First, the Swiss pulled the plug on the Euro. It caused a financial tremor resulting in serious currency carnage for the financial market. Just barely a week later in Davos, the Swiss signed a pact to establish a yuan trading center in Zurich. The die has been thrown. The West is sinking and the East is rising. This comes at the heels of China heading towards the leading financial powerhouse of the world. Taking over Japan’s second spot, the capitalization of the Chinese stock market increased 33 percent in 2014 reaching $4.48 trillion, which makes the market second only to the US.
The Swiss are prudent money people. Clearly, they must have known what is coming before deciding to decouple the franc-Euro peg. China is the largest foreign holder of treasury bonds. Till now, it has pegged the Yuan-USD exchange rate. If another Swiss-style decoupling of the Yuan-USD was to take place without notice, the financial earthquake will be an above 9 Richter scale. No one will be spared the trauma if this event takes place. Will the Yuan soar 50% against the USD in similar fashion like the Swiss? If so, financial markets denominated in the USD will be decimated.
As the world eagerly awaits for the anticipated QE from the ECB at the World Economic Forum, another currency trauma just took place. Telegraph reported “Denmark’s krone plunges as ECB readies quantitative easing package.” Each time a major central bank manipulates a currency, currency traders shudder. No longer is there a systematic currency price discovery by market forces. Currency is set at the whims and fancy of some central bank bureaucrat. Strangely, the most powerful money man of the ECB is missing at this important event in Davos. Still, the world anticipates in “suspense” to hear the words of the missing “god-like” man who is expected to launch a massive Euro QE.
Conversations at Davos typically focus on the thousands of wealthy and powerful folks who trek to the Alps every January for the World Economic Forum. This year, much of the chatter is about a man who won’t be making the trip: Mario Draghi.
Call him the ghost of Davos 2015. Draghi is skipping the forum for the first time since he became president of the European Central Bank in 2011, and with good reason. The bank is poised to embark on broad-based government bond purchases, expected to be announced Thursday, and an appearance at Davos might invite a slew of inquiries about his intentions.
“Draghi is the most important person in the world at the moment,” said HSBC Holdings Plc (HSBA) Chief Executive Officer Douglas Flint. Former Swedish Finance Minister Anders Borg, when asked whom he’d most like to speak with this week, quickly shot back: “Of course Draghi!”
Whatever the outcome of the anticipated speech by Draghi, the fact remains that the east is rising while the west is stalling. Will all the QE money printing save the world? Not likely. A financial reset may.
And I say unto you, Make to yourselves friends of the mammon of unrighteousness; that, when ye fail, they may receive you into everlasting habitations.