The collision of global markets and social mood

Friday, January 13, 2017

Friday -- PPI, India's US-backed Cash Ban, Mexico Revolution Potential

S&P E-mini Futures:
Volatility surrounding the hot inflation numbers released this morning. Green.

US wholesale inflation increased 1.6% for the year in December. Seen as hot. Big vol knocking markets all around currently.

Downside surprise on retail sales.

Elsewhere, the globalization backlash might be hurting China, potentially something they are powerless to control.

Per Bloomberg, China's trade surplus fell for the first time since 2011. On an annual basis, 2016 exports fell 7.7% and imports down 5.5%. The export drop was the second annual decline in a row and the worst since the depths of the global crisis in 2009.

This is why I'm a bull on India and Mexico.

But there will be setbacks.

First, India. Thought there was something fishy about Modi's ban on cash. There is.

It's a test case on behalf of Washington (Obama), USAID, and BTCA (Better Than Cash Alliance), a well-funded, well-organized group of over 35 countries and wealthy individuals such as Bill Gates and Michael Dell who are pushing for a global cashless society, or as they call it, "financial inclusion through digital payments."

They thought they'd use India as a test case because it has over a billion poor and vulnerable people who would have no say in the matter, and who are getting catastrophically screwed.

Look up if you'd like to see how people like this hide in plain sight.

"Financial inclusion" is the same model as Obamacare. Inclusion by force. No choice. You're mandated to include yourself.

In this case, suddenly cash is made illegal. If you're poor, without a bank account, and you need to buy food that day, you and your family are screwed.

But that's OK. It's India. There are too many people in the world anyway (Gates is also concerned about overpopulation).

I'm a bull on India. India will overcome this nonsense, and the cashless dream will fail just like all Utopian fantasies do. But it will be a bumpy ride.

China, rallies notwithstanding, will eventually be a victim of its own greed. Mexico will take China's place as the US' low cost manufacturer and main trading partner IF it can avoid being taken over by drug cartels.

Right now it's not looking good.

Started hearing chatter yesterday about a possible devaluation of the Mexican peso. No news, just chatter. But it got me digging. The country is close to a breakdown after the government recently hiked gas prices by 20% overnight. People are rioting, as they should. And the drug cartels are using it as chance to curry favor with them by creating a black market of stolen gasoline and reselling it far below the government price. It's costing Pemex, the government-owned petrol monopoly, over $1 billion per year.

Mexico devalued the peso back in 1994 (just after my first-ever road trip to Baja) when the currency was then at its weakest ever against the dollar, after the outgoing administration embarked on expansionary fiscal and monetary policy prior to elections. The country had tried unsuccessfully to intervene in the currency markets to prop up the peso but quickly burned through its reserves (the peso was pegged to the dollar then; it is not now). Contrary to previous denials that it would devalue, the central bank devalued anyway, 15%. Due to capital flight, the peso eventually lost over 50%.

Mexico's central bank has just concluded two currency interventions this week. So, here we are again.

Will Mexico devalue? Who knows.

Why a country would devalue its currency during record weakness is beyond me, but so are a lot of things in this mad world.

The better question might be: Can it?

I doubt it, unless the government is hell bent on yielding completely to the cartels. A devaluation now would destroy the country.

What if the drug cartels have corrupted the government so badly that they force Mexico's destruction via devaluation? That would instantly make their products cheaper and the dollars and euros received would be worth much more. An excellent way to fund further black markets in just about anything.

One thing I've learned from living among Latin-style socialism is how important poor people are to the ruling class power structure. Latin-style socialism requires poor people: people to be used as pawns bought with benefits and subsidies. Politicians offer perks with one hand and write laws of enslavement (financial inclusion) with the other, all with the people unaware.

The Constitution of Puerto Rico explicitly says that foreign bondholders will be paid before essential services, while politicians skillfully use it to cultivate fears of a humanitarian crisis.

Devaluing the Mexican peso would surely create millions more poor people, but it would sever the "benevolent hand" of the government in the people's eyes, making the country ripe for revolution.

The cartels win, Mexico loses.

But, if Mexico wises up and aggressively pursues manufacturing and global trade, and is skillful enough to negotiate an exemption to the proposed Trump "border tax" in return for financing a border wall, Mexico wins.

And so does the Mexican peso.

Generally USD supportive thus far.

Bitcoin up over 1%.

Hanging below the highs. Topping tails sustained. Especially after the hot inflation data.

WTI crude down for the moment, but seeing possible corrective structure from recent highs which would suggest higher rally highs. NG up for the moment.

Red. Notice how hot inflation data is not yet helping precious metals. It's because it pressures treasury prices and supports yields, curbing the appetite for metals.

S&P Outlook:
Haven't seen a market this messy in a long time. Acts poorly going up and going down. When this happens, I expand my working area, preferring deeper retracements to working closer to the middle. I miss more trades, but that's the point. No need to get chopped when one's conviction level is not high.

Yesterday got to 2254.25, close but not to the 2250 volume shelf. If the low holds, it projects to 2302.73.

The 2250 volume shelf and the 2238.83 gap remain, and will make great targets even if new highs are achieved.

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