Monetary policy case study: South Korea vs Japan

The picture may be four years old, but it does a great job of showing the South-Korean eagerness to take Japan`s place as high-end apparel exporter. While most of the eyes focus on the miraculous growth story of China, the economic power of South Korean business conglomerates (formally called chaebols) is ever-increasing at the expense of their Japanese counterparts (named keiretsu). This is because South Korean companies have a fortunate advantage in the relative weakness of their national currency.

PIMCO is taking a massive bet on QE3

Bill Gross, the co-chairman of one of the largest bond funds, PIMCO's Total Return fund which closed 2011 at a whopping $244 billion dollars, has added to its leveraged Mortgage Backed Securities position during December 2011, in a bet on further Quantitative Easing and further "Operation Twist".  According to Zerohedge, the Total Return fund had in December a $60 billion cash margin account used to purchase $103 billion in MBS, TIPS and long duration US treasuries. Turns out that in December, Bill borrowed an additional $78 billion to purchase more MBS and treasuries.

What does FED's zero interest rate for the foreseable future mean ?

Despite that bond yields in Europe are imploding, and Italy becoming the newest member of the elitist 7% club, among countries like Greece, Portugal, Ireland, all seems to be running well in the US wonderland. The cost of borrowing, as measured by US T-bills, has reached the lowest level since the beginning of the financial crisis. The demand of short term bills, namely 3 weeks, which are yielding 0%, and 13 weeks which are yielding 0.005%, is still extremely high as the bid/cover ratio stood at 3.41 in the most recent Treasury Auction.

FED's Chairman Bernanke sees trouble ahead

It's time to sober up and say a little prayer for the wellbeing of the United States of America. The recent Federal Open Market Committee decided today to keep the benchmark interest rate at the 0% - 0.25% interval, effectively prolonging the Zero Interest Rate Policy, through at least mid- 2013. FED's policy makers agreed that the economy picked up some steam while "signficant downsize risk" still remains. The US Federal Reserve will still conduct the so called "Operation Twist" which aims to swap short term Treasuries with longer term maturities in order to flatten the yield curve and lower the costs of capital investments. 

The inflation rate, measured by the CPI rose to 2.9% in September, the highest since 2008, while the core-CPI (excluding housing and energy costs) rose to 1.6%.

Next week's FOREX trading outlook

This week has been a hectic trading week, with most of the FOREX currency pairs behaving like in a bee hive. The global turmoil was enhanced by the two major news: first is the agreed haircut of 50% of the Greek debt and the subsequent leverage of the EFSF and the second one is the systematic dump of US Treasuries by the foreign investors (the latest to join the party is the Norwegian sovereign wealth fund which dumped all US Treasuries and all US mortgage backed securities). What is in store for us next week?

Qvo vadis, Gold ?

The precious metals have been under fire recently, with gold dropping from its all-time high of $1920 close to its 200 daily Exponential Moving Average which acted as support level for such movements since early 2008. It spiked downwards beneath the 200d EMA for a brief period to its recent low of $1533 after quickly recovering ground and consolidating in the $1610-$1690 interval.