What you may have missed in the business news last week:
1. Argentina and the emerging markets go into spin.
I talked about this on Thursday in reference to interest rates, but the Turkish Lira, the South African Rand, the Russian Ruble and the Argentinian Peso did not have a good week last week.
The most entertaining part: Argentina did the policy foxtrot really badly. The central bank told everyone that it would no longer be supporting the peso (because it was running out of the foreign reserves that it needs to keep buying up pesos). The next day, it decided that Argentinians above a certain income bracket could now buy $2,000 per month to keep as savings, provided that they keep the dollars in an Argentinian bank for at least a year (why not borrow your forex reserves, eh?). If you withdraw the dollars before then, you get hit with a 20% tax on your withdrawal.
Unfortunately, no one in the Argentinian Central Bank seems to have realised that the black market exchange rate is more than 20% higher than the official rate… So your average Argentinian can still arbitrage by buying dollars from the central bank, taking the 20% hit, and then selling the residual on the black market at a profit. True – the arbitraging will cause the official and black market rates to realign temporarily. But once Argentina runs out of forex reserves (which it will under this policy), then that gap will return. With steroids.
The official commentator perspective: “Last week, the government of Argentina peed in its pant to keep warm.”
2. The continuing tapering of the Fed.
A few people have asked me whether the aforementioned devaluations were due to political instability and general uselessness of the governments in question.
It’s true – none of the emerging markets in question have been so great on the political front of late. And who knows – maybe that’s it.
However, I’d still put my money on the Fed taper. The now-outgone Mr Bernanke used his last meeting to tell us that the monthly purchase of bonds will drop by a further $10 billion in February.
I’d expect this story to continue. Why? Because crashing emerging market currencies indicate that the money created in the stimulus is now returning to US shores. Where it’s going to start having the impact that it was meant to have initially: improving the US economy.
As it improves, so the amount of new stimulus will be reduced, so more money will return, so emerging markets begin to look ever more shaky… And so on, until the US has another bubble that bursts.
DeepMind is a “secretive start-up” that was rumoured to be at the heart of a bidding war between Google and Facebook. Google won, with a winning bid of $400 million.
It seems that DeepMind has been developing algorithms to map human reactions to stimuli. Or, to use the buzzword, “artificial intelligence”.
Google is taking over the world.