U.S. Dollar Still Center Stage

[Excerpted from Bill Cara's Daily Report]

Stronger global economic data, except in Japan, spurred international equity prices, but the key story continues to be the collapse of the US Dollar, which is serving to make it easier for global traders to buy stocks and commodities listed or denominated in $USD.

At the close in New York on Thursday, the S&P 500 (1,044.14 +10.77 +1.04%), DJIA (9,627.48 +80.26 +0.84%) and NASDAQ Composite (2,084.02 +23.63 +1.15%) all had a positive session, and the strength was apparent from the opening bell.

On Thursday, the US Dollar ($USD 76.81 -0.23 -0.30%) continued to leak after the UN pronouncement that they would work toward a global reserve currency, and trading in $GOLD (996.50 +3.96 +0.40%), despite the brief-lived pullback the previous day, saw more bids, and that has continued into Friday morning.

In other currencies, denominated in USD, the Euro (145.79 +0.13 +0.09%), Pound (166.56 +1.16 +0.70%), Yen (109.00 +0.40 +0.37%) and Canadian Dollar (92.83 +0.11 +0.12%), all lifted.

How low can the Dollar go? Another question is, how high can the oil price go? Crude Oil ($WTIC 72.17 +0.86 +1.21%) was very strong on the day, which defies Treasury Secretary Tim Geithner’s testimony that the economic crisis is far from over, and the reports of the known glut of oil and natural gas supplies.

As capital continued to flow out of the Dollar and into equities and oil, and now gold again, it somehow managed not to pull out of bonds. The US long treasury bond lifted in price ($USB 120.38 +0.62 +0.52%), as yields dropped. At the close, yields on the 30-year (4.175 -1.60 -3.69%), on the 10 year (3.342 -1.37 -3.94%), and on the 5 year paper (2.281 -0.94 -3.96%) were all lower. T-bills were still yielding almost zero (0.135 0.00 0.00%), which is only a good thing for the banks.

In US equity market sectors, the broad based rally was led by three winners, which were the Energy, Technology and Consumer Discretionary sectors (XLE +1.7% XLK +1.4% XLY +1.3%). Utilities (XLU), being flat, was the laggard. There were no losers, and volume was heavier.

Among the many industry group performance yesterday, Airlines ($XAL +6.7%) was by far the best, despite the higher oil price. Biotech ($BTK -0.15%) was the only loser.

For the Cara 100 company stocks on Thursday, the winners were an eclectic group led by the Brazilian food giant BRF, Disney, and Silver Wheaton (PDA +5.7% DIS +5.2% SLW +4.9%). The few losers were led by Electronic Arts and Myriad Genetics (ERTS -2.6% MYGN -2.6%).

Friday morning, in international equity markets, prices were higher everywhere except Japan where economic growth data was disappointing. In the Austral-Asian markets: the Nikkei 225 of Japan (10,444.3 -0.66%) dropped, but is still higher than last week’s close. China (2,989.8 +2.22%), buoyed by strong economic growth reports was very strong, while Hong Kong (21,161.4 +0.44%), Australia (4,596.3 +0.50%) and India (16,264.3 +0.29%) made smaller but solid gains.

As for the European stocks very early today, the mood was bullish. France (3,735.0 6:12AM ET +0.79%), Germany (5,623.2 6:11AM ET +0.51%) and the UK (5,021.6 6:11AM ET +0.68%) were, like most of Asia-Pacific, higher.

The gold and silver market was bid higher Friday morning with a stronger Euro, with the spot (cash) market prices as follows for gold (999.80 +0.15 +0.02% 06:28am ET), silver (16.80 -0.01 -0.06% 06:28am ET), platinum (1286 +1 +0.08% 06:06am ET) and palladium (291 +2 +0.69% 06:28am ET).

In the futures market Friday morning, prices are quiet for Crude Oil (72.06 -0.21 -0.29% 06:16am ET), Euro (1.4594 +0.0011 +0.08% 06:16am ET), and DJIA (9615 +10 +0.10% 06:17am ET).

Comments

[Asbytec:]

Debasing the dollar to such an extent to prop up equities is a sure sign we're in a lot of trouble. When equities are not worth a given value of their own merit, putting them at 'fire sale' (dollar devalued) prices is the solution? Maybe a share in AIG will buy a big mac soon enough.

I have a fear this recovery is tenuous at best and will likely be short lived, especially with unemployment still very high and consumer credit tight. I fear our crisis is, really, far from over. I also realize I could be wrong, I am not clairvoyant, but I just don't believe we're back to sound fundamentals.

The dollar may well be doomed as a reserve currency, and SDR may be the future. If that happens, remember all currencies are fiat and all fiat currencies fail. And to some extent, all are dependent on the (doomed) dollar and will likely be affected adversely, too. Some may not even survive a dollar collapse.

So, is the euro or the pound ready to meet the challenge of playing a larger role as a reserve? Can they sustain the pending trade deficits with China and inflationary pressures as well as the dollar does, or did?

Come on deflation, work your magic on the dollar...rid us of the excessive debt and revive our propensity to save.

Sep 12 12:01 PM

[HATEFEEBAY:]

I bought another 160K of silver on friday. I am DONE with the US Dolar and I am an American. This country has been destroyed by Washington, DC....

Sep 12 12:30 PM

[Asbytec:]

I'd argue metals are a good investment, too. But, I am counting on deflation to revive the dollar (as it will other currencies in excess, too.) But more importantly, I am praying sound economic fundamentals will return and give the dollar meaning, again. I am not giving up on the dollar, it may be the one currency laying at the top of the heap of collapsed currencies. What hurts is the dollar carry trade, for now and for some time to come. That's scary.

Sep 12 12:41 PM

[Asbytec:]

Sound production and fundamentals, by the way, it appears Obama is in favor of by pushing to train scientist and engineers beginning in a better equiped public school system. For some reason, he meets with a lot of resistance to that push. It dumbfounds me, sort of.

Sep 12 12:56 PM

[Albertarocks:]

The Canadian gov't is also hinting that they have only limited power to keep the Canuck buck from soaring relative to the USD, even in view of the fact that a strong Canadian dollar is real bad news for Canada's economy. The CDN$ is just itching to soar and I don't think they're gonna be able to hold it back much longer. In my view, this is a pretty strong clue from Canada that the in their view USD is probably in for a rough ride in the months to come.

www.canada.com/Control...

Sep 12 11:41 PM

[Asbytec:]

Al, the same pressures are apparently true for all currencies relying on US imports. Stronger currencies, less imports. (Also, less consumer credit and high unemployment, less imports.) So, exporting nations might feel the need to inflate their currency to keep export prices competitive. This is the currency war that might cause a collapse of all fiats if the US dollar fails. I assert the world's major currencies are linked through US consumption and trade and a weak dollar is not good for anyone, including the venerable euro.

Sep 13 12:02 AM

[Albertarocks:]

On Sep 13 12:02 AM Asbytec wrote:

> Al, the same pressures are apparently true for all currencies relying
> on US imports. Stronger currencies, less imports. (Also, less consumer
> credit and high unemployment, less imports.) So, exporting nations
> might feel the need to inflate their currency to keep export prices
> competitive. This is the currency war that might cause a collapse
> of all fiats if the US dollar fails. I assert the world's major currencies
> are linked through US consumption and trade and a weak dollar is
> not good for anyone, including the venerable euro.

I hear ya, and I agree on all counts. I believe there's going to be a kind of quiet (yet subliminal as possible) rush for most nations to devalue their currencies in order that Americans will still be able to afford the foreign imports. And no country has a bigger trading relationship with the USA than Canada, although China is getting close if I'm not mistaken. So Canada is likely going to be very aggressive on this front (to the extent that they have any control over it).

So imagine that if most countries in the world are trying to devalue their currency (inflate) relative to the USD and in many cases relative to any other currency they do a lot of trade with, then the question that arises is "which currency will be safe from devaluation?". The answer in my view has to be "anything but cash"! Specifically, commodities and especially silver, then gold. I can't believe I'm saying this, but inflation should eventually cause real estate in the more booming regions of Canada to once again soar. Impossible for me to comprehend, but that's what the logic tells me.

Buy real estate in western Canada and buy silver and gold? Wow, I still can't believe I'm including real estate in that formula. In fact, it might be a good idea to buy some real estate in the region of Val d'Or or Malartic, Quebec, because Osisko Explorations of Montreal has recently announced the "mother lode" of all gold mines. It's considered the single largest gold deposit on the planet, and they're currently collecting the massive amounts of machinery required to actually put that monster into production without further ado. Amazing story (yet with little fanfare) from Canada! Actually... it's stunning!

One other factor that I don't think a lot of people are counting on... I have a hunch we might not see a crash in the USD at this time as seems to be the common mantra. I think it's possible that we "might" even see a resurgence of sorts (temporary) in the value of the USD (which by the way would coincide with a sharp but temporary drop in the value of all other commodities, especially the precious metals).

Sep 13 04:06 PM

[Asbytec:]

I haven't had my coffee yet this morning, but yes...once property prices start rising, again, they will become good investments, especially if each acre has a gold mine on it. LOL. I guess that's the idea, to induce inflation so everything offers a higher price down the road, except a savings account.

If this amero thing is real and kicks off, the loony will be rolled into it along with the Mexican peso. I don't know about you, but I cannot see the Mexican peso doing either currency any good. The loony has some good fundamentals to help an amero retain some value.

But, as for the dollar, yea, it may fluctuate downward a bit, then maybe back up. If inflation is a monetary policy, and I believe it is, then this stubborn deflation cycle should work wonders reducing the number of dollars floating around the globe. It already has, actually, despite the Fed's printing. It will also reduce the amount of other currencies, but the dollar is most plentiful and used to settle almost all contracts. It should benefit most from deflation.

Okay, coffee is here...

Sep 13 10:30 PM