Welcome to the global currency war

Unlimited easing by the three major central banks opens the door to competitive devaluations and stagflation.

By Anthony Mirhaydari Jan 17, 2013 3:40PM

 International currencies copyright Artifacts Images, Getty Images, Getty ImagesMark your calendars. Today is the day the global currency war broke out into the open. This after the Bank of Japan announced it would ramp up its monetary policy stimulus efforts -- on an unlimited basis -- until it achieves a 2% inflation target.

 

Now, all three major central banks have committed to open ended easing.

 

As central banks ramp up one last time, the end game for all this -- given the fiscal austerity, budget fights, and policy turmoil just ahead -- is higher inflation combined with economic stagnation. This is the dreaded "stagflation" outcome that is the bane of central bankers, especially the aggressive, overconfident ones that are in charge right now. Here's why.

 

Russian officials warned that other countries may follow Japan's efforts to weaken the yen -- something that reverberated after the outgoing head of the Eurogroup of finance ministers and the Prime Minister of Luxembourg said the euro was "dangerously high." Officials and Norway and Sweden also expressed concern. Other officials, from the head of the Bank of England to policymakers in Korea and Australia, have all recently voiced their concern about what's happening.

 

It's no wonder that export-oriented German factories are suffering from a drop in output.

 

 

The surge of cheap money stands in contrast to an ongoing deterioration in the economic data. The Philly Fed regional manufacturing survey came in well below expectations this morning -- the latest datapoint pulling down the Citigroup Economic Surprise Index.

 

The index, which I've frequently highlighted, is about to fall into negative territory for the first time since early 2012 as the hard data continues to disappoint lofty Wall Street expectations. That's coincided with weak performance for the stock market.

 

If inflation kicks higher because of risking geo-political risks in oil producing regions -- illustrated by the rise of AQIM in North Africa -- the market's theme of "central banks will solve everything" will be in jeopardy.

 

What's really scary in all this is that if we tip into a recession now -- as Japan and Europe have already done -- there will be no easy salves. Washington is embroiled in a struggle over how much fiscal austerity to dole out. Who gets tax hikes? What programs should be cut?

 

If the Fed's hands are tied, with more hawkish members there already doubting the effectiveness of its ongoing QE3 and QE4 initiatives, we face the prospect of higher inflation, tighter money, and less government support. All in the context of a loss of cooperation at the G20 level as the major economies fight to boost exports via competitive currency devaluation -- or "beggar thy neighbor" policies -- all at the same time.

 

As the race to debase accelerates, it will boost the fortunes of precious metals in a big way as investors scramble for alternative stores of value. No surprise then that both gold and silver are quietly moving to the upper end of recent trading ranges in preparation for what looks to be a breakout uptrend.

 

I'm adding more exposure to the sector via the VelocityShares 3x Silver (USLV), Seabridge Gold (SA), and Coeur D Alene Mines Corp. (CDE) to my Edge Letter Sample Portfolio.

 

Be sure to check out his new investment newsletter, the Edge, and his money management service, Mirhaydari Capital Management. A two-week free trial has been extended to MSN Money readers. Click the link above to sign up. Mirhaydari can be contacted at anthony@edgeletter.c​om and followed on Twitter at @EdgeLetter. You can view his current stock picks here. Feel free to comment below.

77Comments
Jan 22, 2013 5:38PM
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Nice little rally before the close....We'll take it any day...Google and IBM just reported decent numbers...Waiting on the calls...We will see what happens tomorrow

Jan 22, 2013 4:52PM
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We are having a decent afternoon...Buyers coming in...Lets see if we can keep this going till the closing...Still about 15 minutes to go...All is possible...More after the close.
Jan 22, 2013 11:37AM
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Not a real surprise this morning...Lower volume and after the last 3 weeks we expected scumbags to be ready to do their thing and after yesterday's speech by Obummer that made his mentor Saul Alinski extremely proud, its not a shocker that we are down...Long way to go though...Never give up..We will see how it goes...Be cautious...More later.
Jan 18, 2013 6:29PM
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..Today is the day the global currency war broke out into the open....

Everything in this article is technically true.

It is one of the MOST BIASED articles that I have ever read on financial web site.

Our Fed starting shooting at people years ago. Now, that they have been wounded and are finally starting to shoot back, that  is the start of the war? Seriously.

If I hit you in face with my fist five or six times, does the fight officially start when you finally hit back?
Jan 18, 2013 5:08PM
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Nice rally before the close, buyers showing up all of a sudden...We will take it....Three nice weeks in a row...Earnings season so far so good for the most part....next week may be a bit different though...Never ever take things for granted....Have a great weekend all, long weekend for some.
Jan 18, 2013 2:39PM
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We are trying to hang in there...Volume a bit lower than the last few days...It has been a decent week overall...Still over 2 hours to go...Lets see if we can keep things flat to maybe up a bit, wont be that simple...More after the close.
Jan 18, 2013 12:42PM
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Yes, the futures were pointing up but those are too unreliable....We are on a tight range, at 1045 hrs scumbags started doing their thing, well, we have been up nicely lately so as you may imagine these crooks are in desperation mode....Still a long way to go...Be cautious...More later.
Jan 18, 2013 12:18PM
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What golf course is our Imbecile President playing today?   
Jan 18, 2013 8:41AM
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Wonder who determines best and worst.  Unless you click on oldest or newest you don't see all comments?
Jan 18, 2013 7:24AM
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You cannot Print and Tax your way to prosperity.  You cannot Borrow and Spend your way out of debt, no matter what the lazy, arrogant, corrupt Imbecile Obama and his Donkey  minions tell you...

 

America voted for 4 more years of economic Malaise...  Enjoy!

Jan 18, 2013 7:16AM
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Americans are excellent at spotting trends...

 

We arming ourselves at an alarming rate...

We are buying gold and silver outpacing our governments ability to mint the coins...

 

People see massive money printing and government debt, and wonder about the value of the dollar...

 

Sell Long term bonds, avoid real estate, buy guns/ammo, specie, and farm land...

Do not hold dollars or CD's... Buy stocks, especially foreign stocks...

Buy foreign currencies...

 

We are heading for a depression of epic proportions...  16.5 trillion at 5% interest is 825 billion or more interest than our ENTIRE Defense budget.  Raising interest  rates cannot be done now.  This means we must continue to devalue the dollar.  Americans can see this pretty clearly...

Jan 18, 2013 3:40AM
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The dollar was to be a stable way to store, transfer, track and transport wealth. Somewhere along the way a band of thieves changed the rules.     
Jan 18, 2013 1:34AM
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The currency system is set up so the exchange of goods or services is facilitated by using a common measure.  Whether the price of any one commodity is measured by one price or another is dependant upon the buyer and the supply and it's consumability.  Gold does not dissolve or denature and much of what is used in commercial applications is recovered.  It's price is dependant on it's demand.  If beanie babies and furbys are any indication of the logic of price to demand, it shows the fluidity of expected value compared to price.  Consumables like food or oil is priced the same, except there is no recovery once it is used.  
The currencies themselves have become commodities as well, with it's own value guaranteed within it's own borders and a variable value as it compares to other currencies.
What we are seeing is new version of avoiding the depression of the 30's where, to protect jobs at home, trade embargos were instituted with a resulting trade war leading to a loss of trade and also jobs that exporting companies depended on.
However since we cannot protect our domestic jobs by trade restriction, our country decided to protect job losses by devaluating the dollar by massive currency injections which increases exports at the expense our trading partners by reducing the cost of our goods and services as more of their currency buys more dollars in exchange.  They, however realizing this inequity, have also debased their currencies to maintain parity with the dollar's value.  This escalation of monetary printing by all major trading partners is putting pressure on third world countries to either raise the value of their currency and thus reducing their exports, or risk having all their goods and services sent overseas purchased by inflated fiat money. Money that will not purchase equilvalent value back in exchange.  Third world countries don't have the luxury of debasing their own currency because they are net importers of goods and services.  Debasing their currency will drive up inflation as there is already a scarcity of goods. The first world countries already have established economic bases and production and supply most of the products they consume resulting in little inflation as most consumers are not having their wages increased so that there is much more spending and consumption. The wealthy spend the same and their numbers are small so they do not register much with the goods and services that the masses use and compete for.
Jan 18, 2013 12:31AM
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The primary function of the government was never intended to provide a safety net for every possible contingency......we have government trying to legislate morality, help special interest and this has come to inefficiency and loss of freedom. We will also pay with taxes and inflation. The voters allowed themselves to be bought with free, which will cost them. Even the poor will pay the inflation tax.  
Jan 18, 2013 12:26AM
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Actually, you should invest in food storage.  Even if you have gold or silver, and no food, people will not sell you food.  If there is a run on food like there has been on firearms, there will be empty shelves in your neighbor hood grocery store.  
Jan 17, 2013 11:42PM
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NTU,.... I believe certain Funds or Government pots have been raided many times for different reasons.??

Think they are making a big deal out of it, because ONCE again, it is Obama's Admin, he's black..

AND THEY ALL LOST........

Let me see that B..C.. again....please. 

 

And another front, some were calling for Gold at $2000 for the last 5-6 years, NEVER happened.

We got close, what last year or 2010 in the $19s, but NO CIGAR...

Who knows when...?? Forever is forever.

Jan 17, 2013 11:27PM
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Lots of misinformaion going on now.  Look for someone to come up with a good politically palatable excuse about the impending disaster.  Like I don't know where my homework is but the dog may have eaten it.  We have been led to believe there was a massive over supply of gold in the world and given that the price of gold was depressed for political reasons.  Well guess what.  They pulled another one on many of us again.  Surprise surprise not!  Like I have said for the last few years gold to 3000 usd. Just don't hold me on the time frame.  And this market is now becoming a complete joke. And it is starting to look like the USA has been running a Ponzi scheme with the worlds gold supply and nobody can actually say who is on first.  Do you know who is on first?  And DC wants to stir folks up over gun control.  They didn't raid the federal employees retirement fund for any other reason than there is no more easy money to take without either a fight or an arm or leg.  A new currency with perhaps 200% inflation built in will buy these despots a few more years.  The race to the bottom and the New World Order will shut you, me, and even gramma up once and for all.  Greece is now the world. JMHO
Jan 17, 2013 10:39PM
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brutusbear......You are talking to yourself, sometimes like I do....

 

And usually it isn't good for us....

 

piss on casinos..!!

Jan 17, 2013 10:16PM
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more signs that the end is coming to the worlds monetary systems. The FIRST to print more fiat money does not get the affect of inflation. It is like that pyramid scheme....the first in get the reward and the ones at the end get screwed. Japan's not dumb, they see 20 parachutes and 50 passengers in a plane that's going down. Best to be the first one out the door!!!!!!!!!!!
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