In the news, on September 7, Bloomberg reports that the UN wants a new global currency, ostensibly to protect emerging markets:
“UN countries should agree on the creation of a global reserve bank to issue the currency and to monitor the national exchange rates of its members, the Geneva-based UN Conference on Trade and Development said today in a report.
China, India, Brazil and Russia this year called for a replacement to the dollar as the main reserve currency after the financial crisis sparked by the collapse of the U.S. mortgage market led to the worst global recession since World War II. China, the world’s largest holder of dollar reserves, said a supranational currency such as the International Monetary Fund’s special drawing rights, or SDRs, may add stability. “
In the news, gold failed to find a foot-hold above $1000, despite a weakening dollar. A better-than-expected jobs report probably had something to do with that.
“Gold futures fell Thursday for a second session, continuing to pull back from the $1,000-an-ounce level as a slightly better than expected U.S. weekly jobless data reduced the metal’s safe-haven appeal.
The number of people filing for initial unemployment benefits fell to a seasonally adjusted 550,000 last week. Economists surveyed by MarketWatch expected claims to stand at 558,000.”
I’m not any place where I can blog easily but I had to post this paragraph from Jim Willie’s newsletter on a possible dollar debacle in the coming week/weeks…
I’m hearing that US embassies are being instructed to buy the local currency (?) –
Is this really in the works, is it scare-mongering, gossip, disinformation…?
Who knows, but it’s worth posting.
Be alert.
I note that gold, after looking like it would correct, now seems to have gone back up and the dollar is teetering again…as it’s done many a time.
I’m ready to move if I have to.
Down here in the pampas, swine flu is rampant. People go in and out of Buenos Aires with masks. The portenos don’t have the best reputation on the continent, and this is making it worse. Everyone is holding their breath anyway – with or without masks.
The winds are beginning to blow in from the delta, as they always do at this time of year. It feels like brisk spring weather in the US. Prices in the city are high but everyone is waiting for something to happen. Don’t buy now, says an expat blogger who watches real estate. Everything’s about to come down. People are pushing up the prices to squeeze out the last penny before things crash.
Don’t have anything to do with them, says a Brazilian businessman. “Them” means Argentines – who are said to be arrogant…touchy….corrupt…drama queens…
One the other hand, everyone likes the Brazilians. They’re the Italians of South America.
In Argentina, they have farms and food…and they cry, goes a Brazilian saying. In Brazil, they don’t have food. And they dance.
It’s true.
I had lunch at a restaurant on the banks of the Rio dela Plata with an American – a just-retired attorney from Virginia – who is down here looking for property. He was talking about vaccinations. Some of his theories were definitely paranoid – but it’s the kind of paranoia that’s plausible these days. He wanted to drop his American citizenship, but was afraid it would raise a red flag. He talked about the exit tax and how it prevented the wealthy from leaving. It was the first time in my life I was grateful for not being a financial success.
I suggested that the purloined letter strategy might be the best. Hide right out in the open, in the most obvious place. We discussed what that would be. It was a toss up between getting a job at Goldman Sachs, working for the Pentagon, or emigrating to some member of the Axis of Evil.
He had fish. I had a salad – an odd choice in this meat-saturated culture. But I’m on a budget. Wandering the globe on your own steam would be ruinous without one. For me, a night at a restaurant means a couple of days of rice and beans to make up for it. I haven’t couch-surfed yet, but it may yet be in the cards, if this trip gets prolonged.
Jim Willie:
“The globe is losing patience with leadership and management of the USGovt ship at sea. They simply refuse to offer a credible solution to the primary keynote crack in the hull, falling housing prices and cratered mortgages, each of which work their destructive magic to wreck the banks. The home loan modifications are a farce, a travesty not designed to modify but rather to frame a series of loan forbearances. The motive for not fixing the mortgage mess is mysterious to the masses, but not here. Jackass claims have been consistent, that effective loan modifications would alter the underlying mortgage bonds drastically. The Powerz wanted enough time delay to rejigger as many mortgage bonds as possible into new securities, thus rendering impossible any legal challenges to the original mortgage package process that was loaded with fraud to the hilt. Any drastic alteration of mortgage bonds would reveal vast fraud of two types. Many mortgage bonds did not have clearly certificate property titles with careful registrations. And then the coyote ugly part, that many mortgage bonds were simply counterfeits sold into a frenzy filled credit market designed to process the most vile vermin on paper. The USDollar is vulnerable here and now, as a new wave of bank losses is imminent from numerous types of mortgages along with some basic types. Let’s see if the grapevine is correct, that the USDollar will begin to see a trashing initiative starting this weekend, out of Asia. They must be impatient beyond description. This autumn is expected to see some rather tumultuous events unfold, as the US financial structures are breaking across most of its ramparts even as loyalty to it is fading like a mist. There will be no return to the US of yesteryear, only a tragic march.”
“If all a country needed to do to achieve manufacturing supremacy and economic dominance was devalue their currency then Georgia and Bosnia would be considered paragons of economic prosperity.”
Aha. The folly of naivete. Mr. Pento’s mistake is to think that manufacturing supremacy is what our oligarchs have in mind for the US. He must be kidding.
The goal is to destroy US economic independence (let alone dominance) and subjugate it to an international cabal centering around….guess who…the oligarchs.
The market is talking out of all sides of its many mouths:
USD/JPY is rallying and most currencies strengthened against the dollar, except the pound, suggesting a return to the risk trade.
But……the pound sank..suggesting risk aversion
But…the stock markets are up, suggesting an increase in risk appetite
But……. the bond market is teetering as long bond yields are soaring, an indication that bond traders are skeptical about the future outlook
But…..gold and silver prices are hitting resistance and falling back, suggesting either technical exhaustion or some return of risk appetite
But….gold and silver prices are still high, especially for the season, which suggests widespread uncertainty about the economy
But….jobless claims are down, which is good news for the economy
What does your earnest blogging-trader do on a day like this? She sits on the sidelines and spends the day printing charts of the indices. She also reviews her most recent trading sins and repents. Here’s her mea culpa.
I repent that I entered a trade with panic rather than reason.
I repent that I entered it on a Friday morning before a long weekend (last week) when the markets were thin and volatility greater than normal. I also didn’t calculate the spread and bought higher than I should have.
I repent that I forgot about position size and just dumped whatever I could into it
I repent that when the trade moved in my favor, I didn’t sell the whole position but left half in
I repent that I didn’t do the fundamental analysis but did a multicultural trade – picking 12 currencies that sounded good to me.
I came out alright, but it was pure fluke.
Your blogging-trader did not lose money. She made a bit. Enough to pay some pressing bills. She should be thankful, but being a trader, she knows that making money on a bad trade, is not the way to go.
Update: Non-farm payrolls came in at negative 345k after an expected negative 525k – signaling that the recession could have bottomed. This should feed the risk trade, which means my multi-currency trade (Koruna, Nordic currencies, and Singapore dollar) should end up alright (I’m a bit in the red now). The time frame is one more week or two)
The big currency story of last week was the dollar meltdown, taking the dear old greenback (or the wicked insignia of imperialism, take your pick) down from over 83 to under 80 on the USDX (dollar index – an index measuring the dollar’s strength against a basket of currencies). Everything strengthened against the dollar – pound, yen, loonie, aussie, kiwi, rupee, gold, silver..
And only a few weeks ago we were within striking distance of 90. When will I ever learn not to try and pick tops? My perfectionism gets in the way of money-making. I seem to want to be a soothsayer rather than rich.
But weeping aside, we saw this same sort of slide last year, only in spades. The dollar sank almost to 70 in March 2008, a move unequaled since the USDX began. After that, it resurrected itself, near miraculously, and continued treading water for the rest of the year. I’d hoped dollar-holders would see 90 plus. But 89 was as high as we got and then went back into the upper 70s, a 12.17% drop (11/21/08). Right now, we’re roughly at -8.9% (approx 10 points down from 89.6%), with the momentum to the downside still strong.
Last week’s swan-dive has the sweaty, knuckle-whitening smell of 2008 all over it. Chuck Butler of Everbank cautions against chasing the move, but who wouldn’t be tempted to have a go? The momentum is there, the fundamentals are there, the news supports both – so says the ever insightful Kathy Lien at GFT Forex.
The next crisis will be in currencies, points out Jim Rogers, rather redundantly.
But even he confesses to being baffled over where to hide.
The big driver behind all this is a statement by Bill Gross, Pimco’s manager, that the US could see a downgrade in its credit rating.
This struck me as rather odd. Especially, seeing as how dear old Pimpco was the charity child of the Fannie and Freddie group-hug from the government.
I wonder…I cogitate…I roll my eyes….
After all, the credit rating agencies (S&P, Moody’s Fitch’s) were talking about the UK heading for a ratings downgrade,not the US. They didn’t say anything about the US. And the UK’s debt -to-GDP is worsethan ours (it’s near 100% GDP).Correction June2, 2009): I should clarify that I’m referring to public debt as a ratio to Gross Domestic Product, and checking the figures, I think I got this wrong. Will repost the figures.
Who the heck is listening to these ratings racketeers anyway? Weren’t they the same folks who put gold stars on some of the stinkiest pieces of manure being sold on the market?
Hmmm. What have we here? Could it be a little PR stunt? A little one-downmanship among friends to make a bit of pocket-change all around? A little game of push-the-buck- over-the 200-day- MA-cliff?
On the other hand, forgetting my cynicism for the moment, there are lots of real reasons for this weakness, besides trial balloon-floating from Mr. Gross, the main ones being the bounce in the stock market and the relatively smaller size of the quantitative easing in the Eurozone.
Add to that a thin trading day, which exaggerates any move, and the anticipation of the long weekend…
But it’s my view that the dollar holding up was not about risk aversion as such, although it probably included a component of it. (Actually, recently, you can’t really say it has shown any strength – it’s been struggling bravely). The dollar’s rally was about deleveraging – which is not the same thing at all. Investors might think that sentiment is getting better but that doesn’t mean that positions don’t still have to be unwound and debts paid back.
But right now, it’s a giddy party again. The Indian Sensex went up 17% in one minute on May 18 on the unexpected news that the incumbent Congress party and the liberalizing PM Manmohan Singh had been reelected. But notice that the spike also involved some hasty short-covering. And it was helped by Sri Lanka declaring that the 25 year war with the rebel (or terrorist, depending on your persepctive) Tamil Tigers was officially over. The Sensex led the world financial bounce with an upsurge of 48%.
James Turk of Gold Money is afraid that the gold cartel (Goldman Sachs, Deutsche Bank, JP Morgan Chase, and to a lesser extent, Citi) may not go down so easily:
“The gold borrowed from central banks would not be repaid because obtaining the physical gold to repay these loans would cause the gold price to soar.So beginning this decade, the gold cartel would conduct the government’s managed retreat, allowing the gold price to move generally higher in the hope that, basically, people wouldn’t notice.Given its ‘canary in a coalmine’ function, a rising gold price creates demand for gold, and a rapidly rising gold price would worsen the marked-to-market losses of the gold cartel.
So the objective is to allow the gold price to rise around 15% p.a., while at the same time enable the cartel members to intervene in the gold market with implicit government backing in order to earn profits to offset the growing losses on its gold liabilities.Its trading strategy to accomplish this task is clear.The gold cartel reverse engineers the black-box trend-following trading models.
Just look at the losses taken by some of the major commodity trading managers on their gold trading over the last decade.It is hundreds of millions of dollars of client money lost, and gained for the gold cartel to help offset their losses from the gold carry-trade.All to make the dollar look good by keeping the gold price lower than it should be and would be if it were allowed to trade in a market unfettered by government intervention.
There are only two outcomes as I see it.Either the gold cartel will fail in the end, or the US government will have destroyed what remains of the free market in America.I hope it is the former, but the continuing flow of events from Washington, D.C. and the actions of policymakers suggest it could be the latter.”
My Comment:
This is my fear. I see a growth in public awareness. I see people writing and talking. But at the top, the policies don’t reflect public opinion at all. That tells me the disconnect is complete. They don’t listen, because they don’t have to. They’re hearing their master’s masters’ voices.
“As most would predict, the Mexican peso (MXN) has dropped significantly, moving down almost 3% versus the U.S. dollar overnight. Fears of a global pandemic have driven investors out of the high yielding currencies of New Zealand (NZD), Australia (AUD), and Brazil (BRL). Risk aversion seems to be back in vogue, with investors moving funds back into U.S. Treasuries and the Japanese yen (JPY).
I read a story over the weekend that suggested the U.S. dollar would continue to strengthen no matter what happens in the global economy. The story said that the U.S. dollar would increase if the administration’s efforts to stimulate our economy worked, and that we would lead the rest of the globe into the recovery phase. On the other hand, it said that the U.S. dollar would also strengthen if the global economy continued to weaken, as investors would purchase U.S. Treasuries as a safe haven.”
My Comment:
This insight about the performance of the US dollar has also been mine.
De-leveraging (which is the collapse of asset values as they’re sold to pay off debt) is going on now all over the world in different asset classes. And de-leveraging mostly needs the US dollar.
In spite of a few sharp corrections downward, that’s what has held the dollar index (DX) up for a bit longer than dollar bears had anticipated.
Holding up, of course, is not the same as “bull market”.
The dollar’s fundamentals are still bad.
I don’t have hopes for any currency tied to a government behaving so recklessly. I hesitate to write this, but some of the high-level corruption we’ve seen is actually beyond third-world.
I say this with no schadenfreude. It’s deeply, traumatically, disturbing to find so much rot at the heart of the global financial system. At the very core of the “international community, ” if you will.
The worst criticism of imperialism, or of statism, or of financial corruption didn’t prepare me for this.
And it makes me very afraid.
What example does such behavior set? What message does it send to a world which takes its cue from the West, and from the US in particular. Can we really expect better from other governments?