Adam Katz

U.S. Dollar Strength and Implications for Gold

Thanks for pointing that out tb1975. My apoligies to everyone.

“I’ve found that credit losses could peak at a level of $3.6 trillion for U.S. institutions, half of them by banks and broker dealers,” Roubini said at a conference in Dubai today. “If that’s true, it means the U.S. banking system is effectively insolvent because it starts with a capital of $1.4 trillion. This is a systemic banking crisis.”

Just to clarify to everyone, I am referring to the trading of gold here, not the physical ownership. Over the next few months I will feel more comfortable trading gold bullishly against exporting currencies. The US has not produced anything for a while, so when we see extreme trade deflation, those countries which have been producing get hit hardest. When economic numbers come out over the next few months, we will see more evidence of trade deflation and job losses as a result. These exporting economies will purposely devalue their currency long before the USD will crash. That being said, in an absolute sense the USD is weakening from the Fed action, but other currencies are weakening MORE - thus on a relative basis the USD is strengthening and will likely continue to do so against exporting currencies.

From TradeTheNews:

Treasury nominee Geithner reaffirmed the US Goverment's opposition to currency manipulation, and view that trading partners should operate flexible currencies, under the Obama Adminstration

Protecting Your Portfolio: A Look at Four Safe Haven Investments

Hi Greg,

I thought it was implied but I should have explicitly stated this. These are ways to approach reducing risk in an existing portfolio - the most extreme solution being selling and moving into cash. Buying puts on an existing portfolio reduces risk, and writing a call on an existing portfolio reduces risk as well (like when you delta hedge a portfolio).

Just so readers don't get confused, what Greg is referring to is that setting up a covered call from scratch (buying stock AND writing a call simultaneously) has the same payoffs as selling a put. However, if you already own stock and don't plan to sell, selling a put would be leveraging up (increasing risk), while selling a call is decreasing risk by the value of the premium.

Three Possible Explanations for the Dollar's Strength

The Yen is strengthening for the same reason as the dollar. Foreign investors were taking out loans in Yen and Japanese investors were almost completely invested abroad... now all that money is rushing back to Japan.

carey_jim I don't believe that speculators are causing this dramatic rise in the dollar. This is REAL money moving into dollars for systemic reasons. The majority of speculators have lost money on this dollar surge. The only contribution they may have had was covering their dollar shorts. The move came too fast for many speculators to shift from being extreme dollar bears.

Three Possible Explanations for the Dollar's Strength

jlounsbury59, thanks for pointing that out. I should definitely have had a link to my other article.

The last point that I did actually leave out is bank guarantees. What's currently driving exchange rates is large currency flows and the fact that the U.S has some of the highest bank guarantees in the world encourages people to put their money in a U.S domiciled bank in USD. The Swiss for example have very low bank guarantees.