:D "from a long bull to a bloddy bear" :D


The Long-Term Dollar Bear
Steve Saville
16 December, 2002

Last Thursday it was reported that the US current account balance for the 3rd quarter of this year was a deficit of $127B, about the same as the all-time high reached during the second quarter. Despite this huge out-flow of money from the US each quarter, the US Dollar Index has only fallen by around 15% from last year's major peak. Dollar bulls say this is a sign of US strength (the bullish argument is that the current account deficit is a result of the enormous foreign investment demand for US Dollars and that this demand is likely to persist). Others argue that the US$ remains relatively firm by default, that is, it hasn't collapsed because the main alternatives - the euro and the Yen - are unattractive. Both arguments are wrong.

The massive US current account deficit hasn't led to a massive decline in the US$ yet because we are still in the early stages of a new cycle. As sure as night follows day (well, maybe not quite that sure) the US$ will continue to fall...and fall...and fall...until the US current account moves back into surplus. Based on where we are today it is difficult to believe that the US will ever have a current account surplus again, but it will happen.

Below is a chart comparing the US quarterly balance on current account with a trade-weighted index of the US Dollar's exchange value relative to other major currencies, beginning in 1973. The shaded areas on the chart cover the periods from major US$ peaks to major US$ troughs. Prior to last year there had been 2 major peaks since 1973 - one in early-1977 and one in early-1985. In both of these cases the preceding uptrend in the Dollar had been accompanied by the current account moving into deficit. In 1977 the current account deficit was small and it only took a 16% fall in the US$ over 2 years to bring the account back into surplus. In 1985 the current account deficit was much larger and it took a 40% fall in the dollar over 6 years to bring the account back into surplus. In both cases the current account moved further into deficit during the initial phase of the dollar's decline and in both cases the dollar continued to decline until the current account had moved into surplus.

http://www.321gold.com/editorials/saville/dollar_bopca_131202.gif

We can't think of any reason why it is going to be different this time. From a long-term perspective we should therefore remain bearish on the US$ and bullish on those things that benefit from a weaker US$ (e.g., gold) until the US current account has moved back to a surplus. Furthermore, given that the present deficit is far greater than anything seen in the past it is likely that the dollar bear-market that began last year will result in a drop, from peak to trough, of substantially more than the 40% drop that occurred during 1985-1990.

The Dollar's bear market is probably going to extend for many years, but as is always the case during any long-term trend there will, from time to time, be substantial counter-trend moves. In other words, if we are right that the US$ has embarked on a long-term bear market there will still be periods, possibly quite lengthy periods (6-12 months or longer), during which the Dollar will trend higher and those investments that benefit from a weaker Dollar will trend lower.

As mentioned in last week's commentary the currency market is presently set-up for a US$ selling climax to occur over the next 1-2 months, after which a large counter-trend move would become likely. Our current medium-term target for the Dollar Index, a target that was first broached in our 2nd October commentary, is the 1998 low of around 90 (see chart below). We expect the Dollar to reach this target by the end of March next year and wouldn't be surprised if it were reached as early as next month. We will, however, need to be alert to the possibility that support defined by the 1999 low will hold.

http://www.321gold.com/editorials/saville/dollar_131202.gif

In our 2nd December commentary we said "gold stocks [are expected] to provide the early warning signal because gold is likely to move in advance of breakouts in the CRB Index and the Dollar, and gold stocks are likely to move in advance of gold." We were referring to the likelihood that gold stocks would break out to the upside ahead of an upside breakout in the gold price, which would, in turn, occur ahead of an upside breakout in the CRB Index and a downside breakout in the Dollar. We expect gold stocks to show similar leadership near the end of the current gold rally and dollar decline, that is, gold stocks should turn lower prior to a peak in the gold price and a bottom in the US$.

Regular financial market forecasts and analyses are provided at our web site:
http://www.speculative-investor.com/new/index.html

Quelle (http://www.321gold.com/editorials/saville/saville121602.html)

90 till I die :rofl!

syr :lach

Is The Greenback In Trouble?

Philip Gotthelf

Despite mounting opposition to war with Iraq, the Bush Administration is intent upon bringing Saddam "to justice." The resulting rhetoric has dimmed the global community's view of the United States as reflected by the dollar's recent performance. However, a pending conflict is not the only reason dollar parity has deteriorated. Although U.S. corporate scandals are not unique, they have taken center stage in the European community as an indication of our (the U.S.) indifference to corruption. The preacher, as it were, has failed to practice what has been preached.

Subtle hints of isolationism include our move to install a missile defense system in Alaska. The implication is that the C.I.S. remains an enemy. Our "no confidence" vote at the very time Western Europe is relying upon Russia as a new eco-political ally leaves the U.S. out in left field...or completely out of the game. Our unilateral buildup in preparation for war raises questions about our willingness to cooperate with the world community. "We know and you don't," has been the U.S. mantra. We have an attitude problem.

Consider the impact upon the Dollar Index. After establishing a healthful trading range between 10700 and 10950, a lack of faith busted March futures below the 10700 support. Technically, 10700 should provide resistance if we have, in fact, violated the range.

It appears clear that November's rally attempted to reestablish the range. Recall that analysts predicted the Dollar index free fall from more than 12000 in April to 10750 was "overdone." Alleged signs of U.S. economic recovery were supposed to drive the index back above 10700 to a projected 11000/11300.

Anemic U.S. interest rates and stalled corporate performance worked against the November rally. Now, foreign and domestic investors are worrying that the holidays did not produce the spurt needed to encourage a year-end rally in equities or the dollar. The bust below 105 suggests March futures will test parity of 10000 in the near future.


Gold Reflects Lower Dollar Parity

We have not heard much about central bank gold divestiture since the metal has assumed its powerful upward trek. If there were a conspiracy to keep gold's value artificially depressed through central bank selling, it certainly has not materialized. In fact, consider that the Swiss Franc has been quietly leading the pack in a rally against the dollar :cool: and has assumed better intra-Europe parity.

http://www.gold-eagle.com/gold_digest_02/images/consensus122502a.gif
The chart looks like a mirror (inverse) image of the dollar index, however, the Swiss Franc gains additional strength from its link to gold.

While currencies were in their trading ranges, gold was posting rising bottoms. February futures were held to a 33000 high, but the technical formation pointed to an upside breakout that we anticipated when placing our buy recommendations at 32200 with a wide stop. Strategically, prices whipped around the 20-day and 40-day averages with significant volatility as illustrated. This fooled traders out of the inherent bull trend.

Yesterday, I appeared on CNBC with Ted David to discuss the potential since gold's dramatic breakout above the 3-prong 33000 February contract tops. It aired at 10:20am Eastern time. As I spoke, gold moved up $3. This could mean people are finally listening. Regardless of talk that mines can't resist hedging or funds are going to take profits, the move higher continues.


A Proxy For Inflation?

In my book, The New Precious Metals Market, I pointed out that gold's greatest purchasing power parity was achieved during the Great Depression... hardly an inflationary period. Of course, since gold was directly linked to the dollar, the relationship was derived from the fact that money deflated. Still, it is the argument that becomes most misunderstood--gold is a de facto representation of purchasing parity.

Thus, gold's increase in purchasing power parity is not currently linked to inflation nor is it a proxy for inflation. It is obvious we have the prerequisites for future inflation that include exceptionally low interest rates, declining dollar parity, rising imports and falling exports, increasing real estate values, rising energy prices, etc. But, the overall inflation is likely to be held in check by static or falling employment, poor corporate performance, belt tightening, and falling consumer spending. Why should gold rise?

As mentioned in my book, gold is a proxy for a confidence crisis. When all else fails, turn to gold. Note that gold's parity has even increased against the Euro Currency as that currency appreciates against the dollar. This signals that investors have more faith in metal (for now) than paper.

The "opportunity costs" of holding gold are very low. What rate of return is sacrificed? One to two percent represents an incidental cost relative to gold's perceived safety and potential stability. How quickly we forget that two years ago, gold was a non-entity! Now, this venerable monetary indicator could crawl its way back onto the front pages of The Wall Street Journal and New York Times business sections.

http://www.gold-eagle.com/gold_digest_02/images/consensus122502b.gif

A further indication of gold's distinctive parity differential is illustrated by overlaying the Japanese Yen (top blue) with the Swiss Franc (bottom green) monthly charts. Notice the distinct divergence from 1999 forward represented by red trend lines.

http://www.gold-eagle.com/gold_digest_02/images/consensus122502c.gif

The yen is not positively correlated to gold as we can see above. The yen rallied with gold from 1986 through 1988 and declined from 1990 through 1994. Keep in mind that gold is priced in dollars. This means that the dollar parity to gold is reflected in the relationship. However, the yen is an inverted image of the dollar. Thus, divergence from the trend shows a negative gold/dollar/yen relationship. This is particularly important to recognize in our current situation. Gold is providing a strong showing regardless of the yen/dollar parity and it is likely the Swiss Franc will have the greatest gold parity correlation because the Franc has been traditionally linked to gold.


More Profit Potentials Ahead

We face a unique situation that brings gold to the forefront after two decades of benign neglect. When returns were roaring out of bonds during the 1980's, gold was the sacrificial lamb because super high interest rates were being used to combat inflation. The wealth effect was ancillary.

When stocks rocketed in the 1990's, gold was ignored because it was a non-income producing asset. Why hold gold as its price declined when you could own stock and watch your wealth grow at double-digit annual rates? Today's economic environment is significantly different. In the words of Bush 41 during his failed bid to recapture the Whitehouse, "Who do you trust?"

A major hindrance to gold's more rapid progress is the public's lack of knowledge and intimacy with the metal. The two-decade decline in gold's luster has left Generation-X devoid of any close familiarity. Even the trailing edge of Baby Boomers was only in college when gold was legalized in 1975. The prior generation needs to go back to 1933 to recall when gold was a physical attraction rather than a symbolic representation of value.

By the same standard, gold has the ability to be rapidly reacquainted with public interest because it can be purchased for a reasonable price per ounce. When you touch it, view it, and hold it, it is hard to resist its intrinsic appeal. Mankind's love affair with gold has been documented back more than 25,000 years according to recent data. It ain't over, yet!


Equities

A traditional view states, "What's good for equities is not good for gold." This is based upon the premise that investors never favor safety when stocks appear safe. Generally, I would agree with this axiom. This raises the question about equity values as we move into 2003.

March DOW futures retreated from the December rally and may have formed an elusive head and shoulders with the 8300 neckline I identified as interim support. A number of disappointing news items are simmering which include McDonalds first-ever quarterly loss and Target's drop in holiday sales. Combine these with UAL's demise and rumors that Chase Morgan Stanley is holding billions in derivative exposure...the picture becomes a bit gloomy.

A bust below 8300 signals another interim retreat. Measuring from the head to the neckline, the first objective would be 7600. From there, 7000 would be challenged. According to some experts, a bust below 7000 would be unimaginably bad. Technically, it would pave the way for a test down below 6000. Traditional stock analysis supports a further decline if you accept that P/E ratios remain historically high. In fact, 5,200 is not unrealistic.

The problem with such a decline it that it contracts wealth to the point of depression.

http://www.gold-eagle.com/gold_digest_02/images/consensus122502d.gif

The S&P has a similar formation, however, the right shoulder is less pronounced and the neckline projects a first objective of 790. This remains above the October low. The broader index is less vulnerable. Still, that's a first objective. If the Dow collapses, other indices will follow.

As previously mentioned, I believe the Fed has reached the limit on dropping rates. This means the next move is either static or up. It is doubtful the Fed will tighten in light of continuing weak economic performance and sluggish consumerism. But, the fact that there is no more downside could hold interest rates in check.

The present chart calls for selling 115 calls and 110 puts. The February (based on March futures) 115 calls are 60/64ths and the 110 puts are 40/64ths. January is 37 for calls and 12 for puts. Seasonally, interest rates tend to rise from February into June. This makes the February strangle more risky. The question is whether March notes will breakout 100/64ths above 115 before the February 21 expiration.

Understand that a collapse in stocks will drive investors back to notes and bonds. This is why prices are trading at the upper end of the current channel. Even with an equity meltdown, I don't think notes have the ability to make new highs. Essentially, the market has run out of liquidity. In other words, people don't have money for anything.

Who has money to invest in gold if liquidity is a problem? This is an interesting paradox, however, gold is being controlled by fund buying and a lack of hedging. In addition, entities that borrowed gold to lend at much lower prices are being forced to accumulate tighter supplies... a form of short covering. Don't forget that gold is a small marketplace compared with stocks and government paper. The volume required to drive gold to new highs is a fraction of what it takes to move paper markets.

The Energy Connection

The commodity focus remains oil because it has the most immediate influence upon the economy. As we know, oil has been as exciting as gold. After breaking out above 2800 resistance in the February, I decided it was time to jump as of last Thursday's 2799 close. We were seeking a 30-point decline for an average entry, but Friday's 2743 open was good enough. Once 2800 was breached, prices shot higher as seen on the chart. February crude formed a "V" bottom.

http://www.gold-eagle.com/gold_digest_02/images/consensus122502e.gif

The second resistance was easily overcome at 2950 and we saw some consolidation to suggest this may become interim support. The "V" projects $4 above 2800 former resistance to 3200. The past two days held prices at 3115 which may be close enough.

If February crude tests 2950 and recovers, it is more likely to make 3200. Thereafter, I believe OPEC will consider it "politically incorrect" to encourage a further rally. At that stage (3200) I would be inclined to sell calls to take in some premium.

They say timing is everything. Based upon the U.S. buildup and present rhetoric, there is a strong possibility our conflict will begin next month. January is the ideal time (if there is such a thing) for conducting operations. Weather tends to be most stable and tolerable.

We also took the long side of heating oil Friday morning. The formation is almost identical to crude, however, heating oil has more upside potential in the near term since it takes time to convert crude. A deep freeze in January and/or February could leave us with a squeeze in the February expiration. On the other hand, it would be nice to see an opportunity to see April!


Weather

Low pressure raked across the south central causing powerful storms in Arkansas and surrounding areas. This system has moved northeast and will bring rain into the lower Northeast along with milder temperatures through Saturday. The respite from subfreezing temperatures has not impacted heating oil psychology which currently looks forward to a series of cold snaps through March.

A fifty-year study of El Nino suggests that the current higher track for the jet stream can produce a series of freeze/thaws as frigid Canadian air dips south from time to time. The pattern of warm moist air that moves up from the Gulf of Mexico is responsible for unstable conditions like those seen this past week.

High pressure will dominate the west and Midwest. If the Canadian low descends over the weekend, the Northeast could see a White Christmas next week.

From a trading standpoint, I will be watching the March wheat. Any freeze/thaw cycle can be damaging to root systems. In particular, a cycle in February can significantly affect yields. Currently, we have taken a bearish stance with our July/March spread. I am prepared to reverse this next year at the first sign of trouble.

I was concerned that the small rounded bottom in the present consolidation might push prices above 3.65 former support that is now resistance. Fortunately, 3.65 constrained prices and we had a dip below the "U" to suggest further decline.

The March/July spread has come in to about 40¢ March over. One more break should be sufficient to normalize the spread. This would give us a handsome return for a very low-cost position, but we need another bust in March prices.

We continue to hold March corn short with a small loss. Prices remain below the 20-day and 40-day moving average and the overall formation points toward further decline. With an anticipated decline in cattle placements and a drop in export demand, corn can easily test below 2.30. However, I do not expect an appreciable dip below 2.30. Uncertainty over Southern Hemisphere conditions holds this market in suspense above the June 2002 lows.

Soybeans have assumed a sideways consolidation for the same reason. Currently, southern crops have seen some relief. But, the season is young. As commodity traders know, "It's not over until it's in the bin!"

December 25, 2002

Philip Gotthelf
Commodity Futures Forecast
P.O. Box 566, Closter, New Jersey
201-784-1235
www.commodex.com

Quelle (http://www.gold-eagle.com/gold_digest_02/consensus122502.html)

syr :rolleyes:

6:50am 12/30/02
Swiss franc hits new, near 4-year high vs. dollar By Emily Church
The Swiss franc on Monday hit a new, near four-year high vs. the dollar at 1.3950 as investors continued to move into the traditional safe-haven currency on North Korea and Iraq concerns. The euro's recent gains vs. the dollar were holding, but the currency's rise was capped as Japanese exporters sold euro-yen ahead of long holiday break in Japan, London currency analyst Will Rugg of S&P said. The euro was just off its Friday peak and was at $1.0415-20 in London. "It's a familiar story in these thin markets," said Paul Bednarczyk London based 4CAST economist. He's expecting the euro is likely to resume a test of $1.05-1.06 next week

syr :D

Ich glaub' ja (noch? :confused: ) nicht an eine immerwährende, strukturell begründete Dollarschwäche... man muss Gewinne auch mitnehmen können, gelle? ;)

wer sagt das :confused:

Dauert eh nicht mehr lange, zumindest nicht ohne Pause beim CHF. Erste / Zweite Januarwoche kommt Intervention oder Zinssenkung der SNB;). Bei Zinssenkung geht Gold gleich noch ein bisschen mit. USD-Cash ist überverkauft wie sonstwas, Slow klebt seit drei Wochen am Boden :hihi. 90 kommen, aber nicht in einem Rutsch.

syr :)

$$$ Out of Control

January 6, 2003

$US 1 TRILLION FROM THE TREASURY
$US 1 TRILLION FROM THE FED
$US 500 BILLION FROM THE WORLD

That total is what the Bush Administration wants/requires - for the next 12 months - to have their war in the Middle East, to keep their external empire running, and to keep the US economy "growing.'

The US debt ceiling was raised by $US 450 Billion (from $US 5.5 to 5.95 TRILLION) in August 1997. That lasted until June 30, 2002, when the ceiling was raised by another $US 450 Billion to its present $US 6.4 TRILLION. The first raise lasted 61 months. The second raise, of the same amount, is now estimated (by the Treasury) to last for 8 months. Throw in a Middle East war, and the US Treasury is running on a profile which might see them add $US 1 TRILLION to their debt in ONE year.

On top of all that, the Federal Reserve is hammering fresh, new money into the US monetary system at a mean weekly speed of somewhat above $US 20 Billion. That shows that another $US 1 TRILLION could arrive, courtesy of the Fed, over the next 12 months.

Of course, it is a long running ongoing fact that the deficit on the US Current Account requires inflows of $US 500 Billion or so annually.

Add these figures together and the astounding result is that the US government might need $US 2.5 TRILLION borrowed and printed for the next 12 months, and that's not including ANY federal taxes.

The sum of ALL the above is simply a rampant case of fiscal INSANITY.

It is insane on the simplest kind of sum of the FACTS, which show it to be the case. This is what Americans and the world had better prepare themselves for, because this is the direction the Bush Administration is going in - even before any real WARS start.

OUT OF CONTROL:

The US economy is presently obviously suffering from a huge drag of malinvestments and overinvestments from over a decade of accelerating credit expansion since the fall of the USSR. Now, they have swung further into a program of HUGE deficit spending combined with an external war. They are trying to underpin this "policy" with yet another Fed induced credit expansion which already looks like adding up to $US 1 TRILLION to the presently circulating $US 8.55 TRILLION on an M-3 basis. These are acts of both financial and economic madness.

As this "policy of the insane" extends itself further in time, it runs huge global risks of being the cause of a COLLAPSE of the US Dollar. It is the US Dollar, and its international value which underpins the value of the Treasury debt instruments which most of the rest of the world's Central Banks and Treasuries hold as "reserves" behind their own national monetary systems. This US "policy" is gambling with the core financial systems and banking systems of the whole world. The whole world, in their turn, relies upon the soundness of their own Central Banks' financial situations. This cascade danger is real and global.

Were the US Dollar to begin an uncontrollable descent (Nasdaq style or October '87 Dow style), there would not be the means anywhere with which to address the situation. The hard economic truth is that just as markets can be taken down by false policies, so can currencies. Monetary history shows this well enough as any reasonable student can attest to. When currencies crash, being the underpinnings of the values in the marketplace, they take not only these values with them when they crash but also the entire economy.

Despite all this, based upon these "policies," the men in the Bush Administration want a WAR?!

William (Bill) Buckler



Quelle (http://www.321gold.com/editorials/buckler/buckler010603.html)


syr :)

Special Situations for SMART INVESTORS


Why Buy the CHF? :sss
(CHF is symbol for Swiss Franc)


The long-term picture

After having risen to 1.8309 against the CHF in October 2000 and again to 1.8226 in July 2001, the USD moved into a DOWN-trend to reach 1.5665 by September 2001 for a loss of 15%. From this day on, the USD staged a recovery which brought it back to 1.7229, a retracement of half of the loss suffered. From this level, another down-leg unfolded, down to 1.4335, again a loss of 16%. A lengthy consolidation followed from June to December of last year when the USD broke down again, going below the June low.

We believe that the trend clearly suggests further losses and that the level of 1.30 will eventually be tested.

http://www.gold-eagle.com/editorials_03/images/zihlmann011003a.gif

The medium-term picture

The medium-term picture admirably depicts the break-down that occurred in December when the USD dropped out of the six months trading range that held from June to December.

What was support has become resistance and the best we can hope for is a pull-back towards the resistance zone. Further downward pressure is nevertheless likely.

http://www.gold-eagle.com/editorials_03/images/zihlmann011003b.gif

The short-term picture

Short-term, we again notice the break down that happened in December and which lead the USD down to 1.38 in thin market trading at year-end. While the market digests this move down, we think that the 1.38 level will eventually give way among uncertainties regarding the Iraq-war.

http://www.gold-eagle.com/editorials_03/images/zihlmann011003c.gif

Fundamental Considerations: The USD may be losing its Magic

On the basis of a fundamental currency model, the CHF is still undervalued by around 20 %. :ek The short-term goal during the coming two years is around 1.25 to 1.30 US dollars to the EUR :cool: . The flow of capital between the Eurozone and the USA for investments like equities, corporate bonds, government bonds and money-market securities will be reversed in the direction of Europe. It is believed that the projected relative development of fundamental evaluation factors - including growth potential, equity-market analysis, levels of return, inflation potential and budget deficits - is uniformly in favour of the old continent.


Classic exchange-rate theories involving purchase-power parity and interest-rate parity also indicate a 15 to20 percent upward valuation of the EUR. Many players in the market still give these theories a great deal of credence.


The high levels of the US current account deficit during the past 10 years have entailed a large number of foreign central banks piling up big US dollar reserves. Asian central banks could trigger a severe currency crisis if they substantially reduced dollar positions and purchased EUR with a view to diversifying their currency risks. The German Bundesbank is also still managing big US dollar reserves, a major proportion of which are likely to be sold during the next few years, because they have become largely superfluous since currency reserves have been transferred to the European Central Bank. The current situation recalls the position at the end of the Bretton Woods System in 1973when the world was also swamped with dollars due to the US trade deficit, and the central banks finally resorted to gold in order to spread currency risks.


The key fundamental factors have been indicating a drastic devaluation of the American currency for years. However, for some months now investors have also been receiving clear signals based on chart data indicating that the dominance of the American dollar is now history. Taking a perspective of a few weeks, the US dollar could win back some ground, but long-term analyses show charts tracing out clear top formations for the Greenback.


The influence of political statements on the currency markets is waning. Negative statements by the US Treasury Secretary Paul O'Neill and Federal Reserve Chief Alan Greenspan led to big markdowns in the common European currency during the past two years. But then the European Central Bank had a low standing. Their interest-rate decisions were subject to vehement criticism not least in media biased towards America, while praise was heaped on the measures taken by the Federal Open Market Committee. However, it is believed that the stabilizing policy of a relatively calm hand at the European Central Bank will have more success over the long term in financial markets than the frenetic policy of the American central bank with its repeated and abrupt changes in direction. The first indications of a change in sentiment are already perceptible. When Treasury Secretary O'Neill emphasized the policy of a strong dollar in April of this year, the currency markets failed to fall in line for the first time. The EUR gained more than a cent during the speech because a large number of players in the market obviously regarded this policy as untenable in the long-term.


Currency Trading

If you are interested in currency trading, please consult our Presentation at www.pzim.com.

http://www.gold-eagle.com/editorials_03/images/zihlmann011003d.gif

http://www.gold-eagle.com/editorials_03/images/zihlmann011003e.gif

Peter Zihlmann
www.pzim.com
forex@pzim.com

January 10, 2003



Quelle (http://www.gold-eagle.com/editorials_03/zihlmann011003.html)

short usd equals long gold :p.......

syr :cool:

http://www.economist.com/images/ecdc_125x34.gif

How far can it fall?

Jan 10th 2003
From The Economist Global Agenda


After losing one-tenth of its value during 2002, the American dollar has fallen to its lowest point against the euro since 1999. Will it continue its retreat?

http://www.economist.com/images/GA/2003w02/dollar.gif

IS THE party finally over? For years, currency experts have been confidently—and largely mistakenly—forecasting the decline of the dollar. They were able to marshal an impressive array of evidence in support of their arguments. It was, they said, overvalued on any historical measure. America could not continue to absorb the large capital inflows which had propped up the greenback for so long. The euro, after its creation in January 1999, would soon challenge the dollar’s reserve-currency status. More recently, America’s burgeoning current-account deficit alarmed economists, who saw no alternative to a precipitous collapse of the dollar.


Yet the dollar—or, more accurately, the people who buy and sell currencies—remained impervious to economic forecasts. The world’s most important currency continued to be its most sought-after. The euro endured what to many Europeans was a humiliating decline in its international value almost from its inception. Neither the American recession in 2001 nor the huge and growing current-account deficit (about 5% of GDP) seemed to discourage people from holding dollars. And then, in the closing months of last year, the dollar finally started to weaken. By the end of the year, the dollar had lost 10% of its value as measured against a trade-weighted basket of currencies. The first few days of 2003 have seen it slip further against the euro and the yen.


Will the slide continue—and if it does, what will it mean for the global economy? Only a brave forecaster would try to predict with any confidence where the dollar will be in six months’ time. Of course, currency economists make such forecasts all the time—but that's their job and they are frequently mistaken. The factors which affect the value of one currency in relation to another are numerous and complex, and often confusingly contradictory. It is not simply a question of working out what foreign-exchange speculators think. Most currency trading is not speculative: it is the consequence of economic decisions taken by largely rational actors. Any shift in a currency’s value is driven by the cumulative impact of those millions of rational decisions.


The source of the great dollar surge in the late 1990s was easy to spot. The booming American economy offered enormously attractive rates of return on investment: as a consequence, large amounts of investment capital flooded into the country. Even when boom turned to bust, America still looked to be a better home for capital than many other, even more lacklustre economies. In 2001 and 2002, for instance, Europe’s economic performance was disappointingly sluggish, and the prospects for 2003 look little better. Emerging-market economies have lost their allure for most investors, especially after the collapse of the Argentine economy.


As the most important reserve currency, the dollar is also seen as a haven in times of global political uncertainty. Even after the terrorist attacks on New York and Washington—putting America, for the first time, at the heart of the security threat—it was to the dollar that nervous investors first fled. More recently, gold has recovered some of its attractiveness as a haven, reaching its highest level in six years this month. But the yellow metal is still worth only a fraction of its long-term historical value.


The prospect of war with Iraq, and the continuing threat from international terrorism, have made investors more nervous about the future. Yet the tide now seems to be turning against the dollar. This suggests that, for the time being at least, factors other than risk-aversion are more powerful in determining currency flows. One of the most important is the recognition that American investment returns are likely to be significantly worse than in the recent past for at least the next year or two. It doesn’t need investors to start shifting capital out of America to weaken the dollar—lower inflows would be enough.


Some of the dollar’s weakness is also likely to be self-fulfilling. As investors become convinced that the American currency will depreciate, they will seek an alternative home for their funds. That will, in turn, put further downward pressure on the dollar.

http://www.economist.com/images/GA/2003w02/CGA295.gif

But is the decline such a bad thing, for the American economy or the rest of the world? Few American exporters will weep as the greenback sinks: the strong dollar has made it difficult for them to compete in world markets in recent years. Nor will tears be shed among manufacturers who have been desperately trying to fight off competition from cheap imports. Those countries whose currencies are linked, loosely or tightly, to the dollar will breathe a sigh of relief as well—Hong Kong and Brazil are among those economies that have suffered as the dollar has soared. Argentina’s currency peg was stretched to breaking point—and beyond—partly because of the American currency’s strength.


Those countries that compete for business in America, or with American exporters, though, will not relish the impact of the dollar’s decline. The rise in the value of the euro might boost morale at the European Central Bank in Frankfurt, but it will not bring much comfort to Germany’s export-driven corporate sector. East Asian economies such as Singapore, still reeling from the collapse of the high-tech boom, have no reason to welcome a devalued dollar.

Paul O’Neill, the treasury secretary fired by President George Bush at the beginning of December, was known for his belief in the benefits of a strong dollar. Such conviction is the refuge of old-fashioned politicians who associate national pride with a strong currency. Mr O’Neill was accused of trying to talk up the dollar, and consequently blamed for its persistent strength. His successor, John Snow, is, as yet, innocent of such uncomplicated views. In reality, of course, politicians have almost no power to influence currency movements except in the very short term. They are reduced to watching when currencies overshoot—as they almost always do—on the way up, and on the way down.



Quelle (http://www.economist.com/agenda/PrinterFriendly.cfm?Story_ID=1533317)

syr :rolleyes:

Noch fehlend im Thread, die mitlaufenden Charts dazu:

http://chart.bigcharts.com/bc3/intchart/frames/chart.asp?symb=C%5FCHF&compidx=aaaaa%3A0&ma=0&maval=9&uf=0&lf=2&lf2=1024&lf3=0&type=4&size=3&state=8&sid=126328&style=320&time=12&freq=2&comp=NO%5FSYMBOL%5FCHOSEN&nosettings=1&rand=6524&mocktick=1

http://chart.bigcharts.com/bc3/intchart/frames/chart.asp?symb=C%5Fjpy&compidx=aaaaa%3A0&ma=0&maval=9&uf=0&lf=2&lf2=1024&lf3=0&type=4&size=3&state=8&sid=126327&style=320&time=12&freq=2&comp=NO%5FSYMBOL%5FCHOSEN&nosettings=1&rand=7795&mocktick=1

http://chart.bigcharts.com/bc3/intchart/frames/chart.asp?symb=us%3Aecu&compidx=aaaaa%3A0&ma=0&maval=9&uf=0&lf=2&lf2=1024&lf3=0&type=4&size=3&state=8&sid=112677&style=320&time=12&freq=2&comp=NO%5FSYMBOL%5FCHOSEN&nosettings=1&rand=6045&mocktick=1

Sodele, Grundausstattung vorhanden :cool:

syr

Der US$ ist überreif für eine Erholung. Dennoch wird es wohl nicht mehr werden, als eben das: eine Erholung.

Das ist aber nur meine unmassgebliche Privatmeinung. Hochberg ist beispielsweise der Ansicht, dass sich der Dollar momentan sogar an einem mittelfristigen unteren Umkehrpunkt befindet und kurz davor steht, eine mehrmonatige Rally zu starten. Guckst Du selber:

http://www.elliottwave.com/chartfolder/stu/dxc0113.gif

Einmal über dem Tief der (3) bei etwa 103 spräche viel für diese Variante. So watch it....

Ist 103.45 Riva, nun weisste, wo meine Stops liegen. Nur, ich zähle nicht Waves, nur am Rande.
Dann habe ich fünfer Down, derzeit fertig 3 von 5, folglich kommt 4: Pullback 103.44 and down, 5 von 5 auf 90/91. No way for Hochberg, sorry:p....... USD-Cash war Ende Dezember bedeutend überverkaufter als heute, Slow hat's schon recht weit geschafft;).

syr :D

Aus ähnlichen Gründen hab' ich oben ja auch geschrieben, dass meine Meinung nur eine Erholung zulässt, bevor es weiter abwärts geht.

Aber den Stop bei der (3) werde ich dennoch ernst nehmen (müssen :) ) - wie Du ja offensichtlich auch. ;)

Jup Riva ;). Traum wär die 4 hoch auf Pullback, 5 selber wieder als 5er, 100.20 --> 101.35 --> 94/95 --> 98 --> 90/91, Boden. Passt das :hihi?

syr :)

Ned wirklich... leider... :lach

Siehste, das sind halt freie Waves, alternativ :rofl!

syr :hihi

Ok, der $$$ macht ja weiter, mittlerweile unter 1.37 CHF und US-Cash strong Richtung 100 :sss. Aus der Ecke von MS/Roach :

Currencies: Twin Deficits -- USD No Longer the Lord of the Currencies

Stephen L. Jen (London)

Twin Deficits Set to Breach 7% of GDP

For the first time since 2Q85, the combined US fiscal and current-account (C/A) deficits look likely to breach 7% of GDP this quarter, and move into the 8% range by 2004. In my view, this ‘twin deficit’ problem will become so severe in the coming two years that I believe it will overwhelm other factors that may be USD-positive. The USD resumed its structural correction :D on 6 December when Secretary O’Neill resigned, and will continue to depreciate against a broad range of currencies throughout this year, in my view.

Third Phase in This ‘Stuttering’ USD Downtrend

This USD correction is very different from the weak USD periods of 1985-87 and 1994-95. One key difference is that the current structural USD correction has already been interrupted several times, while the previous two USD corrections evolved more in a straight line. The global economic backdrop is substantially more fragile and uncertain now than in the other periods; and extreme economic weakness and uncertainty have proven to be USD-positive and were, in my view, behind the stop-and-go nature of this USD correction (our ‘USD Smile’ concept). In assessing this ‘stuttering’ USD downtrend, therefore, my focus has been less on the simple ‘crash versus no-crash’ debate, and more on identifying the conditions under which the USD can correct, and those under which the USD is supported.

The USD first began its structural correction in July 2001 (see Questioning the Longevity of the Dollar Dynasty, S. Jen & J. Fels, 26 July 2001). This correction was interrupted by the terrorist attacks in September 2001 and the events that followed. I believe that fear-motivated capital supported the overvalued USD between September and March 2002. The USD did not resume its second phase of correction until March 2002, when (1) concerns emerged about the commitment of the Bush Administration to the strong USD policy following the imposition of steel tariffs, (2) the financial markets stabilised and (3) investors began to price out the risk of a double dip. The perception that the global economy was returning to a ‘benign environment’ released risk capital out of the US, and the USD went into a broad-based descent between March and July of 2002 (see The Dollar is Likely to Enter a Gentle Descent, 7 March 2002). The violent meltdown in global equity markets last July rekindled investor fears and, as a result, USD bonds and the USD itself benefited from such extreme risk aversion. This helped the USD remain stable for most of 2H02.

The resignation of Secretary O’Neill on 6 December 2002 marked an important turning point for the USD in my view, for it signalled that the Bush Administration may take the opportunity of the personnel change to (1) further modify its policy on the USD and (2) introduce a large fiscal stimulus. I believe this event triggered the third phase of the USD decline. In a note last week (Fiscal Deficit + a C/A Deficit = a Weak USD, 9 January 2003), I argued that a further move away from former Treasury secretary Robert Rubin’s definition of a strong USD policy would take out the tailwind that has been so powerful in pushing foreign capital into the US in recent years. At the same time, fiscal stimulus in a weak global economy will exacerbate the US’s external deficit. A simultaneous fall in the supply of and a rise in demand for foreign financing will be USD negative.

Why Is the Twin Deficit Bad for the USD?

Twin deficits occur in economies that are both saving-short and whose public and private sectors are out of balance. In the late 1990s, the world was eager to invest in the already saving-short US economy because the US was not so much seen as saving-short as investment-rich. It was thought that the US C/A deficit was justified because investments in the US carried persistently higher returns on capital and that such a saving deficit was a sign of strength, not weakness.

Things are different now. Investment in the US has collapsed, and the world has realised that the US return-on-capital premium was more of a mirage than a miracle. Without Keynesian stimulus, domestic demand in the US would have weakened and the C/A deficit would have naturally declined toward what is considered sustainable in the long run. However, with massive monetary and, now, fiscal stimulus to resist this weakening in domestic demand, the saving deficit is, effectively, not allowed to shrink. The C/A deficit in the US looks set to be kept high not because of high investment, but because of lower net savings (the public sector dis-saves on behalf of the private sector) to match lower investment. This is a critical change in the USD story, one that is missed by those who believe a fiscal stimulus will boost economic growth, which in turn will support the USD.

How Big Is the Twin Deficit Problem?

To come up with a composite measure of the severity of the twin deficit problem, I simply added the size of the fiscal and the C/A deficits (in percent of GDP). 7% seems to be a critical threshold. The last time this level was breached was in 2Q85. That was also when the USD index peaked, followed by a 30% correction over the subsequent 2-year period. (The Plaza Accord, on 22 September 1985, was announced several months after the USD had already begun to correct.) Based on the latest forecasts of our US economists Dick Berner and David Greenlaw, incorporating what we believe will be included in the latest fiscal package, this twin deficit index will reach a historical high of 8% by 2004! While there is nothing ‘magical’ about the threshold of 7%, that this measure of the twin deficit problem looks set to reach the highest level in recent years is important.

Tying This In with Our Valuation Work

My concern about the growing twin deficit problem is also conceptually consistent with our fair valuation work on the USD, which identified four key drivers of the long-run fair value of the USD as (1) relative productivity, (2) terms of trade, (3) the relative fiscal position, and (4) the net foreign asset (NFA) position of the US. The twin deficit problem of the US essentially captures the latter two variables: relative fiscal position and the external financing position of the US. With the emergence of the twin deficits, the USD’s underlying fair value has been drifting lower since the beginning of 2002. The market value of the USD must decline if only to keep pace with the falling fair value.

How Much Further Can EUR/USD Rally?

The USD has weakened by around 6% against the EUR since the beginning of December. How much further can EUR/USD go? It’s tough to say. However, I note the following. First, in my view, the Euroland economic and EUR stories are not compelling. This move is not an EUR story; it’s decidedly a USD story. I believe the EUR has been rallying by default, not by merit. Second, having said this, the EUR is one of the best alternative currencies to hold, particularly for the two key groups of foreign exchange holders in the world: the Asian central banks and the oil-exporting countries :D (at current oil prices and supply levels, there are, annually, some US$800 billion worth of fresh petrodollar receipts slushing around). Capital exit from the USD could mean a powerful run into the EUR. Third, the key medium-term issue arising from the rally in EUR/USD, from Europe’s perspective, is clearly export competitiveness: How strong a EUR could the likes of Germany absorb in the current environment? The ratio of Euroland’s output elasticity with respect to interest rates and that with respect to the exchange rate is roughly 6:1, i.e., a 5% change in the average annual index value of the EUR has the same effect on GDP as a 75 bp change in interest rates. This means that, to offset the effects of a 10% rise in the value of the EUR this year, the ECB would need to bring the refi rate in line with the current level of the Federal Funds Rate. Since the average value of EUR/USD was 0.95 in 2002, the current spot is already more than 10% higher. Thus, I would be surprised if I don’t hear some verbal intervention from the Europeans to try to cap the rise in EUR/USD. The ascent in EUR/USD will slow or be suspended as a result.

Bottom Line

This is still a decidedly a USD story, not a EUR-, JPY-, AUD-, or a GBP-story. The twin deficit problem in the US is becoming very serious and, in my view, will overwhelm other factors to drive the USD lower this year. The sum of the fiscal and the C/A deficit will, for the first time since 2Q85, breach 7% of GDP this quarter. Coupled with the high likelihood of further modification on the USD policy, the USD should continue to weaken this year to equilibrate the supply and demand of foreign financing for the US.

Morgan Stanley / St. Roach (http://www.morganstanley.com/GEFdata/digests/20030117-fri.html#anchor0)

syr

International Perspective, by Marshall Auerback

Capital Controls: The Counterattack Has Begun

January 21, 2003

“Wall Street has become a very powerful influence in terms of seeking markets everywhere. I mean, Morgan Stanley and all these gigantic firms want to be able to get into other markets and essentially see capital account convertibility as what will enable them to operate everywhere. …Wall Street views are very dominant….They want the ability to take capital in and out freely. … …it also ties in to the IMF's own desires, which is to act as a lender of last resort….as the apex body which will manage this whole system. So the IMF finally finds a role for itself, which is underpinned by maintaining complete freedom on the capital account. It should be remembered that many countries have grown without capital account convertibility. Look at China for example, it has had very high growth rates, Japan, Western Europe since the War---It is only recently that CAC has become the norm there. In my judgment, it is a lot of ideological humbug to say that without free portfolio capital mobility, somehow the world cannot function and growth rates will collapse”.
- Jagdish Bhagwati, The Times of India, Dec. 12, 1997

When you’re the world’s largest debtor, you want the maximum amount of capital possible, coupled with the least impediments to retaining access. This largely helps to explain America’s persistent opposition to the introduction of any kinds of capital controls, or taxation/regulatory proposals (e.g. the “Tobin tax”) which increase the costs of shifting speculative portfolio flows from one part of the globe to the next. In light of news last week that the U.S. trade deficit bulged to a record $40.1 billion in November, it is becoming increasingly clear that a dollar devaluation per se will not alleviate this growing imbalance in the short to medium term. In fact, we have previously argued that the long-time maintenance of a strong dollar policy has substantially eroded American manufacturers’ ability to compete in more and more global markets.


From the perspective of American policy makers, therefore, the pursuit of open markets in many respects permanently entrenches this competitive disadvantage. Current trade negotiations, therefore, are increasingly focusing on the need for easily accessible foreign capital, preferably lots of it, as a quid pro quo for continued access to American markets. Capital controls clearly work against this objective and now it appears that US trade negotiators are working proactively to ensure that any incipient resort to them is to be eliminated as such future free trade deals are pursued.

It is in this context that one should view the recently announced free trade deals between Singapore and the US and Chile and the US respectively. The US and Singapore overcame the final hurdle in negotiations on a free-trade pact last week, agreeing to allow some limited controls on capital flows during a financial crisis.

That provision, which largely mirrors the recent deal between the US and Chile, would give Singapore authority to block capital outflows for up to a year as long as those measures did not "substantially impede" the free flow of money. US Treasury officials said it would provide a model for future trade pacts and would curtail the ability of countries to use capital controls.

America’s visceral dislike of capital controls is nothing new, even though capital controls per se are not antithetical to free trade. In fact, Keynes used to argue that in the absence of proper sequencing, capital account liberalisation works against genuinely free trade in goods. Similar arguments have been made by more recent champions of free trade, such as Columbia University professor, Jagdish Bhagwati, quoted above. The thrust of Treasury policy for the past several decades, however, has been the pursuit of capital account liberalisation, sometimes even in the absence of genuinely free trade. This poor sequencing has often created the conditions for financial crises, such as those which afflicted emerging Asia some 5 years ago.


Open hostility against moves to reverse this liberalising thrust really dates back to the 1997 period, during which Japan and Taiwan first floated the idea of an Asian Monetary Fund (a proposal which, had it been implemented, could have done much to avert the subsequent Asian financial crisis). The two countries had offered to put up $100 billion to help their fellow Asians in November 1997, but then US Deputy US Treasury Secretary, Lawrence Summers, denounced the idea as a threat to the monopoly of the IMF over international financial crises, and the idea was subsequently killed. He did not want Japan taking the lead because Tokyo would not have imposed the IMF’s conditions on the Asian recipients and that was deemed an important objective of US policy, so as to ensure that these economies were restructured along Anglo-American lines.


Malaysia’s subsequent decision to defy prevailing US Treasury/IMF orthodoxy proved to be a major turning point. The country’s implementation of capital controls, coupled with a comprehensive repudiation of the IMF’s austerity program, helped to nurse the country back to economic health. The action received the endorsement of then World Bank economist, Joseph Stiglitz. Stiglitz later argued that the econometric evidence in support of the arguments for unfettered capital market liberalization was a position “based more on ideology than on science. While the evidence concerning the risks which such liberalization brings is overwhelming, the evidence concerning the benefits is far more scanty.”


This abrupt reversal in the decades-long tide toward Anglo Saxon laissez faire capitalism naturally generated alarm in Washington. Typical of this ideological hostility were the comments made 4 years ago by then Deputy Treasury Secretary Summers:

WASHINGTON - U.S. Deputy Treasury Secretary Lawrence Summers warned crisis-hit Asian economies Wednesday not to draw the wrong lesson about free-market capitalism, saying countries that turn their backs on the international financial system hurt their own citizens "most of all."


Equally emphatic was Alan Greenspan's testimony to Congress on Sept. 16, 1998, during which, in a departure from his usual ramblings, he focused on one issue and one issue only---the threat of capital controls. His speech reflected an alarm over the initiative of Malaysia, with rising Chinese leadership in the background.


“The relative stability of China and India, countries whose restrictions on international financial flows have insulated them to some extent from the current maelstrom, has led some to conclude that the relatively free flow of capital is detrimental to economic growth and standards of living. Such conclusions, in my judgment, are decidedly mistakes.”


It is more likely that Greenspan’s crocodile tears were less for the standards of living in countries such as China and India, and more to do with the threat posed to America’s own growth (as well as his conduct of policy) were the providers of external capital to introduce restrictions of one form or another. By the same token, unable to block the Malaysian experiment, Richard N. Haass and Robert E. Litan, directors respectively of foreign policy and of economic studies at the Brookings Institute, sought to deflect blame from Washington: “In some quarters [globalisation] is seen as having caused the rapid flows of investment that moved in and out of countries as investor sentiment changed and were behind the Mexican and Asian financial crises.” Both argued, however, that this would be the wrong conclusion: to accept it would be to “abandon America’s commitment to the spread of markets and democracy around the world at precisely the moment these ideas are ascendant.”


It would be more correct to state that America had a commitment to the spread of a certain type of market economy. But the Malaysian resort to capital controls clearly altered perceptions in a manner which threatened America’s increasing need to retain such portfolio flows as its economy became increasingly imbalanced. Noted academics like Paul Krugman have long called for such controls in Asia. G-7 countries like Japan and France are on record considering the appropriateness of such controls, either at home or abroad. It has become increasingly recognized that short term capital flows have been speculative and even intentionally destructive, requiring some measure of regulation if not control. The recent reversal in the US dollar has been aided to some degree by concerns that the "rules of the game" in international currency markets might be changed.


Equally important was last November’s seminal speech by Fed governor Ben Bernanke. We argued at the time that his paper on possible radical monetization by the Fed was a double edged sword. In all probability, Governor Bernanke believed that, by indicating a willingness to monetize treasury debt without limit and even private assets, he was providing encouragement to investors and that this encouragement would support private asset prices. We argued that this edge of the sword would most likely prove to be blunt: most investors would not comprehend his words of encouragement and those who did were already over positioned in equities and corporate bonds.

Unfortunately for Governor Bernanke, by expressing a willingness of the part of the Fed to deliberately monetize to the point of currency debasement, he has clearly discomfited holders of treasury bonds and foreign holders of all U.S. dollar assets. Both of these classes of market participants are very long these assets and very vulnerable. Their discomfort appears to be manifesting itself through a massive withdrawal of foreign private investor selling of US dollar denominated assets, which is swamping foreign central bank buying (the increase of which is illustrated by the recent sharp rise of holdings of US Treasuries and US agency securities in the Fed’s Foreign Custody Account).


Consequently, now is clearly not the time to allow momentum to build toward any kind of capital controls. Indeed, from the US point of view, to move back toward capital controls by a US ally would represent an ideological heresy. It would also be a great affront and danger, given the deteriorating external net indebtedness of the US economy. A new quid pro quo is therefore emerging: open markets in return for minimal capital controls, so as to ensure that America’s access to foreign capital flows is not withdrawn cold turkey by some Mahathir-like imposition of new investment restrictions.

In effect, the US authorities are using America’s reserve currency monopoly and domination of the world’s financial architecture to aggressively co-opt the surplus savings of the rest of the world. As global strategist Chris Sanders notes, “The leverage strategy only works if all significant parties play the game. Hence, everyone who is anyone needs to become a member of the system, which is to say of the International Monetary Fund and the World Trade Organisation.” We would add continued access to America’s own vast consumer markets as part of the deal as well, as the agreements with Chile and Singapore make clear.


We happen to think that this is a troubling development for the emerging world. Yet again, the world’s savings repository – notably Asia – is doing deals highly inimical to their interests in order to satisfy America’s increasingly large addiction to foreign capital flows. Chile’s system of capital controls worked extremely well: by proportionately lowering tax rates on inflows to zero the longer such funds remained in the country, the Chilean authorities were simultaneously able to attract long term FDI flows needed to finance the country’s economic development, whilst discouraging speculative short term portfolio capital. This system has now been junked, which means a much weaker defence in the future were another “run” on the region to occur. The destruction wrought on the emerging world by global mobile capital flows has profoundly changed assessments around the world regarding the contribution to welfare made by the free flow of short term capital. The staunchest advocates of capital convertibility and unfettered short term capital movements---the US Treasury and the Fed---continue to argue that the basic problem lay in the flawed financial structures of the recipient countries. But even they now concede that there was a private market failure in foreign capital crowding into these into these small economies at one moment and reversing direction in the next.

The countries that have suffered greatly from these short term capital flows see in these flows not merely market failure but unbridled speculation with destructive intent. The railings of Dr. Mahathir of Malaysia against hedge fund speculation aimed at forcing devaluations in Thailand and Malaysia have been well publicized. Until his country’s imposition of controls, his views were regarded as extremist and insupportable. That changed as the crisis in Asia intensified. Even the characteristically sober and laissez-faire Hong Kong monetary authorities made a persuasive case back in 1998 that the attack by speculators on their stock market and currency, despite the fifth largest exchange reserves in the world and a current account surplus of 5% of GDP, was a coordinated manipulation which, if attempted in the US, would have been a criminal violation.


Even in the West we are now hearing from the bastions of free market capitalism itself similar an assertion regarding the inappropriateness of global short term capital flows for small emerging economies. The temporary resort to capital account restrictions has subsequently received some grudging endorsement from the Asian director of the IMF, Hubert Neiss, and UNCTAD, which stated in its 1998 report, "Controls will remain an indispensable part of developing countries' armory of measures for the purpose of protection against international financial instability."

Former Federal Reserve Chairman Paul Volker has contended,

"The IMF's stance was influenced by the US Treasury and left many small economies dangerously exposed to turbulent capital flows. The visual image of a vast sea of liquid capital strikes me as apt," Volker said in April. "The big and inevitable storms through which a great liner like the USS United States of America can safely sail will surely capsize even the sturdiest South Pacific canoe."

Worse yet was the assessment of George Soros.

“The rethinking must start with the recognition that financial markets are inherently unstable. The global capitalist system is based on the belief that financial markets, left to their own devices, tend towards equilibrium. They are supposed to move like a pendulum: they may be dislocated by external forces, so-called exogenous shocks, but they will seek to return to the equilibrium position. This belief is false. Financial markets are given to excesses and if a boom/bust sequence progresses beyond a certain point it will never revert to where it came from. Instead of acting like a pendulum financial markets have recently acted more like a wrecking ball, knocking over one economy after another.”

The global economic order and financial architecture promulgated by the Treasury, IMF and Federal Reserve looks to be under threat. These latest deals suggest that the US is now fighting a rearguard action. Almost implicitly conceding that the cumulative effect of a decade long maintenance of a strong dollar policy has destroyed American trade competitiveness, the authorities are now adopting maximum capital mobility as a fallback option. Again, the objective seems to be consistent with that of the Fed: to take actions consistent with pre-empting, rather than accommodating, America’s need to make essential economic adjustments, the very sorts of adjustments which both the Treasury and IMF have tried to force on the emerging world for years as a quid pro quo for receiving any kind of external assistance.


However, we think the die is cast. There is no doubt that global mobile capital has proven to have become essentially speculative. Whether this is an inherent trait of markets, as Soros would contend, or a recent "pathological development", as we would argue, it is now widely agreed that global mobile capital has been speculative and destructive. Some form of regulation, capital controls or "Tobin tax" is inevitable over the next few years.

Emerging Asia in particular saves too much. With its sky high savings rates, its undervalued currencies, and its vast current account surpluses, it does not need foreign capital over the long run. Increasingly, as it has succeeded in stabilizing its external funding, it has tended to shun foreign short term capital. Few countries, if any, will go as far as Malaysia. However, countries with current constraints on foreign portfolio capital such as Korea, Taiwan and the Philippines will continue to shun foreign short term capital. One wonders whether Argentina, as it slowly emerges from a horrific recession, will so readily embrace such IMF-sponsored orthodoxies again. And there is increasing evidence to suggest that, much as the American authorities would like to make Singapore and Chile the template for all future deals, it is unclear whether this quid pro quo will find favour in a world increasingly inimical to US interests.

Quelle (http://www.prudentbear.com/archive_comm_article.asp?category=International+Perspective&content_idx=19670)



syr:sss

USD-Cashindex 23.01.2003, 11.15 Uhr, Stand 99.93 Punkte :D...

http://quotes.ino.com/chart/intraday.gif?s=NYBOT_DXY0&t=f&w=15&a=2&v=i

http://quotes.ino.com/chart/history.gif?s=NYBOT_DXY0&t=f&w=15&a=50&v=d6

MOSCOW, Jan 23 (Reuters) - Russia's central bank said on Thursday it would raise the level of its non-dollar reserves because of low returns for the U.S. currency.

"We reviewed our investment guidelines toward increasing the proportion of other currencies. We are diversifying," said the central bank's deputy head, Oleg Vyugin. "Dollar instruments have very low returns now. Other currency instruments offer higher returns."

90 kommen auch noch :p.......

syr:)

The U.S. dollar, the asset that is the measure of all other assets, is simply the 'stock' (i.e. liability) of the U.S. government. Think about that for a moment: What kind of a balance sheet does this entity have? Is it a wise investment? If the U.S. government were a publicly traded company, would you buy its stock as a long term investment?

Pop Goes the Bubble - Part III
Sell Dollars, Buy Gold Now!
22 January 2003 * M.A. Nystrom


Introduction
If there is one single idea that I have attempted to convey in this series of articles, it is that the popping of the financial bubble in America and the world is a process, not a single event. This process will take years to complete, and it is far from over. Before the true rebuilding process can begin, much of what remains of the false paper wealth that has been created in this country will be destroyed. As the effects of the falling financial dominoes reverberate throughout the nation and the world, it is clear that this crisis will shake the foundations of the current financial system to its very core.

In Part I of this series, I advised that even after three years of steady declines, the stock market remains massively overvalued and I suggested that if you have not done so already, to sell your stocks now. In Part II, I observed that while the housing market is often referred to as the "only bright spot" of the current recession, and "the bedrock of the new recovery," in reality it is simply another investment bubble with valuations inflated by financial smoke, mirrors and debt. Take your profits here too, as this market will soon begin to deflate.

The reader who took this advice and liquidated these assets would now be sitting on a large pile of "money," most likely U.S. dollars. But it is not time to relax just yet, for even the dollar is not safe from devaluation. In this Part III, the final installment of the series, we examine the last great bubble, the granddaddy of them all, the one within which and upon which all other bubbles reside - the mighty United States dollar.

The Greater Fool
The dollar is fundamentally no different from the other assets that periodically inflate and deflate over time. Bubbles occur when market psychology - hype - cause asset prices to lose touch with reality. This hype feeds on itself as others rush to provide more of that asset in order to cash in on the easy money. We saw this with the dot-com IPOs that never made a profit. We're seeing it again with the rush to build cheap condo/retail complexes to cash in on the hot real estate market. And though you may not realize it, we're seeing it right now with the U.S. dollar. It is the hope of this essay to help clarify the bubble mentality that is currently inflating the value of the U.S. dollar.

Bubbles are driven by the very human desire for easy money. After all, who wants to work for their money in this modern age? A bubble is a scheme that relies on the Greater Fool theory - that prices begin rising for no other reason than the belief that they will continue to rise. You may be a fool to buy into the scheme, but it only takes one fool later and greater than yourself to ensure your profit. The question with the dollar is who will be the greatest fool? Who will be the ones left holding the bag as the value of the dollar - slowly or quickly - erodes to zero?

Seeing the Bubble
In the years of the stock market bubble, Fed Chairman Greenspan stated many times that it is only in retrospect that we can determine whether a bubble in fact existed or not. At its height, he denied the existence of a bubble. Today he openly admits that it was a bubble, but claims that even had he perceived it at the time, there was nothing he could have done to stop it. The Fed's best bet, he asserts, is to attempt to mitigate the fallout of a bubble when it occurs.

While this is not comforting, it is important. Because if Chairman Greenspan does not believe that bubbles can be spotted in advance, you cannot expect him to point them out to you before they pop! You'll have to think for yourself on that issue. He missed the stock bubble, he's missing the housing bubble and he'll certainly never publicly entertain the idea that the dollar could possibly be a bubble. His position as head of the Federal Reserve prohibits him from speaking bluntly about certain issues, namely the economy. His job is to soothe and reassure the public that everything is fine. And if it is not fine, he'll deal with the after-effects when they occur. (If he's still around; his term expires next year.)

The thinking investor realizes that the truth is hidden somewhere between the lines and listens to the news accordingly, all the while thinking for himself. Hints are given, directions indicated, hands tipped and signposts revealed. But the truth remains cloaked beneath the veil of the static of the daily news and popular prognosticators who would have you believe that the future is just a linear projection of the recent past. The bottom line is not to look at Greenspan nor anyone in power for guidance of your affairs, financial or otherwise. Their interests are not necessarily your interests. It is vital that you think for yourself. Their mantra is, and will ever be "Don't worry, everything is fine."

Everything is Not Fine
Make no mistake: The dollar is a bubble in the same way that the Nasdaq was, and the same fate awaits it. Like with any bubble, there is a rush to create more of the asset in order to cash in on the easy money. Our government is already $6.4 trillion in debt - this figure grew 8% last year, well over twice the rate of the economy. The Fed believes there is no limit to the amount of money that can be created. Yes, there is a legal 'debt-ceiling' but Congress moves it at will, like children changing the rules of a game in mid-play. The debt ceiling went from $6 trillion to $6.4 trillion last year, and it will have to be moved up again this year to over $7 trillion. Before long something will have to give.

http://www.depression2.tv/chronicles/images/p3-1.gif

Inconvenience Checks
But the Feds aren't the only ones creating money. Like every good bubble, many players are moving to cash in on the easy money. There is the mortgage refinancing game, discussed in Part II. There are the car companies and others with zero percent financing. And then there are the credit card banks.

Each month I receive several blank "convenience" checks in the mail from my credit card companies. MBNA, Fleet, Chase, Citibank, Discover - they're all running the same racket. "Spend now! Pay off higher rate cards, or take a vacation - use the money however you want!" they implore. With a few strokes of the pen, from thin air I could fatten my bank account literally by tens of thousands of dollars this afternoon, courtesy of the big banks of America.

http://www.depression2.tv/chronicles/images/p3-2.gif

Why do the banks do it? Where does the money come from? Where does it go?

The banks are simply participating in the bubble. They get their money cheap from the Fed - say at around 1.25%, then loan it to the "convenience" check writer at 3.9% for a while, then jack it up to around 16% after a few months. Such is the price of convenience. The bank pockets the difference with little risk. Easy Money. It is the hallmark of the bubble - money so easy that it cannot be resisted. The Fed, of course, encourages it by keeping rates low. They don't care how banks use the money, in fact they need the banks to inject it into the economy.

http://www.depression2.tv/chronicles/images/p3-3.gif

Like with all bubbles, the money is created from thin air. The banks are authorized to do it. The money is first created, then borrowed from the future based on the borrowers ability to pay it back. It is a classic money-for-nothing scheme. And like all free money, one can be certain that it is not going into anything useful. Say a consumer takes the credit card companies' suggestion and goes on vacation, buys some new toys and goes out to dinner every night of the week for the next three months. He has spent the money and greased the wheels of the economy for a period of time, but in the end has added nothing of lasting value.

In the final analysis, the 'convenience check' becomes rather inconvenient to both the consumer and the economy at large. The money is spent, but the debt remains and the price is high. No productive capacity was created with which to pay it off. It will likely be paid off with another "convenience check" at a lower rate, which is what the average consumer, and the nation itself, is doing. The debt never goes away, and in fact continues to creep up. Some banks even set minimum payments so low that they don't even cover the interest and fees for one month, so the balances continue to rise even when regular payments are made!

At some point these debts get so large that it becomes clear that they will never be paid off. The consumer falters and he is no longer a good credit risk. At this point the jig is up, and he'll have to either: 1) Pay off the debt in full (but with what money! Everything he has is borrowed!) or 2) Walk away. Kaput. Leave and leave the bank holding the bag, and go on his merry, or not-so-merry, way.

http://www.depression2.tv/chronicles/images/p3-4.jpg

The same is true for the country itself. The U.S. government continues to borrow, because the easy money cannot be resisted. Why raise taxes, why cut spending, why be fiscally responsible when the money can simply be borrowed? And the world wants to loan the United States money! This is a signature of the bubble! Unfortunately, like the convenience check user, the government makes few useful investments. The borrowings go to pay for interest on the existing debt, more tax cuts, a war, and other such non-productive special interests.

So what happens when the jig is up for the country? The government will have but three choices:

1) To pay back the money honestly
2) To walk away from the debts
3) To print more money and pay off the debts with inflated currency


The first choice is a political impossibility. There is simply too much to be repaid at too high a cost. It will never happen. Likewise for the second. A default by the U.S. Government would be a last resort, worst case scenario that will be avoided at all costs. This leaves us with the third option, which means inflation. As the dollar is inflated, its buying power will gradually erode to a fraction of its current worth. At that time in the distant - or not too distant? - future, all savings and investments denominated in the currency - whether bank accounts or stock portfolios or mutual funds - will be equally devalued

How Much Will Your Dollars Be Worth?
While it is impossible to tell how much a dollar will buy in the future, we do know that the dollar has been losing value steadily since its decoupling from the gold standard in 1933, and this situation is unlikely to change. As Greenspan began a recent speech, "Although the gold standard could hardly be portrayed as having produced a period of price tranquility, it was the case that the price level in 1929 was not much different, on net, from what it had been in 1800. But in the two decades following the abandonment of the gold standard in1933, the consumer price index in the U.S. nearly doubled. And in the four decades after that, prices quintupled."

Translation: When the dollar was backed by gold, its value remained constant from the time of Washington and Jefferson until the roaring 1920s. Since the gold standard was removed 70 years ago, the dollar has proceeded to lose over 95% of its value! So the process of devaluing the dollar is already well underway. In time, like the German Reichsmark, 100% of its value will disappear.

Protecting Yourself
The problem with the dollar is that political forces control its issuance and therefore its value. The Fed is ostensibly independent, but in truth it bends to the political realities of the times. That paper currencies are ultimately destroyed is a property inherent to them. Like everything in our current society, even our money is ultimately disposable. Once the dollar has come to the end of its useful life, it will be cast aside without concern or care for your life savings, your well being, or the well being of any of your investments. This is a cycle that repeats itself over and over with governments and fiat currencies.

Remember, all paper assets today are simply the flip side of someone else's liability. The money in your bank account is loaned out to God knows where and is the bank's liability to you. The money in your money market fund is short-term debt that is loaned out to a number of corporations and governments throughout the world and is their liability to the fund. A stock certificate is the liability of the issuing company, and is only as good as that company. The creditor list for the United Airlines bankruptcy alone ran to 32,644 pages. Each bankruptcy spawns a whole new mountain of bad debts and drives more people and businesses into bankruptcy. More are on the way, which means more assets are at risk.

If the last few years have shown us anything, it is that without knowledge of the system and eternal vigilance, your assets are never safe. The U.S. dollar, the asset that is the measure of all other assets, is simply the liability of the U.S. government. Think about that for a moment: What kind of a balance sheet does this entity have? Is it a wise investment? If the U.S. government were a publicly traded company, would you invest in it?

It is a fiscally irresponsible entity that hasn't managed to balance its budget in years. Congressman Ron Paul, member of the House Banking Committee, has compared the U.S. Financial system to Enron. The U.S. government, like many companies, is an entity facing declining revenues and rising costs. And instead of addressing these issues, it is lowering taxes and increasing spending while busying itself making war half way around the globe. The control structure of this entity is becoming increasingly dominated by nepotism and special interests. As the Fed indicated last, this is an entity with a printing press, willing and able to issue more stock (i.e. dollars) at will and without shareholder consent.

The first piece of advice that any financial advisor will give you is to diversify your investments. So why is it that most people invest in assets that are denominated 100% in a single asset: the U.S. dollar?

The Golden Alternative
While everyone in the world has been scrambling over one another to buy and hold U.S. dollars in the last several years, there is a better alternative: Gold.

Gold is very different from paper money. Over the centuries and millennia, we have seen that gold holds its value. It is a storage place for value, unlike paper monies that come and go with the tides of history. This is because gold cannot be created from nothing. It is both liquid like a currency, and real like property and is one of the few remaining assets in the world that is not someone else's liability. Your dollars are and will ever be the liability of the U.S. government.

Gold's recent rise in price as world tensions have increased demonstrate that it remains the premier financial safe haven in times of instability. The barbaric metal increases in value as men behave more and more like barbarians.

Timing is not Everything
The dollar is in the midst of a devaluation that has been occurring for the past 70 years. Few people see it. My father talks of buying a hamburger, fries and coke for a quarter after seeing a double feature for a dime. In 1930 he spent 35 cents on what would cost twenty dollars today. The dollar will continue to lose value on its inevitable march towards final destruction. When this will occur is an entirely different matter. The debate is alive and well as to whether we will see deflation before the ultimate hyperinflation. It is my opinion that this is a moot point, because my purpose for purchasing gold is not as an easy-money, get rich quick scheme. It is about the preservation of existing wealth.

If you want a get-rich-quick scheme, try investing in an S&P 500 index fund. Put your money in the Dow and wait for Dow 36,000 and see how quickly you get rich. Gold is about preserving the value of what you have worked for and protecting it from the political whims of the powers that control the value of the dollar. Gold is a safe haven in the increasing tempest of financial instability created by the current international fiat currency regime. If you haven't done so already, start buying gold now.

Comments, or to be notified of new articles:
manystrom@depression2.tv

Quelle (http://www.depression2.tv/chronicles/pop-3.html)



syr:sss

König Dollar auf der Guillotine

von John Mauldin

Wohin wird der Dollar tendieren? Gen Süden natürlich. Das US-Handelsbilanzdefizit steigt weiter. Es liegt bereits jetzt bei 5 % des amerikanischen Bruttoinlandsprodukts – mit Tendenz Richtung 6 % –, und ein solches Niveau bedeutet normalerweise, dass es zu einer ernsten Korrektur des Wertes der Währung kommen wird. Aber auch wenn der Dollar schon gefallen ist – besonders gegenüber dem Euro –, so ist er doch noch nicht so tief gefallen, wie man erwarten könnte.

Der Dollar hält sich noch relativ gut, weil China seine Währung im Verhältnis zum Dollar fixiert hat. Und der Rest von Asien befindet sich in einem Abwertungs-Wettlauf, um zu sehen, wer die eigene Währung am meisten abwerten kann, damit die US-Konsumenten angezogen werden. Die Welt – und besonders Asien – wird weiterhin vom US-Konsumenten abhängig sein. Die Welt verkauft den USA ihre Produkte gegen in den USA gedruckte Dollar, und mit diesem Geld werden dann amerikanische Anleihen und Aktien gekauft. Die Ausländer halten entweder 35 % (laut BCA Research) oder 42 % (laut Morgan Stanley) der amerikanischen Staatsanleihen. Laut Morgan Stanley sind auch 18 % der US-Aktien in ausländischem Besitz. Warum sollten ausländische Zentralbanken weiterhin große Dollar-Reserven halten, wenn es klar ist, dass der Dollar überbewertet ist? Nun, sie haben nur zwei Alternativen: Schmerzen jetzt – oder später. Politiker sind überall auf der Welt gleich ... sie werden immer die Schmerzen erst später erleiden wollen, auch wenn sie dann noch härter sein werden.

Wenn ein Land aufhört, Dollar zu nehmen und damit US-Anlagen zu kaufen, dann wird die Währung dieses Landes im Verhältnis zum Dollar steigen – und das wiederum macht die Produkte dieses Landes für die amerikanischen Konsumenten weniger attraktiv. Das ist für exportabhängige Volkswirtschaften ein Desaster, besonders für die Politiker, weil es dadurch zu einer Rezession kommen wird. Deshalb werden die Ausländer die amerikanischen Konsumausgaben auch weiterhin unterstützen. Der Insight-Newsletter von Gary Shilling berichtet, dass Kanada, Mexiko, China und Japan für fast die Hälfte des amerikanischen Außenhandelsvolumens aufkommen. Der kanadische Dollar hat gegenüber dem US-Dollar in den letzten 12 Monaten relativ konstant verhalten, der Yen und der Peso haben jeweils rund 10 % verloren. Die chinesische Währung ist an den US-Dollar gebunden, so dass es hier keine Kursschwankungen gab. Mit anderen Worten – diese Währungen haben alle seit- bis abwärts gegenüber dem Dollar tendiert. Das sollte man bedenken, wenn man den deutlichen Kursrückgang des Dollar gegenüber dem Euro sieht.

Gibt es ein Limit zur aktuellen Entwicklung? Natürlich. Die USA können nicht mehr als 100 % ihrer Aktien und Anleihen and Ausländer verkaufen, und sie verkaufen ca. 500 Milliarden Dollar. Wenn das in diesem Tempo weitergeht, dann wird das Ausland in 10 Jahren alle US-Staatsanleihen besitzen, auch bei steigenden Defiziten. Das ist sicherlich keine tragbare Entwicklung.

Wann wird es schmerzhafter sein, überbewertete Dollar zu akzeptieren, als weniger in die USA zu verkaufen? Ich denke, das wird dann der Fall sein, wenn China seine Währung floaten lassen wird. Die asiatischen Länder wollen nicht unbedingt einen überbewerteten Dollar, sie wollen einfach, dass ihre eigene Währung in Relation zu ihren Nachbarn am vorteilhaftesten bewertet ist. China ist in diesem Prozess der Gorilla: Wenn China seine Währung, den Renminbi, steigen lässt, dann werden auch die anderen asiatischen Staaten ihre Währungen steigen lassen können. Das wird dann das reale Ende des Dollar.

Interessanterweise mehren sich weltweit die Stimmen, die die Chinesen auffordern, den Renminbi floaten zu lassen. China hat bis jetzt auf diesen Druck noch nicht geantwortet, aber wie alle Länder wird es dann reagieren, wenn es denkt, dass es im eigenen Interesse liegt. Das wird wahrscheinlich dann der Fall sein, wenn die Chinesen finden, dass ihre eigene Konsumnachfrage solide wächst und dies eine mögliche Abschwächung der Verkäufe in die USA überkompensieren kann. Die große Frage ist, wann das der Fall sein wird ... und deshalb kann der Dollar bis auf weiteres überraschend stark bleiben, wenn er eigentlich fallen sollte. Aber Chinas Entscheidung, den Renminbi floaten zu lassen, könnte der Überraschungszug sein, der die Dominokette zum Fallen bringt.

Europa ist die einzige reale Ausnahme die es gibt, wenn es um ausländische Unterstützung für den Dollar geht. Die Europäische Zentralbank (EZB) scheint bereit zu sein, den Dollar fallen zu lassen. Und trotz des schwachen Wirtschaftswachstums in Europa ist es meiner Meinung nach wahrscheinlich, dass der Dollar gegenüber dem Euro weiter verlieren wird.

Für einen Euro muss man derzeit rund 1,07 Dollar bezahlen. Das "natürliche" Ziel des Dollar für die nächsten 12–18 Monate – wenn nicht früher – liegt bei rund 1,17 Dollar, dem Niveau, auf dem der Euro vor ungefähr 4 Jahren startete. Europa wir sich einem noch weitergehenden Dollarverfall wahrscheinlich widersetzen ... bis China seine Währung floaten lassen wird. Bei den Währungsmärkten handelt wirklich jeder Staat bzw. jeder Währungsblock nach seinen eigenen Interessen. Das bringt uns natürlich zu dieser internationalen Währung: Gold.

Der Goldpreis ist endlich abgehoben. Er ist zum heißen Investment des Jahres geworden, 2002 legte er rund 30 % zu. Ich denke, dass der Goldpreis noch Luft nach oben hat. Die Zentralbanker haben keine geheime Verschwörung, um den Goldpreis künstlich niedrig zu halten. Sie wollen einfach das verkaufen, was sie haben. Sie verstehen dieses gelbe Zeug nicht, und sie wollen es nicht besitzen. Wenn der Goldpreis steigt, werden sie mehr verkaufen. Sie ziehen Papiergeld dem harten Metall vor, und wenn der Dollar weitere 10 % gegenüber dem Euro fallen wird, dann könnte man schnell einen 10 %igen Kursanstieg beim Goldpreis sehen. Weil der Goldmarkt ein Markt mit nur langsam wachsendem Angebot ist, könnte der Goldpreis auch relativ schnell anziehen, wenn die Zentralbanken sich dazu entscheiden sollten, ihre Verkäufe zu begrenzen. Wenn die Absichten der Zentralbanker mit der Richtung des Marktes übereinstimmen, dann sollte man aufpassen. Ja, es ist möglich, dass der Dollar nicht weiter fällt ... aber es gibt keine Diskussion darüber, dass er fallen sollte. Deshalb werde ich auf lange Sicht weiter ein Freund von Gold und Goldminenaktien bleiben.

Quelle (http://www.investor-verlag.de/)

syr:sss

Ein Trend ist ein Trend und bleibt ein Trend:D:

http://www.financialsense.com/Market/graphs/january/0123/6moUSDX.gif

Und das bleibt so, bis er gebrochen ist :cool:.

syr :)

Saturday January 25, 4:34 AM

Dollar's Decline Starting To Accelerate, Rattling Nerves

By Grainne McCarthy
Of DOW JONES NEWSWIRES

NEW YORK (Dow Jones)--All of a sudden, the dollar's supposedly slow and gradual decline isn't looking so slow, or gradual.

In fact the speed of the dollar's slide, against the euro in particular, has taken even the most seasoned analysts by surprise: a Dow Jones Newswires foreign exchange survey just ten days ago showed the major currency trading banks forecasting the euro climbing to $1.06 by the middle of February and not coming near $1.10 until the end of the year.

Instead, the euro has leaped to highs of around $1.0850 on Friday and has already gained 4% on the dollar this year, leaving strategists increasingly scrambling to update their forecasts. The Swiss franc keeps reaching fresh four-year highs, and the dollar is on the ropes against sterling and a host of other key rivals.

"When you look back, all of these small steps are making up for a giant leap, particularly for the euro," said Alan Ruskin, research director at 4Cast financial consultancy, in New York.

To be sure, the fact that the dollar is in a bear market is no surprise. The currency lost 15% against the euro last year and 10% against the yen, marking the dollar's steepest fall since after the stock market crash of 1987. But many economists have routinely argued that the greenback's decline was mostly a good thing for the U.S. economy, because it was taking place slowly and in an orderly manner at a time when U.S. manufacturers could badly do with some sort of competitive edge.

At the same time, a gradual decline in the currency - as against an outright freefall along the lines of the dollar's 13% slide against the yen during two hectic days of Oct. 1998 - helps to limit the fallout on other U.S. asset markets. But with the dollar continuing to slip this month below apparent lines of technical support, mostly on the resounding drum of war emanating from the Bush Administration, market participants are beginning to ask whether the currency's fortunes will spark broader questions about confidence in U.S. assets.

"Right now we're not there but we could get there," said Ruskin. "We could be in a situation where we're putting two and two together and getting 22."

He said that if the U.S. declares war on Iraq, the stock market could start to slide, which would feed further dollar weakness, creating a vicious circle where foreign investors liquidate U.S. assets and thus put pressure on the dollar, which further inspires more liquidation.

For now, implied foreign exchange volatilities are holding fairly steady and the major currencies are able to absorb greater volume fairly seamlessly.

Perhaps a more important barometer of broader confidence in U.S. markets is the Treasurys market. With the dollar falling, gold spiking and stocks under pressure, Treasurys continue to retain their safe haven appeal.

But there are warning signals here, too, that are beginning to get more attention. This week, the Russian central bank said it was lowering the U.S. asset portion of its foreign exchange reserves - in other words selling Treasurys - calling the dollar a low-yielding currency.

Analysts believe some of the large Asian central banks - that between them hold the lion's share of the world's dollar reserves - are also considering rejigging their Treasury holdings. A U.S.-led war in Iraq could further accelerate that trend.

Indeed, some political analysts believe that U.S. policy over Iraq may already be having a direct impact on holdings of U.S. assets, particularly with much of the rest of the world so opposed to war. "It's hard for me to believe that the flow of capital cannot help but be affected by how the U.S. is perceived around the world," said Larry Greenberg, an international economist at Ried Thunberg & Co. in Westport, Conn.

This renders next week particularly important for the dollar, with a slew of potentially significant trendsetting events, including Chief U.N. weapons inspector Hans Blix's report to the U.N. Security Council Monday, President George W. Bush's State of The Union address on Tuesday and the confirmation hearings for Treasury Secretary nominee John Snow. For the pace of the dollar's fall, developments concerning the prospect for war will likely rein paramount.

"Today if you have the U.S. acting (in Iraq) against world opinion, there could be an even faster pullback out of dollar-denominated assets," said Joseph Quinlan, global economist with Johns Hopkins University, in Washington. "How we go to war influences the rate of decline of the dollar," he said.

-Grainne McCarthy; Dow Jones Newswires; 201 938 2381; grainne.mccarthy@dowjones.com

Quelle (http://sg.biz.yahoo.com/030124/15/36tiv.html)

syr:sss

JANUARY 23, 2003

DAVOS, 2003

http://www.businessweek.com/common_images/bw_logo1.gif

Currency Whiplash Ahead?

The prospect of wild swings in global exchange rates is worrying the financial and economic honchos at the World Economic Forum in Davos

After two years of plunging equity markets and economic turmoil, the world could be headed for a prolonged period of dramatic currency gyrations. That's a big fear of many policymakers, investors, and business executives who are gathering in Davos, Switzerland, for this year's World Economic Forum. Volatile exchange rates hurt companies by making it difficult to set prices, control costs, and predict revenues. They alarm investors because they can quickly wipe out the value of their international portfolios. And they're a nightmare for monetary policymakers because they can undermine the impact of interest rate adjustments.

"The strong rise in the euro over the past two months has already neutralized the [50 basis point] interest rate cut the European Central Bank made on Dec. 5," says Jürgen von Hagen, economics professor at the Center for European Integration Studies at the University of Bonn in Germany.

UNPREDICTABLE MOVES. Sudden currency swings can also hurt entire economies by making exports uncompetitive or imports more expensive. Take the unexpected 17% rise in the euro's value since January last year. European businesses complain that it's making their goods more expensive abroad, sapping their revenues, and curbing already anemic growth. They dread the single currency strengthening even further against the dollar.

It wouldn't be so bad if it were possible to predict precisely where currency markets are heading over the medium and longer terms. But even the experts disagree. Gail Fosler, chief economist of CEO group The Conference Board, forecasts that the greenback could soon regain all the ground it has lost over the past year -- and then some. "We could see it at higher levels than ever before," she predicts. Fosler says a speedy and victorious war in Iraq, followed by a reduction in oil prices, stronger U.S. consumer confidence and a rekindling of economic growth would all be good for the dollar.

She adds that the continuing love affair of Asian countries -- especially Japan and China -- with the greenback will sustain it over the longer term. "The Far East is basically a dollar zone," she says. "The dollar is the main medium for trade and investment there, so demand for it will remain strong."

WANING DOLLAR ARDOR? Not all analysts see it this way, however. Stephen S. Roach, Morgan Stanley's chief economist, says it's hard to envision a strong economic recovery stateside in the near future, even with the huge tax cuts proposed by President George W. Bush.

And Chinese officials say their appetite for the dollar could wane. Zhu Min, general manager and economic adviser to the Bank of China's president, says the mainland is less dependent on the U.S. as a market than it once was. As the world's most populous country and fastest-growing economy diversifies its trade relationships, its interest in the euro is growing. "I can't confirm the view that Chinese businesses will continue to help underpin the dollar's value," he cautions.

Asian investors' enthusiasm for dollar-denominated assets could also cool, taking away some support for the greenback. In the 1980s, Japanese and other Asian investors snapped up American securities while the U.S. ran up huge budget deficits and a widening trade gap with the rest of the world. But today, these foreign investors aren't as enamored with Treasury bills as they once were, and they might steer clear if the U.S. starts running up the red ink again.

USELESS WIZARDRY. However, if the Iraqi impasse drags on or the U.S. gets bogged down in a long war, all bets about the greenback are off. "The dollar could plunge suddenly -- and erratically," worries the CFO of one large euro-zone bank. "I've not seen the currency markets this uncertain since the mid 1970s, when the Bretton Woods system collapsed."

The prospect of a roller-coaster ride in currency markets is unnerving to many businessfolk, especially those with large foreign operations. While they can partially protect themselves against short-term currency swings by hedging their foreign-exchange exposure, it's nearly impossible for them to protect themselves in the longer term, especially if currency movements do become very erratic. Besides, all the financial wizardry in the world can't stop a business or country from losing its competitive edge if the national currency suddenly goes through the roof.

And the most worrying possibility: Currency volatility could undermine weak global economic growth and increase the likelihood of a double-dip recession -- especially in Europe. Indeed, German growth has already slipped back into negative territory, and the rest of the euro zone could soon follow suit.

Roach thinks U.S. growth could also stall this quarter partly because of currency jitters. "Things are bad enough already," says the bank CFO. "These currency concerns can only make them worse." Small wonder for the anxiety in the Alps as Davos gets under way.


By David Fairlamb at the Word Economic Forum



syr:sss

Update on the long-term Dollar bear

The Big Picture

Below is a long-term chart comparing the US Dollar (represented in this chart by a trade-weighted exchange index of the US$ relative to other major currencies) with the US quarterly current account deficit. We originally included this chart in our 16th December commentary in order to make the point that once a major US$ downtrend gets underway it continues until the US current account moves into surplus. The shaded areas on the chart highlight the periods from the start of each major dollar decline to its conclusion. Obviously, we don't yet know the date at which the current dollar decline will end, but we can be confident that this date will be many years into the future since the corrective process (the process through which the large current account deficit shrinks and eventually becomes a surplus) has only just begun. As such, there is probably not going to be any reason to be anything other than long-term bearish on the US$ for quite some time.

http://www.speculative-investor.com/new/dollar_bopca_131202.gif

The above may seem overly simplistic, but we think it is the correct 'big picture' view. Furthermore, this long-term downward trend for the US$ will, in our opinion, continue to be one of the most important drivers of the long-term trends in other markets (gold, stocks, commodities, bonds). For example, the long-term trend towards a weaker dollar has helped create, or will help create, the following:

a) A long-term bull market in gold

b) A long-term bull market in commodities

c) Relative strength in those sectors of the stock market that benefit from a weaker dollar (e.g., the stocks of commodity producers) and relative weakness in those sectors of the market that benefit from a stronger dollar (e.g., the bank stocks).

d) A long-term bear market in bonds

An argument could be made that the commodity bull market will only be apparent when commodity prices are measured in US$ terms, as has been the case over the past 12 months. However, attempts by central banks throughout the world to reduce the rate of the dollar's descent by weakening their own currencies will likely result in broadly weaker fiat currencies relative to commodities.

The Technical View

Below are 3-year charts of the Dollar Index and the S&P500 Index. Both charts show that prices have been moving lower along well-defined trend-lines in the same way that a ball might bounce down the side of a hill. Each time the ball (the price) hits the side of the hill (the trend-line) we get a bounce, a 'rolling over' as gravity (over-valuation) exerts its influence, and then another plunge.

http://www.speculative-investor.com/new/dollar_120203.gif
http://www.speculative-investor.com/new/S%26P500_LT_120203.gif

The S&P500 reached its major peak well in advance of the Dollar, but the respective downtrend-lines were hit together in September-2001 and July-2002. Interestingly, the Dollar recently returned to its major downtrend-line (the point from which substantial bounces usually begin) while the S&P500 is still well above its own trend-line. One way to interpret this divergence is that we are currently seeing a very weak bounce in the Dollar that will be followed by a drop to the trend-line at a slightly lower level (the mid-90s) during the next 1-2 months. And, that this next low in the Dollar will coincide with the S&P500 hitting its own trend-line. This is, in fact, how we interpret the charts because a) gold stocks are yet to signal an intermediate-term peak in the gold price (gold is likely to reach an intermediate-term peak at around the same time as, or before, the US$ reaches an intermediate-term bottom), and b) the Dollar's short-term chart pattern suggests there will be one final leg down to a lower-low before a substantial multi-month 'bounce' gets underway.

Steve Saville

http://www.speculative-investor.com



Quelle (http://www.speculative-investor.com/new/article140203.html)

syr:sss

THE DOWNWARD SPIRAL

Jim Rogers, 3/3/2003

In late January, the Senate confirmed John Snow as our new U.S. Treasury Secretary, the 73rd in the government agency’s two-hundred plus year history. Snow, like Paul O’Neill and Robert Rubin before him, promised to follow a strong dollar policy and take steps to help spur on a U.S. economic recovery and long-term growth.

Well, I know you’ve just started your new job, Mr. Snow, but I’ve got some sobering news for you. You and your pals can keep talking about this alleged "strong dollar policy" until you’re blue in the face, but it’s not going to make a lick of difference if you don’t start managing our currency more responsibly. The dollar is not just in decline; it’s a mess. If something isn’t done soon, I believe the dollar could lose its status as the world’s reserve currency and medium of exchange, something that would lead to a huge decline in the standard of living for U.S. citizens like nothing we’ve seen in nearly a century.

"Oh, Jim," the disbelievers crow. "You’re just being extreme. That would never happen. After all, the dollar has reigned supreme for several decades"

True, but it seems to me that people forget that that supremacy isn’t a gimme. A sound currency, after all, reflects solid economic fundamentals: little to no debt, a trade surplus, a stable balance of payments—the difference between a nation's receipts of foreign currency and its expenditures of foreign currency—and growing international reserves.

That’s not exactly the picture you get when you look at the U.S. balance sheet. Our national debt to foreigners is now around $6.4 trillion, with interest payments alone last year totaling $333 billion. We’re importing far more goods than we are exporting. International reserves remain around $60 billion, but we’re attracting far less direct foreign investment every year. Our current account deficit runs at roughly $500 billion a year, or five percent of our gross domestic product. Think of it this way: It costs us about $1.3 billion a day in the foreign markets just to keep the dollar afloat. We’re like the untrustworthy brother-in-law who keeps borrowing money, promising to pay it back, but can never seem to get out of debt. Eventually, people cut that guy off.

As a result, the U.S. dollar continues to fall against its foreign counterparts, down 18 percent against the euro in 2002 and 10 percent against the yen. That’s not the worst it has been in history, but it’s certainly a substantial slide. With a war, a slow economic recovery and future threats of terrorism looming on the horizon , there’s little reason to believe things are going to improve.

What’s worse, little is being done by Washington’s economic gurus to pull us out of our economic quagmire. Faithful readers know I believe Alan Greenspan is the grand maestro of this economic debacle. Our esteemed Federal Reserve chairman is the first to “buy any assets” or lower interest rates to pump money into the economy and give investors the illusion that things aren’t as bad as they really are. Sometimes I wonder if our central bank is just going to print money until we run out of trees. People say that inflation is a dead issue, but you wouldn’t guess that shopping where most of us buy things.

History teaches us that such imprudent fiscal behavior has always led to economic disaster. During the early 1920s, rampant inflation destroyed the value of German currency. German workers had to be paid twice a day just to survive; it took a wheelbarrow full of bills just to buy a loaf of bread. In England during the 1970s the government continued to boost its money supply, injecting its economy with liquidity, until debt levels spun out of control. Suddenly, no other countries would buy their sovereign bonds. Finally, the International Monetary Fund had to step in and bail the Brits out. Quite a shift for a country that only 50 years earlier was one of the richest nations in the world. Want a more current example? Just look south, to Argentina, where its currency recently lost so much value that the government prohibited its citizens from making withdrawals at the bank.

So why doesn’t our government do something about our flagging currency? At least over the short-term, the declining value of the dollar does have its perks. A declining dollar is certainly good for domestic manufacturers who must compete with foreign companies. As the dollar drops, their manufacturing costs decline and it's much easier for these companies to compete. The global economy is already sluggish, and the falling dollar makes U.S. exporters far more competitive. Again, it’s the illusion that things are better when they really are not.

Remember also: Our manufacturers may be better off, but foreigners then suffer so the world as a whole shows no improvement. That is why similar practices in the 1930s were known as “beggar thy neighbor”.

While this helps U.S. manufacturers, it’s not necessarily good news for consumers. The cost of imports, like foreign cars and foreign liquor, will rise. Since foreign goods become more expensive, U.S. companies may respond by raising their prices, even slightly, because they can. In the end, the dollar loses value, but we’re still paying the same real amount for many goods.

The bigger problem for the American economy is that foreign investors and foreign governments may soon lose their appetite for the declining U.S. dollar. Interest rates, which are now absurdly low, will need to rise to give foreign investors an incentive to invest and hold on to our currency. If not, these foreign governments and investors may look for somewhere else to hold their money. Historically, when investors recognize that a currency is being debased or devalued, they tend to look for sanctuary in currencies that remain stable at the insistence of the population. For years, the Swiss franc was synonymous with monetary stability. :cool:

While currencies like the Swiss franc or the Japanese yen or the Danish krone—all of which I own—are in better shape that the U.S. dollar, I don’t have a whole lot of confidence in them either. All of these countries’ governments have adopted the U.S.’s dangerous habit of manipulating their own currencies to compete in the world market. It’s a double-bind of sorts: Singapore’s government wants to keep its currency strong and sound, but if every other country’s currency is declining against the Singapore dollar, their exports become prohibitively expensive and it becomes impossible for them to compete. They are forced to play the monetary monopoly, shuffling the money supply, adjusting interest rates, just to make their products competitive.

And what about the Euro? It’s certainly stronger than the U.S. dollar, which is down 18 percent against the euro for 2002. I believe the success or failure of the Euro is one of the most important questions of the twenty-first century, one with profound implications on the global economy. The world needs the Euro, because it needs an alternative to the dollar. There really are only two currencies with enough liquidity to be the world’s currency—the U.S. dollar and the Japanese yen. (The Swiss may have a sound currency, but there just aren’t enough francs out there.) The European Union has everything going for it—an enormous population base, a balance of trade surplus. Most of its nations are creditors, not debtors. If the Euro succeeds, people may actually stop using the dollar as a medium of exchange and as a reserve currency.

That said, I believe that the Euro is a flawed currency. Many of the European Union’s 12 member nations just don’t run a tight ship. Germany, which became the poster boy of fiscal responsibility in the mid-twentieth century, has again started running up huge debts. (Have they forgotten about the wheelbarrows?) The Portuguese are running an enormous deficit. What’s going to happen when these countries can’t balance their books? Is Brussels going to send tanks into Lisbon? I doubt it. It may take years, even decades to root out all the problems in the EU’s inherently flawed system. Remember: Hundreds of billions of dollars (yes, dollars, for the moment) have been invested in this new currency. Banking systems have changed. Accounting systems have changed. Even parking meters have changed. If it fails or even struggles, there may be huge economic losses.

How long does the dollar have? A year? A decade? I’m not so sure. As long as there’s no other currency stepping up to the plate and EU continues to struggle with the euro, the U.S. government will likely be able to continue to jigger the books, essentially floating our enormous tab on the backs of the rest of the world.

But remember: Whenever there has been an economic crisis like this, a new player has always emerged on the economic landscape. A century ago, few people would have believed that the dollar was going to emerge out of the 19th century as the dominant world currency. There’s always a phoenix that rises from the ashes. Who will it be for the 21st century? My guess is the Chinese yuan may eventually have its day in the sun. The nation has a recipe for a sound currency—a huge population, an enormous balance of payments surplus, and a sizeable GDP to match. China is now the world’s largest importer and the world’s second largest creditor (Japan is first). For the moment, its currency is not convertible, which must change now that it has been admitted to the World Trade Organization. There are still a lot of cultural barriers to get over—rampant xenophobia and fear of capitalist interests—but nothing assuages fears like steady flows of money into your coffers.

Gresham’s law says that bad money tends to drive out good money. Well, whether we like it or not, whether we want to believe it or not, the U.S. dollar has become bad money. Despite proclamations from Washington about a strong dollar policy, I see no reason to believe that the dollar won’t continue to decline, that we won’t continue to borrow like beggars and put Band-Aids on gaping wounds in our monetary policy. That is, until the day when our creditors say enough is enough. And that day may not be far off.



Quelle (http://www.jimrogers.com/content/stories/articles/THE_DOWNWARD_SPIRAL.htm)

syr :rolleyes:

Gold, Inflation and the Dollar

Steve Saville
11 March, 2003

The Gold Bull Market

Towards the end of last year the Fed confirmed that it would increase the supply of dollars by whatever extent was necessary to cause prices to rise. At the time that Fed representatives Greenspan and Bernanke made this promise the US$ had already been trending lower and the US$ gold price trending higher for 2 years, but having the Fed spell-out its intention to devalue the dollar should have been a wake-up call to the markets. In particular, it should have been a wake-up call to those who perceive deflation to be a clear and present danger. Those who expect deflation to occur in the US over the next 2 years must think Greenspan and Bernanke were lying when they promised to do whatever it took to de-value the dollar or they must not understand the power the Fed possesses in the field of currency creation.

If the Fed stuck to its traditional modus operandi and simply adjusted bank reserves in order to maintain a short-term interest rate (the Fed Funds Rate) at some arbitrary target level, then under certain conditions Greenspan and Co. would not be able to facilitate an increase in the supply of money. This is because they would necessarily be relying on individuals and corporations borrowing more money into existence in response to the lower short-term rates. But, if people were already 'tapped out' or returns on investment were very low then even a zero percent interest rate might not prompt significant new borrowing. The Fed's power is not, however, limited to the targeting of short-term interest rates. In order to increase the supply of money the Fed could, if it chose to do so, purchase private assets such as stocks, corporate bonds and real estate using newly-printed dollars. So, the question isn't whether the Fed has the power to inflate, the question is whether it will choose to inflate and by how much. Fortunately we don't need to guess the answer to this question because the Fed has already given us the answer. We can therefore be very confident that the price of gold is going much higher over the next few years an