The Fullermoney Global Strategy Service

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David Fuller and Eoin Treacy's Comment of the Day for Chris .
Most Recent Audio: 7 Nov 2013
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Monday 16th September 2013

Summers Quit Fed Quest as Democrats Spurned Obama Favorite - Here is the opening from Bloomberg's report on the news event of the day:

Lawrence Summers's withdrawal as a candidate for Federal Reserve chairman came after an unprecedented campaign to stop a Fed nominee even before he was announced, spearheaded by Democratic senators who took on a president of their own party.

Several Democratic senators, including Jeff Merkley of Oregon and Sherrod Brown of Ohio, mounted a sustained lobbying campaign, pressing colleagues in their own party to oppose Summers on the grounds that he was too lax on financial regulation. They pressed forward as the White House was focused on building support for a military strike in Syria.

"Any possible confirmation process for me would be acrimonious and would not serve the interests of the Federal Reserve, the administration, or ultimately, the interests of the nation's ongoing recovery," Summers wrote in a letter yesterday to Obama.

People close to the process said Summers was Obama's top pick all along, even though White House officials late last week insisted the president had yet to make a decision.

Investors are debating the speed at which the Fed will taper its $85 billion in monthly bond purchases. Traders had speculated that, given Summers's past questioning of the effectiveness of quantitative easing, he may have pulled back stimulus faster than other candidates such as Yellen. Stocks rose and the dollar fell today.

Still, Yellen was viewed more favorably among investors, with 60 percent of respondents holding a positive view, compared with 37 percent for Summers. Thirty-five percent had a negative view of Summers, compared with 15 percent for Yellen.

My view - Interestingly, Ben Bernanke also wanted Janet Yellen to be his successor. However, there appears to have been some tension between the President and the Fed Chairman, shortly before Barack Obama was interviewed by Charlie Rose in June, and indicated that he would not reappoint Bernanke. There have been rumours ever since, even though Bernanke had indicated he wished to retire before Obama's comment during the June interview.

In any event, investors have been reassured that there is less risk of Bernanke's QE programme being unwound prematurely (shades of 1933), even though Obama has yet to nominate Yellen.

Additionally, in what has been a choppy environment for most stock markets since May, investors no longer have to worry about a contentious battle between the Senate and the White House following Lawrence Summers' withdrawal as a candidate for Federal Reserve Chairman.

More importantly, investors are now far less worried about the prospect of another war in the Middle East involving the USA. Even though Obama's plan only mentioned a cruise missile strike, it did not take too much imagination to consider some of the potential consequences, given the instability and bitterness within that troubled region. Chief among these were potential reprisals against Israel and a serious increase in tensions with Russia, given their role as protector and provider for Assad's regime. Additionally, various Al-Qaeda cells in the Middle East and beyond would have had additional incentives to prepare strikes against soft Western targets.

The situation involving Syria's civil war and its chemical weapons is still a 'breaking story' in news jargon. Nevertheless, for global investors the international scene understandably feels a little less dangerous today.


Clive Hale's View from the Bridge: We have not yet met our Waterloo - My thanks to this free-press analyst and author for his interestingly controversial views. Here is the opening paragraph:

For now hostilities are off the agenda in Syria thanks in no small part to Russia's vested interests in the region - they very rarely do anything altruistically if ever... The markets however still have a few "minor" skirmishes to contend with, as we contemplate the approach of Halloween, and in no particular order they are; tapering, who will lead the Fed when we say good riddance to Bernanke in January and the small matter of the debt ceiling.

My view - In addition to "minor skirmishes to contend with", Wall Street has led many stock markets back into short-term overbought territory. I expect choppy activity to continue for the medium term.


Today's interesting charts - Price action remains subject to sudden changes in this choppy environment.

The Indian Rupee plunged against the US dollar (INR/USD) (weekly & daily) between May and August, reaching a climactic low on the 28th of last month. That remains a floor of at least near-term significance and this rate is still well beneath its declining 200-day moving average. While overhead trading may slow the recovery, a clear downward dynamic (large red candle) will be required to check this rally beyond a brief pause.

US Indices including the Dow (weekly & daily), S&P 500 (weekly & daily), Nasdaq (weekly & daily) and Russell 2000 (weekly & daily) remain in their overall upward trends and are testing their highs, but they are also short-term overbought. Nevertheless, closes beneath the late-August and early-September lows are required to alter the medium-term uptrend consistency.


My personal portfolio: Nikkei stock market futures trade rolled forward - This is a delayed contract report because when I mentioned the position last Monday, I was expecting it to be rolled forward this week. Instead, my statement indicates that it occurred last Wednesday. Accordingly, my expiring September Nikkei long was sold at 14460 on 11th October, against my purchase at 14287.5 on 1st August. A December contract long was opened simultaneously last Wednesday at 14516. These prices include all spread-bet dealing costs.

With hindsight, I bought the Nikkei (weekly & daily) too soon on 1st August. However, it recovered this month, providing further evidence that the current trading range which commenced with a big downward dynamic on 23rd May is a medium-term reaction and consolidation phase within the overall upward trend which commenced in mid-November 2012. A break beneath last month's lows would be required to challenge this view.


Email of the day - On celebrating the birthday and life of Lee Kuan Yew:

"Today, on Sept the 16th, we in Singapore celebrate the birthday and life of Lee Kuan Yew. He is 90 years old today. What an amazing difference he has made to Singapore. Speaking to the Straits Times in Singapore today, Prime Minister Lee Hsien Loong said his father's greatest achievement was building a nation "nobody believed possible".

"In Lee Kuan Yew's honour, I like to recommend to the collective his latest book published a few months ago, "One man's view of the world". Statesmen and politicians (past, present and future) seek him constantly for his views and opinions. Here in the book , he is as candid as ever!

"Some of the topics are 1. China - a strong centre 2. America - troubled but still on top 5. Vietnam - locked in a socialist mindset 8. Global economy - what next?

"I like to share two of the Q and A and one excerpt from this latest book. It is easy to read, and filled with insights and wisdom:

Pg 60, Question: What sort of problems do you see emerging within China as result of this very rapid economic transformation?
Answer: I see their weaknesses in two fields. No governance institutions - the individual is stronger than the person who occupies the office. Second, they don't have the rule of law, it's the rule of the individual in charge. So every change of leader can mean a change of several echelons or levels of the people at the top. That's a destabilizing factor.


Pg 91, Question: You mentioned that America's ability to attract immigrants is partly why it is able to remain competitive globally. But migration is also bringing about some unease. The Latino population, for example, is expected to grow significantly.
Answer : Yes. The question is, do you make Hispanics Anglo- Saxon in culture, or do they make you Latin American in culture. And if they live together in clusters, they will prove a real test for America.


On the chapter of Middle East - a spring without a summer. The opening paragraphs,
"When the flurry of excitement over the so-called Arab Spring, is finally over, the world will probably come to the stark realization that nothing much has transformed the governance in that region.

The Middle East region lacks a history of counting heads and making decisions on that basis. There is no democratic tradition - whether in ancient Islamic times, in more recent colonial history, or in the post-colonial nationalistic era. When the British and the French protectorates broke up into separate states, they all ended with one-man rule - not by coincidence, but for deep cultural and sociological reasons.

"I hope these bite size nuggets would encourage interested readers to get hold of the book and read his thoughts. A highly compelling read. The book is published by Straits Times Press.

David Fuller's view Thank you for pointing this out, not least as I had not heard about the book but Eoin and I will certainly order it.

I have been an admirer of Lee Kuan Yew since the early 1970s. Singapore might not even exist as an independent country without him. I have often said that Singapore had the best economic governance of any country during my lifetime to date. That extraordinary legacy is entirely due to Lee Kuan Yew's genius, willpower and visionary guidance.