November 28, 2006

The incredible shrinking US dollar

Want to see inflation first hand? Move to Europe and have the dollar drop 15%. Ouch. Make the pain stop someone. Make the pain stop. Maybe I should ask clients to pay me in gold from now on. These dollars are a waste.

Oh, that cheap crap at Wal-Mart is either gonna get more expensive now, or Wal-Mart will hold prices and make less profit. One or the other.

Dollar slumps further, eliciting fear in Europe

The greenback hits lows of 20 months or more versus the euro and British pound. German and French stocks slide.

The dollar continued to slide against its major rivals Monday, but the decline slowed from last week's speedy pace.

In Europe, export-related stocks fell sharply on concerns that the strengthening euro currency would make the continent's manufactured goods too expensive for some U.S. consumers.

Some European politicians expressed alarm about the currency market's gyrations. The euro rose to a 20-month high of $1.313 in New York from $1.309 on Friday. The British pound ended at a two-year high of $1.937, compared with $1.932 on Friday.

The U.S. currency began to tumble Wednesday after mostly treading water in recent months.

48 comments:

panicearly said...

i dnt understand whats keeping it holding at the current x rate with yen. i suspect japanese printing presses must be humming.

im starting tosee some funny financing deals here in the mortgage market
getting more and more flyers in my po box from realtors looking for sellers.

Anonymous said...

japan is tied with its carry trade.. it is screwed if it doesn't hold the rate to the dollar. banks in japan and the us are most likely busy creating money. something i read somewhere point to 11% increase annually in money supply.

panicearly said...

maybe the plan is to sink the yen along with the dollar, after all its
a colony, and will work in cooperation with the US.
if so we could see a property bubble here as well as there isnt much other place for money to go. japanese love construction, this industry pulls a lot of weight and has a lot of clout with politicians.

wages are flat but there is still some savings left to pillage.

Edgar said...

Yeah, treading water in my toilet. Swoosh!

jmf said...

looks like the strong $ policy is working......

make sure you see the $ chart from 1800.

http://immobilienblasen.blogspot.com/2006/11/looks-like-strong-policy-is-working.html

oneclickplus said...

To stem the dollar's decline and the effective price inflation of foreign-made goods, the Fed will start jacking up rates again. It's not the Fed's job to protect FB's and other interest-sensitive debtors ... and they won't. Got an ARM or HELOC? Ouch!

Richard said...

"Maybe I should ask clients to pay me in gold from now on."

That's what got Saddam Huessein hung.

Anonymous said...

If you can buy gold with bogus U.S. dollars, what does that tell you about the validity of gold as "real money".

Gold bugs are in for the shock of their lives.

Head for the hills, while you can.

Richard said...

"Gold bugs are in for the shock of their lives."

I agree, what I am not clear on will gold top at 2,500 or 25,000.

Anonymous said...

Sure stupid. Why stop at $25,000? How about a cool mil per ounce?

GrandInquisitor said...

Welcome back inverted yield curve....it's been 6 years since your last visit.

Here come the FED rate cuts. By this time in 2007 well be at least 75bps lower.

Anonymous said...

Durable goods down worse than expected...

Later today housing and consumer confidence...

Could it be the trifecta?!?

Cometh the 'Amero' = combined Canadian, American, and Mexican dollar...

Anonymous said...

If they want to prop the dollar then liquidate the stock market. Instant demand for dollars -- everyone is trading stock for dollars.

Sure would hate to be a bond holder if the dollar does crash...

Anonymous said...

Cynically, If they want to prop the dollar then liquidate the stock market. Instant demand for dollars -- everyone is trading stock for dollars.

Sure would hate to be a bond holder if the dollar does crash...things would not be good for china bubble either.

Anonymous said...

Whoops, double post.

Election is over. Time for oil to go back up and for the market to go down.

Looks like a good call on the election.

FlyingMonkeyWarrior said...

Cometh the 'Amero' = combined Canadian, American, and Mexican dollar...
++++++++++++
Ergo, they must devalue the US dollar.
I used to think rates would go up, to keep the dollar strong. Changed my mind. The dollar dip was orchestrated, imo.
But I ain't nobody.

The Thinker said...

The dollar is down but it is far from out. Many foreign currencies are pegged to the dollar and they will move as we move. We will continue to get cheap crap from China and our own products and services will compare favorably to European offerings. The real losers here will be the European Community and U.S. ex-pats living in Europe (Keith).

If the dollar slides too far the Fed is sure to step in aggressively. Keep in mind that we have a lame duck president who can devote all of his attention to preserving the value of the dollar for his wealthy constituents who have a lot of dollars in the bank. If the high-interest rates cool the economy, so be it, he can blame the Democrats who control Congress.

Don't worry about the dollar, it will be just fine.

FlyingMonkeyWarrior said...

Death Knell of the US Dollar...

Clive Maund
Nov 27, 2006

What will happen to the dollar if it breaks below the immensely important support at 80? The prospect is an all-out panic and a rout, and its anyone's guess where it will finally bottom out.

url;
http://www.321gold.com/editorials/maund/maund112706.html
or
http://tinyurl.com/y8fuqo

Richard said...

I have posted this article at least 3 times before here...all you dollar bulls and ra ra USK sheeple keep believ'n.

Not only is Bush buying property in Paraguay, but Billa Gates is looking at New Zealand.

*****AND CHENEY IS BETTING ON A CRASHING DOLLAR*****

Are Dick Cheney's Money Managers Betting on Bad News?

By Steven Goldberg
Kiplinger's Personal Finance


Vice President Cheney's financial advisers are apparently betting on a rise in inflation and interest rates and on a decline in the value of the dollar against foreign currencies. That's the conclusion we draw after scouring the financial disclosure form released by Cheney this week.

As of the end of last year, Cheney and his wife, Lynne, held between $10 million and $25 million in Vanguard Short-Term Tax-Exempt fund (it's impossible to be more precise because the disclosure form lists holdings within ranges). The fund's holdings of tax-free municipal bonds mature, on average, in a little more than a year -- meaning that the fund should hold up well if rates rise.

The Cheneys held another $1 million to $5 million in Vanguard Tax-Exempt Money Market fund, which is practically risk-free and could benefit from continued increases in short-term interest rates. And the couple had between $2 million and $10 million in Vanguard Inflation-Protected Securities fund. The principal and interest payments of inflation-protected bonds rise along with consumer prices, making them good inflation hedges.

The Cheneys also had between $10 million and $25 million in American Century International Bond. The fund buys mainly high-quality foreign bonds (predominantly in Europe) and rarely hedges against possible increases in the value of the dollar. Indeed, its prospectus limits dollar exposure to 25% of assets and the fund currently has only 6% of assets in dollars, according to an American Century spokesman.

The Cheneys' total assets could be as high as $94.6 million, according to the disclosure form. The vice-president's advisers say the vice president pays no attention to his investments. His lawyer, Terrence O'Donnell, says outside money managers supervise the investments. "He has nothing to do with it," O'Donnell says.

Richard said...

The link

http://tinyurl.com/o2jyw

tabasco jenkins said...

The "Thinker" says...

"If the dollar slides too far the Fed is sure to step in aggressively."

ha! ha! ha!

Quite the "thinker" you are, bud. The Fed devalues the dollar, that's what it does, that's it's job. Go look at that chart that jmf linked to. Check out the purchasing power of the dollar from 1792 to 1913 (pre-Fed) compared to 1913 to the present (post-Fed). Yeah, the Fed will step in aggressively. Sure they will. Especially with an already inverted yield curve. They're bound to hike rates. Pffff. Excuse me while I do a spit take.

"Thinker"

My god.

honica jewinski said...

http://www.conspiracypenpal.com/columns/there.htm

Anonymous said...

China pegs the renminbi to the dollar. Wal-mart garbage will remain priced the same, but it will get even cheaper in relation to European goods because the euro bears the brunt of the dollar collapse.

Benvolio Montague said...

Be careful shorting the dollar too early, just ask Warren Buffet, Bill Gates and friends.

The pigmen will pull every trick in the book to shank the USD shortsellers on the way down, if for no other reason than to slow the plummet.

I will take quite a while for the air to come out of the dollar balloon given the deep pockets of the dollar cheerleaders.

Just look at the drop in gold last hour. IMHO, this is going to be a push-pull rocky road. Down it will go, but it there will be many bull rallies.

Benvolio Montague said...

correction: Bear Rallies.

Professor said...

Folks, the likelihood of a continuing US$ slide is low. Once the Fed starts pumping credit-money again, the money will most likely go to propping up the equity and corporate bond markets, as well as monetizing the Treasury market to shore up banks' balance sheets in the midst of soaring mortgage defaults and severely impaired bank capital.

In this situation, there will be little surplus liquidity spilling out into commodities this time around. Money velocity (GDP/M2+) is likely to continue decelerating. At the current rates of growth of M2+ and GDP, velocity will reach 1.0 (M2+ surpassing GDP)
and below by the end of this decade, which is DEFLATIONARY.

In this env't, the US$ is likely to STRENGTHEN in terms of commodities and stock and corporate bond prices, which implies CASH is the preferred savings/liquidity vehicle going forward.

Be prepared for the "US$-carry trade" hereafter in which the Fed pumps the monetary base at double digits to finance banks' purchases of Treasuries, increasing the value of US gov't paper and pushing the 10- and 30-yr. yields below 3%.

As net corporate cash flow and profits/GDP peak and collapse from post-WW II record highs, US supranational firms will repatriate hundreds of billions of dollars from Asia, risking Asian Crisis II (as in '97), which is likely to support the US$ and US Treasuries for the foreseeable future.

Everyone is expecting the US$ to sink, which is actually bullish for corporate profits and stocks. This suggests to me that there are far too many US$ bears and gold bulls (and by extension Goldilocks bulls on the economy). I would not be buying gold at these levels (but would buy with both hands below $500), especially in terms of the US$.

foxwoodlief said...

Yes, but a devalued dollar has benefits too. It will curb imports (good), Americans will buy less and hopefully save or pay down debt, American goods will become cheaper and should increase exports, American homes and businesses will seem cheap and foreigners will buy. This cycle has happened many times before.

Also I didn't hear too much crying when th euro went from $1.19 when introduced to .79 cents four years ago. European economies and population are similar to ours and the decline in the euro didn't hurt Europe, it helped stimulate investment, travel, exports.

Benvolio Montague said...

Professor:

Sure a low currency is bullish for the indices, because they're valuated in that currency.

Currency drops 20%, Stock up 20%, net gain=0%.

Did I read your post correctly when it sounded like you said more Fed credit will strengthen the USD?

WTF?

Mammoth said...

Does anybody here remember when the Ruble crashed back in 1998? Some retirees discovered that their life's savings would only buy a sack (or two) of potatoes.

Of course, that couldn't happen here...

Anonymous said...

No, the dollar and the chinese currency will now detach. Just watch.

Corvinus said...

Oops... looks like the renminbi has already detached from the dollar.

The peg was at 8.28 per $ until last July. Now the $ is at 7.84 yuan and still sinking like a leaking ship.

Concerned said...

The dollar will not crash......it will go down but not crash.

The USD is Amercas #1 export.....do you think they want to give that up that easy ? So people can still 'think' they own their new McMansions ? Of course not. Having the USD as a reserve currency has a lot of advantages.

Expect a slide.....but also a comeback. The Fed will raise rates, and then raise them again, and again and again.

For now gold or Euros is the answer.....in a few years, I myself will be loading up on the USD.

Anonymous said...

The middle-class, midlevel manager, middle American men who travel to places like Thailand to have sex with underage boys are the only ones negatively affected.

And maybe the men who travel to Eastern Europe to have sex with underage girls may be affected too.

Anonymous said...

The middle-class, midlevel manager, middle American men who travel to places like Thailand to have sex with underage boys are the only ones negatively affected.

And maybe the men who travel to Eastern Europe to have sex with underage girls may be affected too.

foxwoodlief said...

America is losing its dominace in trade, being a financial center (HK and London are overtaking us) and our competiveness. Our government is bloated, our country over-regulated, too sue-happy, and kills innovation. The supremacy of the US is definitely in decline. Permanent? Maybe if we don't change our ways.

I remember reading "Jew, God, and History" by Max Dimont back in the 70s as a teen and how he talked about the flow of world jewery around the world and the impact on economics and he said the third wave would be Asia. That China was the future and jews migrate where there is opportunity. Did you know one of the wealthiest men in Hong Kong is a jewish family from Iran (migrated there 100 years ago).

Still, we are quite different from Russia when the ruble collapsed but just as military spending bankrupted the country, so too our excessive spending on wars that really do not defend the integrity of our national borders will do the same, as will unchecked growth in government spending. The dollar is doomed if we don't change.

BB said...

The "cheap crap at Wall Mart" will not get more expensive.
If it's made in China.
Thier money is pegged to the dollar, so their prices wil remain fixed vs. the US dollar.

As the US dollar falls, the Cheap Crap from China prices will fall vs. the Euro and the Jen.
This will help China expand its markets at the expence of the US.

BB said...

Hmmm. Now that I've read some of the postings, I see that The Thinker's post looks good.

BubbleShanker said...

Gold, gold, gold. Problem is Silver seems to be clearly a much better investment. SLV is kicking the crap out of GLD, just pull up a chart.

tabasco jenkins said...

Professor,

US monetary policy will not look like Japan's did because we are not running a massive trade surplus like they were/are. When the US Fed prints money, the dollar is devalued. There will be no US$ carry trade unless we start running a massive trade surplus. That won't happen anytime soon.

Why is that people who call themselves "thinkers" or "professors" are more often than not anything but?

tabasco jenkins said...

How does the Chinese currency remain pegged to the dollar?

The Chinese do this by repatriating their excess dollars (they receive $ from us in exchange for goods) by buying US treasuries instead of exchanging back their dollars on the open market(which would affect their exchange rate with the dollar)

What will happen if US consumer spending goes down?

The Chinese will receive less dollars that they have to repatriate.

What does that do?

It lowers demand for US treasuries.

What effect does that have on the dollar?

Not a good one.

In other words, the Chinese pegging their currency to the dollar only provides stability to the dollar as along as the US consumer keeps spending. If the US consumer stops spending and the US Fed keeps printing, which is a very plausible 2007 scenario, yes, indeed, you should worry about the dollar.

Anonymous said...

Bubleshanker,

THERE MAY BE A SHORT SQUEEZE IN SILVER
LIKE THE ONE IN NICKEL. THIS IS WHY
YOU SHOULD AVOID SLV AND TAKE FIZ DELIVERY.

ALSO NOTE THE LONG TERM DOWNWARD CHANNEL
OF SLV/GLD. REVISION TO THE MEAN=15.

DOLLAR IS TOAST. WE'VE LOST IRAQ.
THINGS ARE MUCH WORSE THAN MOST SUSSPECT,
EXCEPT RICHARD. THINGS ARE PROBABLY NOT
**THAT** BAD.

-MAHA

BubbleShanker said...

Hey Anon,

Fiz looks pretty good, play on downward economy, to me it looks like silver is heading toward 15 I agree, so I am not getting off the bus yet.

FlyingMonkeyWarrior said...

Time to Short the Dollar!

Today's comment is by Jack Crooks, our Currency Director and Editor of The Money Trader and Crooks on Currencies.

Dear A-Letter Reader:

In my last A-Letter , I explained the dollar would likely fall if the U.S. economy enters a "muddling through" stage. That seems to be where we're headed.

Last week the U.S. dollar broke down sharply from a seven-month trading range. The buck literally tanked overnight while here in the U.S., we were all still digesting our turkey and stuffing.

But the big question is does this set the stage for a new low in the U.S. dollar? It's definitely possible. Let's take a look at the fundamentals.

No one can say when the current multi-year bear market in the dollar will end. The best we can do is keep these price moves in perspective so we can better evaluate conditions as they develop that may indicate the potential for a change in the trend. I use the boom/bust cycle of price action to put these longer-term moves into perspective.

The dollar, especially from a longer term perspective, moves in waves. These are discernable waves based on human emotion and supported to differing degrees by the underlying economic fundamentals at various stages along the way. It sounds complicated but it's not. Here's an example of the waves or stages of the dollar in a boom/bust price cycle...

* Stage 1: The unrecognized trend - This is the early on stuff. It represents the beginning of a new trend that is recognized by only a few of the major players.


* Stage 2: The beginning of a self-reinforcing process - This is the stage where the consensus begins to realize there are real underlying fundamental reasons why this "new" trend has legs. This is the most powerful and longest leg or wave of the trend.


* Stage 3: The successful test - This is the pull-back that challenges the consensus view, it represents a significant retrace of the prior wave "self-reinforcing" wave. In the case of the dollar, the bear market correction we witnessed during 2005 is an example of a "successful test."


* Stage 4: The growing conviction, resulting in a widening divergence between reality and expectations - This represents the last major leg or wave of the trend. It is supported by real fundamentals or expectations of how the fundamentals will play out. But it also represents the stage in which the currency is either overvalued" or "undervalued" on a pure fundamental basis.


The current example is the leg-up we are seeing in the British pound. It is supported on strong growth in the UK economy and an aggressive Bank of England. But on a purchasing power parity basis (a key long-term indicator of real value) the pound is very "overvalued," relative to the U.S. dollar. But that doesn't mean the move is over. We still have the climax stage before it ends.

* Stage 5: The flaw in perceptions - This is the stage in the cycle when some of the major players begin to realize the currency cannot be supported by the fundamentals, as highlighted above.


* Stage 6: The climax - This is the final stage of the move, and represents the "overshoot" we often see in currency markets because they tend to be more sentiment driven and price-led than other asset markets.


* Stage 7: A self-reinforcing process in the opposite direction - The trend begins in the opposite direction.

So where are we now in terms of this dollar bear market? I think we are late into Stage 4. On a fundamental basis the euro and pound appear "overvalued" against the dollar. But, there are still very good reasons why it makes sense to be short the dollar. And after all, this bear market is only 4 1/2 years old.

When the "climax" stage is reached you will know it. That's when everyone in the world will hate the U.S. dollar everyday all the time.

Shoeshine boys will be playing the FX market, and making a killing.

That's then you know we are very close to Stage 7, time to start looking in the other direction.

JACK CROOKS, Currency Director
On behalf of The Sovereign Society

geronimo said...

"Once the iceberg disappeared back into the cold, clear night, the ship remained afloat for two and a half hours. At first the great liner appeared so slightly damaged that most of the passengers and many in the crew refused to believe she was doomed. In the first-class lounge, the band played upbeat tunes, and for a time there was almost a festive air. The first lifeboats left the ship far less than full."

You simply cannot talk most people out of the sinking US dollar, but it’s no excuse for not trying.

Anonymous said...

Uh oh. I see a head and shoulders pattern developing.

Anonymous said...

My yuan are doing nicely.

Anonymous said...

Oh oh, i see a pattern developing!

Spicy mexican food of unknown origins and white underwear!

Anonymous said...

::Shoeshine boys will be playing the FX market, and making a killing.

I think this already happened two years ago with things like 4X Made Easy and other get rich quick schemes.

Now, the big boys are taking out novice news traders who straddle press releases, etc.