What's Important in the Financial World (9/19/2012)

Bundesbank Chief Expresses His Displeasure

Bundesbank leader Jens Weidmann has been unhappy with the European Central Bank’s plan to buy sovereign debt in financially weak nations since the idea was first floated. Now, he has viciously attacked the practice in public. In his mind:

[T]he aid is able at first to rid itself of its debts while consumer demand grows strongly and fuels a strong recovery. But this later develops into inflation and the monetary system is destroyed by rapid currency depreciation.

So, yet one more banker says that inflation is a sure byproduct of aggressive monetary easing. Some members of the Fed have expressed similar opinions in the past. Weidmann, unlike his counterparts in the United States, used his comments to attack Wolfgang Schäuble, Germany’s finance minister. At least Fed members leave Tim Geithner alone.

Saudi Arabia to Ship More Crude

The Financial Times, in an exclusive report, says that Saudi Arabia will ship additional crude to some of the world’s largest consuming nations. The kingdom fears that the increasing cost of oil will stifle what is already a troubled global economic recovery. According to the report:

Saudi Arabia wants to reduce prices while avoiding an open confrontation with Iran. Tehran has warned Saudi Arabia not to increase crude oil production to offset the impact of US and European sanctions on Iranian crude oil exports, which fell to a 22-year low of 2.85m b/d last month.

The oil market is on edge as anti-US protests spread across the Middle East and tensions rise between Israel and Iran. A large naval minesweeping drill is also being conducted by more than 20 navies including those of the US, UK and France in the Strait of Hormuz, the world’s most important potential chokepoint for oil tankers.

Fiscal Cliff Eclipses European Trouble

A report from Merrill Lynch shows that investors are now more worried about the “fiscal cliff” than the financial trouble of Europe:

Europe is staging a comeback in investor portfolios while concerns about the U.S. fiscal cliff have taken center stage, according to the BofA Merrill Lynch Fund Manager Survey for September.

The EU sovereign debt crisis is no longer the top tail risk identified by investors, for the first time since April 2011, having been surpassed by the U.S. fiscal cliff. The proportion of the panel who most fear EU sovereign risk fell to 33 percent from 48 percent in August. The U.S. fiscal cliff has become the biggest tail risk for 35 percent of global investors. “Investors now view the U.S. fiscal cliff as a greater threat than the eurozone — and the upcoming election is putting these fears into sharper focus,” said Michael Hartnett, chief investment strategist at BofA Merrill Lynch Global Research.

Douglas A. McIntyre