End of Quarter Dollar Assessment

It is the end of the quarter and the end to the first half of the year which has been a brutal one for many fund managers. The Dow Jones Industrial Average is down 14% since the beginning of the year and 7% since the beginning of the quarter.

As for the US dollar, since January it has weakened against every major currency except for the Canadian dollar. Its performance since April on the other hand has been mixed. The dollar is virtually unchanged against the Euro, down more than 5% against the Australian dollar and up more than 5% against the Japanese Yen.

The worst performing currency this quarter has been the Japanese Yen, which has fallen against every major G-10 currency.

Monday, end of quarter profit taking has helped the US dollar recover the majority of its earlier losses. At the open of the European Trading session, the US dollar fell to fresh 25 year low against the Australian dollar. The market is clearly expecting some hawkish comments from the Reserve Bank of Australia even though rates will remain unchanged.

It is going to be a very active week for the currency market. The ECB interest rate decision and the non-farm payrolls report collide to create the perfect storm for the US dollar. What ECB President Trichet says about future rate hikes should be more important than the non-farm payrolls report, unless of course job losses are more than 100k.

Comments

[gabe borenstein]

From this point on ,whatever Mr.Trichet and the ECB have to say about the future rate trends will only determine the rate at which the dollar will gain momentum against the Euro.Europe and the emerging market economies are on the way to unprecedented implosion .This Armageddon on the way will cause unprecedented flight to the dollar assets ,causing a major stock market rally (U.S) if for the wrong reasons.The real estate should derive substantial benefit from this panic capital shift into the U.S. as well.Bit more patience will be rewarding for the dollar bulls.

[Reinko]

Lets hope that the ECB will raise with 50 basispoints so we will have a swift taken of the 1.60 threshold in the Euro/US$ pair.

The ECB is already 3 to 4 months too late with this, inflation is double compared to their mandate and M3 money growth is still double digit so almost 3 times the mandate.

Furthermore since most commodities are still priced in US$ this would free Europe from inflation pressures created by Alan Greenspan and Ben Bernanke. Why should we pay for something we have not done?????

[Reinko]

To Gabe Borenstein:

With amazing I am reading your comment, for me it is hard to see that some Armageddon will induce a flight into US$ 'safety'.

I think you are one of those who know everything about the US FED but never visit their website.

For example, did you know that the US financial system has more debt than an entire gross domestic product?
Did you know that the US economy has over 50 trillion in direct debt upon herself? That the interest obligations are above total profits of the US economy?

Here is the link:

www.federalreserve.gov...

[User 142738]

"For example, did you know that the US financial system has more debt than an entire gross domestic product?"

As long as the total debt in the U.S. is below 800% of GDP, they're doing better than France. And Germany. And Portugal. And Monaco. And Spain. And the United Kingdom.

Oddly enough, Turkey is being given a hard time by the European Union because of their debt problems. Turkey is doing much better than France. Maybe Turkey should keep the new lira.

[Reinko]

To User 142738

It is funny to observe that Germany has over 800% of GDP on debt on herself... Please get real, before the Euro was there the Germans did not 'set rates' but did set M3 money supply and used the central bank rates to control the M3 money supply.

Given that it is sheer impossible that Germany would have a debt problem comparable to the UK or the USA.

But I admit that when it comes to raising rates by the ECB there are some weird countries like Spain and Italy who constant, just like the Americans, want to lower rates. It is a pity we cannot throw them out and it is also a pity that these countries still not understand they have to steer the economy via tax laws and no longer by printing more and more money.

I don't know if the EU is giving Turkey a hard time because of debt problems, rather likely it is the Muslim character of Turkey that 'explains' such hard times. And France needs indeed some transformations and in the future they will have big problems paying for the elderly, yet in the USA these problems are bigger.

The countries with the biggest problems here in Europe are the ones that are most similar to the USA. With reasonings like 'tax = evil' and 'debt = good'.

[gabe borenstein]

Nothing aamazing..I will be right about this call as I have been right about all of the others.I have called 1987 crash two weeks before it transpired.I have called the crash of the hight tech sector1999/2000.I have met with Direttore Menginni(then portfolio manager for the Vatican) and I have warned him about the high tech implosion.
During the interview with Mark Gilbert (Bloomberg ,London)in June of 2005 I have predicted the current debacle -even my timing was right.
On September 18 ,2007 during an interview (Bloomberg TV-Brian Sullivan),I have stated that the subprime debacle is about to "hit "our system -all others assumed that the worst was over.
No ,I do not know everything ,but my clients ,including Central Banks ,expect me to be objective and right -and I am.
I will repeat this again ,Europe and the Emerging market economies are on the way to the financial Armageddon causing unprecedented capital flight into the U.S dollar.
Record stock market rally lies ahead even if for the wrong reasons.

[Melancholy Korean]

"Those who know don't say, and those who say don't know."

[Reinko]

To Gabe Borenstein:

You say June 2005 but in the Spring of 2004 I understood the future stuff we are in now. Ok how could I know of sub prime stuff but the exact path is irrelevant, all you need to know is the big stuff.

And Gabe, in case you have even spoken to central bankers; why did you not give them the fist?

Today the central bankers of this world they met in Basel, here is a very funny file from the Basel based Bank for International Settlements:

www.bis.org/statistics...

Look at 'total contracts' and observe that in just two years time total derivative positions climbed from 300 to 600 trillion US$.

Most of these derivative positions come from the USA, as a comparison the US GDP is only 14 trillion US$.

You still think foreign folks would like to park their money in the USA when that baby starts blowing up?

[gabe borenstein]

To Reinko
Google my name and you will understand .Yes Central Bankers know who I am.
I doesnt matter ,I will be right again-you have a right to your opinion.Yes ,key and major onvestors have received my comments.Who cares?

[Coelacanth]

On another note.....gotta hand it to you Kathy....you were right about Cable. Didn't think it would touch 2.00. Came off it pretty quickly though. Seemed more like it was moving in sympathy with EUR/USD than any real sterling strength.

That said...starting to look like a great short opportunity. Numbers out of England this week point to lots of future weakness.

[Reinko]

To Gabe.

Yes I did some google thing, here is a nice article from the long lost days of Alan Greenspan and his conondrum thing, link:

www.bloomberg.com/apps...

Oh oh, short term rates above long term rates and Alan did not have a clue what was happening; the idiot flooded everything with non productive money and how did lots of Americans react?

They stated that FED rates were too high because of the conondrum...

When you ask an alcoholic about beer prices you usually hear they are too high, when you ask bank people about money rates you usually hear they are too high. There is no difference...

And it is not that difficult to influence central bankers, for example here in Holland our central banker was far to optimistic last year. It took me just two email and suddenly he had his eyes on the ball again.