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DoubleLine Joins IMF in Fretting About Dollar Loans Outside U.S.

The cost of dollar funding for non-American banks can change rapidly because it’s sensitive to monetary conditions in the U.S. and abroad. September’s repo turmoil showed the speed with which a spillover could occur between dollar funding and currency markets.

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Comments of the Day

05 December 2019

 

Video commentary for December 4th 2019

 

Eoin Treacy's view

A link to today's video commentary is posted in the Subscriber's Area. 

Some of the topics discussed include: de facto stading repo facility, stocks steady, gold quiet, silver pulled back dynamically, bonds ease, Korean Won testing support, Topix 2nd Section resurgent.

 

 

DoubleLine Joins IMF in Fretting About Dollar Loans Outside U.S.

This article by Vivien Lou Chen for Bloomberg may be of interest to subscribers. Here is a section:

The cost of dollar funding for non-American banks can change rapidly because it’s sensitive to monetary conditions in the U.S. and abroad. September’s repo turmoil showed the speed with which a spillover could occur between dollar funding and currency markets. Within a day of the sudden surge in the overnight rate on Treasury repurchase agreements that began Sept. 16, the cost to borrow greenbacks while lending euros for a week almost doubled.

For DoubleLine’s Campbell, “the analysis of currency mismatches and asset/liability funding mismatches is an integral part of our investment process as we evaluate these risks on a country-by-country and security-by-security basis.”

At issue is what might happen when foreign banks get caught in a liquidity squeeze, and their sources of dollar funding dry up quickly, he added.

“When we go through the next downturn, a lot of activities are going to be exposed as being problematic,” he said. “The risk is that it could contribute to an even bigger fall in economic activity.”

 

Eoin Treacy's view

The IMF first started worrying about the mismatch in Dollar funding requirements and supply back in June. The freezing up of the repo market in October vindicated the view that supply of Dollars was inadequate for the needs of the global economy. The willingness of the Fed to step in and provide $300 billion, to date, is a clear indication they are aware of the problem this condition represents and will act accordingly.

 

 

Email of the day from a coffee insider

The estimate of the Brazilian coffee crop of 2019 is 49 million bags of 60 kg This means a 20 % drop from 2018, when Brazil produced a record crop of 62 million bags. This is a big difference. But it is due to the fact, first that Brazil is in the “off-year” of its two-year coffee production cycle, which alternates between years of high and low production cycles. The coffee trees are resting one in two years. Second, there has been irregular weather that was not good for the crop. And third, the farmers are diminishing the crop care because of prices that have fallen too low. This is happening after a bumper “on-year” which brought a collapse of prices. The influence of Brazil on the world coffee market is important because it is the largest producer. (62 million bags on a total world production of 175 million bags). But in the other countries the same causes have most of the time had the same effect.

What must be noticed also is that very low prices because of overproduction were normal to a certain extent, but as always, investment funds and speculators (or call these also investors with a euphemism) went about 51.000 contracts short (equals 12.750.000 bags) and then suddenly reduced these short positions to about 17.000. This of course amplifies the movements of the market, this time to higher but still not normal prices. In the meantime, the farmers are starving with a daily income of 3 dollars, flee their central American countries and try to get in the U.S. It’s a shame, a hard world. That’s why in my company we promote Fair Trade Coffee, now at about the double of the price of the market. We are making nearly half of our turnover with this coffee.

The Real is also an important parameter, but it is not the only one. The two charts of coffee and Real are often linked, but not always when such fundamental events are happening;

 

Eoin Treacy's view

Thank you for this valuable insight into the machinations of the coffee market. The two-year cycle of coffee tree productivity is an important consideration when weighing the likelihood of a downtrend due to overproduction persisting. The fact farmers are walking off their farmers in Central America is an inhibitor to increasing supply but as you point out Brazil is the primary source of Arabica.

 

 

China Uses DNA to Map Faces, With Help From the West

This article from the New York Times may be of interest to subscribers. Here is a section:

The technology, which is also being developed in the United States and elsewhere, is in the early stages of development and can produce rough pictures good enough only to narrow a manhunt or perhaps eliminate suspects. But given the crackdown in Xinjiang, experts on ethics in science worry that China is building a tool that could be used to justify and intensify racial profiling and other state discrimination against Uighurs.

In the long term, experts say, it may even be possible for the Communist government to feed images produced from a DNA sample into the mass surveillance and facial recognition systems that it is building, tightening its grip on society by improving its ability to track dissidents and protesters as well as criminals.

Some of this research is taking place in labs run by China’s Ministry of Public Security, and at least two Chinese scientists working with the ministry on the technology have received funding from respected institutions in Europe. International scientific journals have published their findings without examining the origin of the DNA used in the studies or vetting the ethical questions raised by collecting such samples in Xinjiang.

 

Eoin Treacy's view

This article from the Wall Street Journal details how the capturing facial recognition data is now mandatory when purchasing a new phone. Here is a section:

The new regulation gives the Chinese state, which backs the country’s three main telecom providers, the ability to better track people based on ethnicity and other factors, said Ben Cavender, Shanghai-based managing director at China Market Research Group.

 

 

Email of the day - on the colour of candle charts:

I hope all is well. I was wondering why if the S&P500 index fell the graphic is showing blue as per the attached screenshot? Could it be that it opened down but closed above that level and thus the chart records this as an up day? Thanks very much.

 

Eoin Treacy's view

That you for this question which others may also have an interest in. Yes, that is exactly what happened. The S&P500 gapped lower off the open and improved modestly from that initial swoon.

 

 

Eoin's personal portfolio: precious metals long initiated

 

Eoin Treacy's view

One of the most commonly asked questions by subscribers is how to find details of my open traders. In an effort to make it easier I will simply repost the latest summary daily until there is a change. I'll change the title to the date of publication of new details so you will know when the information was provided.

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