considered.   She cited the awful employment report as evidence the economy was still in trouble.  While she stated that these views were her own, not the Obama Administration’s, it is hard to believe that the media savvy President would allow such talk out of school.

    Combined with the admission by Vice President Biden that the government had misread the economy, this speech takes on special significance. 


    One part Tyson’s speech that has not made the headlines is the assertion that US government revenue as a percentage of GDP must be increased to levels similar to Canada.


    According to the Heritage foundation, Canadian revenues as a percentage of GDP are 33.4%, while the US collects only 28.2% of GDP in revenue.  How can the US increase government revenues?  A bake sale?  No, tax increases.


    We all know it is coming, and this speech was the first hint that the administration is going to raise taxes. 

    Jul 08 8:28 AM | Link | Comment!
  • Could the FX Swap Lines be Foreshadowing?

    I am publishing this in the "instablog" section because it is more of an unsupported opinion rather than a researched article.

    As I was reading the Federal Reserve Press release on the FX swap lines it struck me that the wording had changed.

    The Federal Reserve announced that it would extend swap lines with the BoJ, BoE, SNB and the ECB. These lines have been in place since May 2008. The difference is that in all the previous press releases the swap lines were to provide US dollar liquidity. In today's announcement the Federal Reserve announced that these swap lines were designed to provide Euro, Franc, Sterling and Yen liquidity to US institutions.

    These are "swap" lines so the other central banks have the ability to draw US dollars if needed. In light of the problems with FX loans in Eastern Europe I found it interesting the Fed changed the wording of its press release.

    From the April 6, 2009 Federal Reserve Press Release

    Federal Reserve Actions
    The Federal Open Market Committee has authorized new temporary reciprocal currency arrangements (foreign currency liquidity swap lines) with the Bank of England, the ECB, the Bank of Japan, and the Swiss National Bank. If drawn upon, these arrangements would support operations by the Federal Reserve to provide liquidity in sterling in amounts of up to £30 billion, in euro in amounts of up to €80 billion, in yen in amounts of up to ¥10 trillion, and in Swiss francs in amounts of up to CHF 40 billion.

    From the October 29, 2008 Federal Reserve Press Release

    Foreign Exchange Swap Lines
    The Federal Open Market Committee (FOMC) has authorized a $330 billion expansion of its temporary reciprocal currency arrangements (swap lines).  This increased capacity will be available to provide funding for U.S. dollar liquidity operations by the other central banks.  The FOMC has authorized increases in all of the temporary swap facilities with other central banks.  These larger facilities will now support the provision of U.S. dollar liquidity in amounts of up to $30 billion by the Bank of Canada, $80 billion by the Bank of England, $120 billion by the Bank of Japan, $15 billion by Danmarks Nationalbank, $240 billion by the ECB, $15 billion by the Norges Bank, $30 billion by the Reserve Bank of Australia, $30 billion by the Sveriges Riksbank, and $60 billion by the Swiss National Bank.  As a result of these actions, the total size of outstanding swap lines is $620 billion.

     

    Just a thought that may provoke a conversation...

     

    Tags: FXB, FX Swaps
    Apr 07 1:03 PM | Link | Comment!
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