The 100 day moving average of the dollar index has started moving up, and the 200 day isn’t far behind.
This means futures based and other trend followers will start piling in, depending on their
system parameters. With the dollar index 57.6% euro this will but serious downward pressure on the euro for purely technical reasons.
questions:
Where do euribor swaps get priced if euribor settings cease?
Are there default provisions to deal with this possibility?
Crude oil below $69 is now offering even stronger fundamental support for the $US.
And it’s not impossible cash flow issues of member nations may be causing ‘cheating’ on OPEC quotas
that would ultimately show up in lower Saudi production as they try to hold price. The Saudis are currently
at about 8 million bpd, and the rest of opec could probably add 2 million bpd in production if it wanted to.
That would bring Saudi production down to a dangerously low 6 million bpd, where a drop in world crude
demand due to substitutions and output stagnation could be very difficult to match with production cuts.
The US is a large importer of crude- lower prices make dollars harder to get over seas.
And purchasing power parity already overwhelmingly favors the dollar, and there is no
domestic US inflation of consequence to reverse that, especially with now falling energy prices.
Yes, it is sometimes that simple.
Shifts in portfolio preferences can still push the dollar down but the ‘trade flows’ are the stronger force longer term.
Rising dollar = reduced S&P earnings due to translations of foreign profits and less competitive exports
The weak US consumer personal income kept low by the 0 rate policy and ‘over taxation)
will keep a lid on imports even with lower import prices.
Falling gold will quash the ‘Fed printing money’ inflation myth and reverse prices driven up by precautionary
‘inflation hedge’ allocations.
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No telling which way the Obama administration will go.
Probably the middle path which will mean muddling through with high, repressive output gaps
that do the most damage to their own constituency.
It’s not a bad environment for stocks, the near term risk remaing a strong dollar that reduces translations of foreign earnings and
softens exports, while reduced personal income (including a large drop in net interest income) keeps consumption relatively low.
7 deadly innocent frauds updated draft:
Gov’t Spending Is Like Tiger’s Dating
By Jim Rogers
Dec. 11 (CNBC) — The U.S. government’s plan to increase spending as a way to kick-start the economy will leave the country with no way to help its way out of the next crisis, Jim Rogers, chairman of Jim Rogers Holdings, told CNBC Thursday.
The Treasury Department “has been putting out all of this stimulus and now they’re talking about extending the (Troubled Asset Relief Program),” Rogers said.
On Thursday Treasury Secretary Timothy Geithner announced TARP would be extended into next year in part to free up public money for job creation, but also as insurance against another crisis.
Geithner “is a very smart person,” but “he’s been wrong about everything for the last 15 years,” Rogers said.
“Why are we listening to any of those guys down there? They’re making our situation worse,” he said. “They said in writing yesterday the solution to our problem is to spend more money … that’s what got us into this problem: too much debt.”
“That’s like saying to Tiger Woods, ‘you get another girlfriend and it will solve your problems’ or ‘five more girlfriends and you will solve your problems,'” he said.
“We’re all going to pay the price for this in, one, two, three years,” Rogers added. “The next time that we have problems in the economy, which will not be too long, we don’t have any bullets left. We’ve shot everything we had to solve our problems.”
“What are they going to do, quadruple the debt again? Print more money? We don’t have any trees left. We’re running out of trees.”
Long the Dollar, but Likely to Lose Money
Looking to his investment positions, Rogers said he is betting on the dollar more than he has been in two to three months, but that his short-term trades rarely work out.
“I am sure I’m going to lose money because whenever I try to short-term trade I almost always nearly lose money, so I am sure I deserve to lose money for trying it again,” he said.
The reason he thinks there might be rally in the greenback is that everybody — including himself — is pessimistic on the currency, Rogers said.
Rogers also predicted a currency crisis or semi-crisis.
“You already see Vietnam devalued. Last week Brazil put on the special taxes for currencies,” he said. “You’re seeing what’s happening in Dubai. Greece is in trouble. Ukraine, Argentina; there are plenty of people who we could put on the list. Spain. Ireland.”
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Not looking good. Looks like something bad did happen back in July.
The combo of modestly rising GDP, with rising unemployment due to productivity is very unattractive politically.
Deficit myths keep them doing anything substantive.
Still wouldn’t surprise me if they announce something dramatic, like they are going to pay for healthcare by cutting back in Afghanistan and elsewhere, which, program merits aside, will not be supportive to demand.
And if gold turns south (no sign of that reversal yet)/dollar spikes whatever optimism is left vanishes with the realization that all the Fed’s horses and men are irrelevant regarding deflation.
Karim writes:
Conf Board Survey
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While he’s a bit shaky on his understanding of monetary operation his intentions are clear enough:
Bank of Canada talks tough on rising dollar
By Kevin Carmichael
Oct. 3 (The Globe and Mail ) — Bank of Canada Governor Mark Carney is done with nuance. His new message for those who doubt he’s prepared to weaken the dollar if Canada’s recovery veers too far off track: Just watch me.
Despite stronger than expected growth in the second half, the central bank has actually reduced its outlook for the next two years, saying that’s when the current appreciation of the currency will show up in growth figures.
Given that backdrop, Mr. Carney said he would have no choice but to act if international investors continue to push the dollar higher – something they’ve been quite willing to do, in part because most analysts and investors are skeptical a central bank that hasn’t intervened in currency markets since 1998 is willing to back up its talk with action.
But if the currency continues to surge, Mr. Carney stressed that he retains “considerable flexibility†to stoke the demand required to get inflation back to the 2-per-cent target. His options would include creating money to buy U.S.-dollar denominated assets or direct intervention in foreign exchange markets.
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Looks like China is pretty much keeping its currency stable vs the dollar and depreciating against the rest of the world, probably to support it’s exporters.
(Note the recent rise in exports and rhetoric regarding the importance of exports.)
This means if the currency is ‘naturally’ strong China is buying $US financial assets to keep it fixed to the $US. The second chart shows holding of tsy secs but China could also be adding agencies and other $US financial assets now that ‘agency credibility’ has been restored.
Seems they are quietly testing the waters to see if Geithner will come down on them as Paulson did.
If we had an administration that understood the monetary system we’d encourage them to do this and export without limit, while sustaining domestic demand with fiscal adjustments (lower taxes and/or higher spending, depending on your politics) which obviously ‘good things’ (again, if you understand the monetary system).
In fact, with the entire world seeming desirous of exporting to the US if only we would let them, a serious level of prosperity is there to be had.
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U.S. Criticizes China for Lack of Exchange-Rate ‘Flexibility’
By Rebecca Christie
Oct. 16 (Bloomberg) — The U.S. Treasury Department criticized China for the “lack of flexibility†of the yuan and a buildup of foreign-exchange reserves while stopping short of branding the nation a manipulator of its currency.
“The recent lack of flexibility of the renminbi exchange rate and China’s renewed accumulation of foreign-exchange reserves risk unwinding some of the progress made in reducing imbalances,†the Treasury said in its semiannual report to Congress on the currency policies, using another name for the yuan.
The report released yesterday, which found that no major U.S. trading partner illegally manipulated its currency in the first half of 2009, comes after Group of 20 leaders adopted a “framework†for sustaining global growth and reducing lopsided flows of trade and investment. The framework could see China boosting domestic demand, the U.S. saving more and Europe increasing investment.
“Both the rigidity of the renminbi and the reacceleration of reserve accumulation are serious concerns which should be corrected to help ensure a stronger, more balanced global economy consistent with the G-20 framework,†the report said. “The Treasury remains of the view that the renminbi is undervalued.â€
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Interesting! At least a small sign of the world beginning to figure it all out.
>
> The United Nations called on Tuesday for a new global reserve currency to end dollar
> supremacy which has allowed the United States the “privilege” of building a huge trade
> deficit.
>
UN calls for new reserve currencyOct. 6 (Breitbart) — The United Nations called on Tuesday for a new global reserve currency to end dollar supremacy which has allowed the United States the “privilege” of building a huge trade deficit.
“Important progress in managing imbalances can be made by reducing the reserve currency country?s ‘privilege’ to run external deficits in order to provide international liquidity,” UN undersecretary-general for economic and social affairs, Sha Zukang, said.
Speaking at the annual meetings of the International Monetary Fund and World Bank in Istanbul, he said: “It is timely to emphasise that such a system also creates a more equitable method of sharing the seigniorage derived from providing global liquidity.”
He said: “Greater use of a truly global reserve currency, such as the IMF?s special drawing rights (SDRs), enables the seigniorage gained to be deployed for development purposes,” he said.
The SDRs are the asset used in IMF transactions and are based on a basket of four currencies — the dollar, euro, yen and pound — which is calculated daily.
China had called in March for a new dominant world reserve currency instead of the dollar, in a system within the framework of the Washington-based IMF.
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I think they want to accumulate financial assets and would like to get a currency they could feel good about to do that.
And at the same time they want to net export.
The only way they could do that is to somehow ‘force’ us to borrow their new currency in order for us to net import from them.
It would be easier for them to instead come up with an inflation index and only sell their exports in exchange for financial assets linked to their new inflation index. As long as the financial assets are linked to their index the currency of denomination isn’t critical. But credit worthiness would be critical.
>
> (email exchange)
>
>> The following was printed in the Independent in the UK. Doesn’t this move
>> threaten the US Dollar as the world’s reserve currency?
>
Doesn’t matter what anything is ‘priced in’ as that is just a numeraire. What matters is what the ‘save in’ which determines trade flows.
>
> Interesting. A political move.
> Seems a clumsy project though: they need to find a name for this ‘basket
> currency’ (petrodollar?) and then accept payments in any ‘real’ currency
> equivalent to the value of the ‘petrodollar’ at the time of payment.
> Possible that all will continue to use dollars for payment.
> Economic consequences will depend on whether this has any effect on the
> willingness of foreigners to hold the given amount of dollars they own.
>
>>
>> “In the most profound financial change in recent Middle East history, Gulf
>> Arabs are planning – along with China, Russia, Japan and France to end
>> dollar dealings for oil, moving instead to a basket of currencies including
>> the Japanese yen and Chinese yuan, the euro, gold and a new, unified
>> currency planned for nations in the Gulf Co-operation Council, including
>> Saudi Arabia, Abu Dhabi, Kuwait and Qatar. Secret meetings have already
>> beenheld by finance ministers and central bank governors in Russia, China,
>> Japan and Brazil to work on the scheme, which will mean that oil will no
>> longer be priced in dollars.â€
>>
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>
> (email exchange)
>
> On Thu, Oct 1, 2009 at 7:27 AM, wrote:
>
> May be of interest-from JPM China weekly-so much for lower dollar being inflationary!
>
Details suggest that:
the fall in export prices is rather broad-based across manufactured goods, including chemicals, metal products, machinery and
equipment, telecom products, autos, handbags, and shoes. Indeed, feedback from exporters in coastal areas showed that
although orders from the EU and the US have been increasing, importers are very sensitive to prices and have been negotiating
prices aggressively. The general trend is consistent with our view that although external demand, especially from the G-3
economies, is experiencing a cyclical rebound, the bounce is from unprecedented lows. As such, there is still plenty of slack in
the global economy and the large output gap is depressing the pricing power of producers everywhere.
and Japan has to be seeing the same thing.
Won’t surprise me if they start buying dollars and test the US admin’s resolve on that issue
Be nice if they do and help sustain our real terms of trade!
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