Wake up and smell the data

The FT argues that “the dollar's decline in status is greatly exaggerated:  "Emerging central banks, led by China, have piled into US assets.  A far higher proportion of US government debt is held by foreigners than is true of Eurozone or Japanese government debt.  So international trust in the US continues to be deep."  (John Authers, FT Weekend, p16) This belies that fact that China now has only 31% of its reserves in dollars compared to over 70% a few years ago and that dollars are now a minority of reserves globally (assuming one doesn’t count the Fed’s massive holdings of dollars.)  The FT should wake up and smell the data.  The US dollar has already, alas, lost its dominance.

Global central bank gluttony?

Is it behind the treasury rally?   RBS estimates that global demand for high quality bonds is $1.2 tn while "net" supply is only $600 bn.  Meanwhile, U.S. banks increased treasury holdings by 23% in the first quarter. So there’s lots of cash and a “net” shortage of bonds.  The word “net” is key, since the too meager supply is net of the 60%+ of all securities being issued in the world that are being purchased by central banks.  (FT Weekend, p 12)

They want to take you higher.

The U.K. is thinking of raising rates to avert inflation, whilst the ECB is planning to lower the deposit rate to a minus number to fight deflation at the same time.  Why is it that England, with much higher interest rates than Germany and an equally tight fiscal policy, is having more inflation while Germany is having less inflation?  (FT Weekend, p1)

Is an irreplaceable symbol of Chicago’s heritage at risk?

Walgreens, based in Illinois, owns 45% of Boots, the UK pharmacy.  It is considering exercising its option to acquire the balance.  That would allow it to move its official headquarters to the UK, where it would benefit from lower worldwide taxes.  Walgreens grew to a national chain during Prohibition, with sales driven by the high-quality "medicinal" whiskey it stocked under-the-counter to supply "alcoholics" holding prescriptions, which were as freely-available then as prescriptions for “medicinal” marijuana are in Massachusetts today.  Can there be a prouder symbol of Chicago’s past?

The Inscrutable East: Up? Down? Sideways?

The official Chinese manufacturing index rose from 50.4 in April to 50.8 in May.  To stimulate the economy, bank reserve requirements have been reduced.  Meanwhile, housing prices dropped from April to May, or so they say. China is still targeting 7.5% growth in 2014. Can they make it happen?  Doesn’t the market expect/fear worse? (FT Mon p4)

Spain's government proposed to lower the top corporate tax rate to 25%. Are trade wars becoming tax wars?

Even though Pres. Obama might not approve because of the subversive ideas it would give to US companies. . . Spain is planning to cut the top corporate tax rate from 30% to 25% to stimulate the economy. The government believe they must do this to be internationally competitive.  (FT, Mon p3)

The allies have our backs, just like in 1944.

This week’s D-Day celebrations on the beaches in France will, of course, include our then ally Russia, despite the anti-Russia sanctions about which the remaining allies are united.  But the FT senses some cracks in the alliance:  "European officials, however, suggest there is a difference of views about the nature of the separatists in eastern Ukraine, with the US tending to see unrest as being instigated by Moscow, while some in Europe believe the rebellion to be more organic."  Besides, Europe needs the gas and we don’t.