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Email Zip STOCKS MAKE GIGANTIC COMEBACK ON RIDICULOUS DAY OF NEWS: Here’s What You Need To Know Joe Weisenthal | Sep. 13, 2011, 8:26 PM | 3,564 | 17 A A A x Email Article From To Email Sent! You have successfully emailed the post.
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But first, the scoreboard:
Dow: +44.73
NASDAQ: +37.06
S&P 500: +10.60
And now, the top stories:
Yesterday was wild, as markets saw gigantic Europe-selling in the morning, followed by a huge comeback. Today was similar, except there were tons more headlines, and the entire seesaw took place before the market even opened.Things were briefly positive when the opening bell rang in Europe, as markets raced to catch up with yesterday's big rally. But things collapsed really quickly, as markets keyed off of a controversial column in the Wall Street Journal, citing an anonymous BNP Paribas executive saying that the bank had run out of dollar-funding options. French bank stocks, which have already been getting slammed on Greece fears/downgrade rumors got crushed for the second day in a row. BNP Paribas fell over 10% at one point. Not long after the article came out, the company came out and said it was still able to access dollar funding, and that put a floor on the market, which rebounded.Then in the early going, a rumor came via Reuters that Nicolas Sarkozy and Angela Merkel were going to give a press conference on some matter related to Greece. One report even indicated that they were going to announce some sort of action. Stocks surged on that, moving from violently negative to significantly higher. And then not long after that, the rumor was denied! There would be no Merkel/Sarkozy press conference, just the possibility that Sarkozy might make some comments to the press later in the day -- certainly falling short fo any real action.But that wasn't it for European headlines. Later in the day it was reported (and confirmed!) that on Wednesday Merkel, Sarkozy, and Papandreou would hold an emergency call. It's not clear whether that's really good or bad, but at least it's definitely happening. In the early afternoon, there was a report about how Geithner would urge the Germans to expand the EFSF, but then later in the day that was denied. And finally, there was a rumor about how the Dutch Finance Minister had called a Greek default inevitable, but then that was denied, with the Dutch claiming that all they were doing was exploring the various options.Oh, and also, there are rumors about a bailout of Europe from the BRICs (possibly in coordination with each other!), but who knows. And remember that rumor from yesterday about China buying Italian bonds. Well it turns out that the only talks have been about China buying Italian industrial assets, not bonds.In terms of domestic news, it was mercifully pretty quiet. Shares of Best Buy got slammed to the tune of 6.3% after reporting bad earnings. There continued to be more jousting on the matter of the President's jobs bill, with Republicans getting a bit more aggressive in their opposition. Also: Late in the day, Harry Reid talked about introducing a new anti-China currency bill in the Senate, and that briefly seemed to rattle equities, though ultimately not for very long.In the end: We got a big rally, and are set up for more furious days ahead, with gigantic uncertainty.For more reading: Click here to see who gets crushed if Greek default s> Please follow Money Game on Twitter and Facebook.Follow Joe Weisenthal on Twitter.
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Joe Weisenthal Contact: e-mail: AIM: openfilerook Work Phone: 917-621-7438 SMS: 917-621-7438 Subscribe to his RSS feed | twitter feed Ask Joe a QuestionRecent PostsOne Really Good Sign For Th...Why The Rumored Brazil Bail...THAT WAS FAST: Now The Dutc... The Water Cooler 
Receive email updates on new comments!cvszEmail17 Comments 0 22 Flag as Offensive free market user on Sep 13, 8:37 PM said: bernanke is competent..http://seekingalpha.com/user/926530/instablog/full_index Reply 11 0 Flag as Offensive Beauchamp (URL) on Sep 13, 10:57 PM said: @free market user: Dude, you are a giant fucking asshole. Reply 14 0 Flag as Offensive ObaMao on Sep 13, 8:51 PM said: Yeah call it blow off peak in making to suck in the suckers in this RIGGED market. Reply 4 1 Flag as Offensive James on Sep 13, 10:56 PM said: @ObaMao: Screwed up day in news and the markets rally and why? Because FUCK YOU that's why!! Reply 1 0 Flag as Offensive Gorbachev on Sep 13, 11:13 PM said: @ObaMao: China plans to let its currency trade freely on international markets by 2015 [EPA]
China is shifting some of its massive foreign holdings into gold and away from the US dollar, undermining the dollar's role as the world's reserve currency, accoding to a recently released WikiLeaks cable.
"They [the US and Europe] intend to weaken gold's function as an international reserve currency. They don’t want to see other countries turning to gold reserves instead of the US dollar or Euro," stated the 2009 cable, quoting Chinese Radio International. "China's increased gold reserves will thus act as a model and lead other countries towards reserving more gold."
The cable is titled "China increases its gold reserves in order to kill two birds with one stone". Taken together with recent policy announcements from Chinese banking officials, it may signal moves by China to eventually replace the US dollar as the world's reserve currency.
Last week, European business officials announced that China plans to make its currency, the yuan, fully convertible for trading on international markets by 2015. Zhou Xiaochuan, governor of China's central bank, said the offshore market for the yuan is "developing faster than we had imagined" but there is no definitive timetable for making the currency fully convertible. Presently, the yuan cannot be easily converted into other currencies, because of government restrictions.
China's gold holdings are small compared to other major economies. It has 1,054 tonnes, the sixth-largest reserves in the world, according to data from the World Gold Council.
Dollar's dilemma
Buying gold and allowing the yuan to be traded freely would weaken the US dollar's dominance as the international reserve currency. The move would have major implications, making it more expensive for the US government to borrow money and to run perpetual trade and budget deficits.
"The US is used to having the position of having the key reserve currency, but others are eager to replace it," said Josh Aizenman, a professor of economics at the University of California and president of the International Economics and Finance Society.
As a reserve currency, the US dollar is the default for international transactions. If, for example, a South Korean company wants to buy wine from Chile, chances are they will carry out the transaction in dollars. Both companies must then purchase dollars to conduct their business, leading to greater demand. The value of global commodities, such as oil, is also generally demarcated in US dollars.
Being a reserve currency allows the US to borrow at low interest rates, as central banks around the world are eager to buy US government debt. "Any country that can finance its expenditures by printing money or selling bonds is essentially getting a free lunch," Aizenman told Al Jazeera.
With China's apparent change of heart, that "free lunch" now might come with a hefty tab. Given the massive US trade deficit, average Americans might be sent to the restaurant's kitchen to wash dishes if the dollar loses its status as the world's reserve currency.
"China, until recently, was focusing on buying the US dollar through bonds," Aizeman said. Since the economic crisis, the US dollar has dropped compared to other major currencies, particularly the Swiss franc, Canadian dollar and Brazilian real. This leaves China in a bind, analysts said.
Currency reserves
In March 2011, China held $3.04tn US dollars in reserves, Xinhua news agenecy reported. It is the largest holder of US treasuries, or government debt, with $1.166tn as of June 30, 2011, according to the San Francisco Chronicle. Thus, major devaluation of the dollar would hurt China, as it would be left holding wads of worthless paper.
"If you owe the bank $100, that's your problem. If you owe the bank $100m, that's the bank's problem," American industrialist Jean Paul Getty once remarked, in a parable that sums up China's predicament.
"China is locked into a position where they cannot sell a big portion of their dollar reserves overnight without hurting themselves," Aizenman said. "It is too late for now to diversify rapidly the stock they have already accumulated."
The answer: Buy gold. Everyone seems to be doing it. The value of the glistening commodity, useless for most practical purposes, increased almost 400 per cent, from less than $500 an ounce in 2005 to about $1,900 in September.
"Gold has risen in value because of uncertainty in the world economy," said Mark Weisbrot, the co-director of the Centre for Economic and Policy Research, a think-tank in Washington. "Normally, gold would rise due to high inflation. It is a store of value that increases if there is inflation. But in this case it is going up because nobody knows where else to put their money."
In the WikiLeaks cable, China alleged that "the US and Europe have always suppressed the rising price of gold", but neither Weisbrot or Aizenman think such a policy is taking place or even possible.
Presently, China places strict controls on its currency, limiting foreigners from doing business in the yuan or trading it on foreign exchange markets. That could change in the next five years, according to governor Xiaochuan's recent announcement.
By owning such large reserves of US currency, and through controlling the yuan, China can keep its currency lower than it would be if it floated freely. This makes Chinese exports cheaper.
The relationship, in which Chinese investment in US government bonds allows low interest rates for Americans to buy Chinese products, has worked well for the last 15 years. In 2010, the US ran a $273.1bn trade deficit with China.
"We pay our debts in dollars so we can print money to pay our international debts," Weisbrot told Al Jazeera. Because of the dollar's status as a reserve currency, the US "can run trade deficits indefinitely" while borrowing internationally without serious repercussions, giving the world's largest economy a "big advantage", he said.
If gold, the yuan, or a combination of other currencies replaced the dollar, the US would lose that advantage.
Without a replacement in the near term, nothing will replace the dollar as the world's reserve currency in the next five years at least. But nothing lasts forever. "When they [China] want the dollar to fall, they will let it," Weisbrot said. "The dollar will fall eventually but that could be a long time away."
The fate of the dollar notwithstanding, a separate WikiLeaks cable outlines some of the broader ambiguities of the world's most important economic relationship, or "ChinAmerica", as it has been dubbed by historian Niall Ferguson.
"No one in 1979 would have predicted that China would become the United States' most important relationship in thirty years," the cable stated. "No one today can predict with certainty where our relations with Beijing will be thirty years hence."
You can follow Chris Arsenault on Twitter: @AJEchris Reply 5 1 Flag as Offensive Jamstar on Sep 13, 8:53 PM said: Joe, check out the Max Keiser show from last night, he gave you a mention :) Reply 13 0 Flag as Offensive Skull & Bones on Sep 13, 9:02 PM said: The global Ponzi is almost up folks.....we're trading on fumes left in the tank. The rumors are being spread to buy enough time for an "organized" default in Greece.........whatever that means. The shorts might want to understand that Greece default announcement may very well trigger one hell of a "buy the news" rally in global markets.......you have been warned. Reply 12 0 Flag as Offensive AgMgr on Sep 13, 9:15 PM said: @Skull & Bones: The global Ponzi is almost up folks...Don't expect to hear from Joe what you really need to know. Reply 8 0 Flag as Offensive reagan on Sep 13, 9:21 PM said: perfect traders market.
but its all going to zero Reply 0 0 Flag as Offensive Yep on Sep 13, 11:48 PM said: @reagan: Zero or infinity ... probably both. Reply 1 0 Flag as Offensive slapshod on Sep 14, 12:19 AM said: @Yep: "probably both"
Exactly. It's like one of those absolute value compound inequalities where the value is everything but one specified point on the number line. In this case, that one point would represent normalcy and healthy macro conditions. Hyperinflation or deflationary implosion? Both are equally likely and we may see both in sequence or even (paradoxically) at the same time. One thing's for sure - this bird's goin down. Smoke em if ya got em, kids. Reply 0 7 Flag as Offensive soros on Sep 13, 9:30 PM said: All the comments are from bears. Love to see it. When it's supposed to go down and doesn't, it's going up.
I can't explain it. Just BTFD. Reply 1 0 Flag as Offensive IndianaJohn on Sep 13, 9:33 PM said: Them nice gummint mens save the ticker in time. Again. Reply 4 0 Flag as Offensive Beauchamp (URL) on Sep 13, 10:58 PM said: What's ridiculous is that there are fools out there who think everything is fine. We'll see how the idiots buying stocks today feel a year from now.
I'll give you a hint: poorer. Reply 0 0 Flag as Offensive RUBBISH! on Sep 14, 12:32 AM said: MARKETS WILL CRASH TOMORROW. Reply 0 0 Flag as Offensive WAKE UP AMERICA! on Sep 14, 12:34 AM said: THE END IS NIGH, YOUR OPTIMISM COULD ONLY SALVAGE BRITNEY SPEARS; BUT THIS IS OUT OF YOUR HANDS, THE BIG EUROPEAN MONSTER IS SICK; AND WITHOUT IT YOU ARE VULNERABLE, WEAK, AND STERILE... Reply 0 0 Flag as Offensive edonly (URL) on Sep 14, 1:05 AM said: MBT Shoes can be used for playing with your children, walking dog, shopping as well as doing exercise. These shoes are preferred by people who walk and stand a lot in the whole day. Reply Join the discussion with Business Insider
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