sedek

Is the Fed Being Hawkish Enough?

special: "*If the FED raises interest rates, M3 would slowly decrease over time and inflation would decrease...over years, not days, not weeks, not months."

Given that there is about a $25 speculative premium in current oil, a 25 bp rate hike and expectation of more to come would have oil at $110 within a week. Quite the stimulus for the economy.

Inflation Triangle Dilemma: Dollar / Oil / Euro

"Let’s start with Europe, thanks to rising oil and food costs, inflation is rising fast in the Eurozone. To combat this inflation, ECB president Trichet said they may raise interest rates next month."

Trichet and ECB have inflation because they also have been devaluing their currency, preferring liquidity injections. When money is printed faster than GDP growth each unit becomes worth less against commodities with intrinsic value, like oil, gold, or wheat.

As for Bernanke, eventually he might realize that inflation is what is weakening the economy, distorting the normal balance of consumer spending by energy and food taking more than their normal share, causing other sectors to have less available. A couple of quick 25 bp rate hikes, to partially undo the erroneous 75 bp cut after the Asian meltdown, would drop oil to $100 and provide a $160 billion annual stimulus to other sectors of the economy without raising deficit and debt and while lowering trade deficit.

For this week, things will be simple. News that increases the liklihood of FOMC cutting rates will sink the Dollar and sppike commodities; news that makes it less likely that the FOMC will cut rates will keep things flat; news that makes it likely FOMC will raise rates will strengthen the Dollar and lower commodity costs. With faithbased fiat currencies the high priest, Gentle Ben, is also the prophet.

3 Reasons Why the Fed Can Afford to Pause in June

Good piece, but I would suggest that the political factor be watched on the Dollar and expect a 25-50bp hike from Gentle Ben before the elections in an effort to deflate oil and bring gas prices down to $3.00. This should take the Dollar to about $1.45/Euro, maybe $1.50, as probably $20 of oil is now speculative premium driven by the bubble mentality, which is why oil has detached some from the dollar and is driving higher on no real news.

Good luck and I appreciate the information.

The U.S. Dollar: A Contrarian View

"I KNOW I’m right and that the USD along with other fiat currencies will continue to go down in terms of buying power…"

Very good piece and I agree that buying power is the true standard for a currency. The Dollar was "strong" when gold was $250 and oil $24 and is now "weak" with $930 gold and $111 oil.

It's Time to Talk About Inflation

"Bob Shiller has estimated that the United States has never seen, in the past 150 years or so, a spike in rising housing prices as we have seen in the past eight years! And, the bubble has spilled over into commodities, especially gold and oil."

Rather than seeing a "bubble" in housing and commodities, I think it more accurate to see the values as a reflection of how far the Dollar has fallen. The once mighty Greenback is worth about a quarter of what it was in the days of $24 oil or $250 gold. All housing tried to do was keep up with the commodities, but was torpedoed by rapid rate hikes attempting to correct the Greenspan low interest rates. Things won't get better until fiscal responsibility is restored.

The Credit Crisis and the U.S. Dollar

Interesting piece, especially "government controlled media." I've noticed that it has only been in the last few months that anyone in msm has noticed the relationship between falling Dollar and skyrocketing commodity prices or has made the connection between liquidity injections/rate cuts and the tanking Greenback. I doubt msm is taking direct orders from the the administration, rather is afraid to accurately report.

As for your sequence, I see it as:
1: Subprime lossses threaten banks.
2: Bernanke devalues currency to socialize bank losses.
3: Commodities rise.
4: Discretionary income is constricted.
5: Congress passes more tax deferments and bailouts.
6: Dollar devalues.
7: Commodities rise.
8: Etc.

I like commodities long and see short term trading opportunities in currencies, but would be careful with the Euro, as ECB is also devaluing. Gold and the other metals are real money, fiat currencies are no more than raffle tickets.

Why US Interest Rates and the US Dollar Will Continue to Fall

"The US needs a weaker dollar to spur growth, just as much as the Eurozone needs a stronger Euro to curb inflation."

All the weaker Dollar has spurred is commodity inflation and profits for Euro and commodity longs. It's been a disaster for the economy and for wae slaves, whose paychecks will always fall short of inflation, which means their buying power is constricted by higgh energy and grocery prices. FOMC should start raising rates, now.

Rest of the article is good.

U.S. Dollar Paradigm Shift Underway

"Call me the optimist, even a contrarian, but selling the US short is a foolish thing to do after the proverbial toilet has already been flushed."

The flushing is ongoing, the recent Deficit Stimulus Act, liquidity injections, BSC guarantees, and last week's rate cuts still washing over us, with more rate cuts, more bailouts, and congress tripping over themselves to come up with more ways to buy our votes with the grandkids' money.

Gold is useful as a standard, a way to recognize that the Dollar has lost 3/4's of its value in under eight years whil the Euro has only lost a half. Without the commodities, we would have no reference for the incompetence of our leaders and bankers.

How Bad Is the Dollar's Fall?

Maniac: "Plus, when the dollar goes up in value, they have an awesome accumulation of treasurys they bought on the cheap."

And this is why I don't see a major, long term strengthening of the Dollar, as it would effectively increase the cost of redemption of debt. Most likely is an ad hoc fixing of the Dollar around $1000/gold, so funny-money debt can be repaid with funny-money.

How Bad Is the Dollar's Fall?

"The US Dollar has been in decline against the currencies of its key trading partners since January 2002."

Low interest rates and increasing deficits will do that to a currency.

"It takes considerably more Dollars to buy the basket of key currencies than it did in January 2002, but only slightly fewer than it took in January 1995."

Perhaps because those key currencies have also been devaluing by printing money like paper is free? I believe the comparison currencies have also fell to gold, oil, and other commodities and metals, just not as fast as ours has.

As for the relationship between Fed rates and Dollar strength, Euro was at $1.26 when we had 5.25% to burst the housing bubble, then went to $1.59 in anticipation of a full 100 bp cut last Tuesday after the BSC bailout and the new offer of cheap money to nearly everyone with questionable paper as collateral. The Dollar then strengthened because FOMC "only" delivered 75 bp, with two dissensions, and mentioned the word "inflation" in the press release, which I saw as jawboning rather than course correction.

Dollar will remain weak as long as FOMC and the US government continue to do more of what has already weakened it, rate cuts and deficit stimulus, the recent Deficit Stimulus Act being but the first installment of congress bidding for votes with our grandchildrens' money.

Table Set for U.S. Dollar Intervention by World Banks

I would suggest that banks have been intervening for some time now through rate cuts and devaluing their currencies by printing money like paper is free, which is why most majors have also fallen to gold and commodities.

If you suggest central banks do something more public, like peg currencies or buy massive more amounts of devaluing Dollars, I disagree. They already have enough of these deteriorating assets and the FOMC and US government give no reason to believe that fiscal responsibility will be restored any time soon.

Saving the U.S Dollar: Wall Street's Next Big Bailout?

Interesting points, but I don't see centrals intervening in any manner other than continuing to devalue their own currencies by printing more money. The idea of Japan, China, and the oil producers buying more Dollars as their massive holdings are falling is short term, will be no better than a temporary slowdown, and will cost them more in the long run.

The only intervention that can stop the Dollar from falling further now is for the FOMC to accept that increased liquidity does not create increased counterparty trust and to not cut rates further this meeting. As a 75 bp to 100 bp cut is already priced in to the Dollar and commodities, a cut refusal would cause an immediate and major rebound in the Dollar and should take oil to $100.

The Dollar Should Continue To Fall

Carry trades and such are well over my head, but the Fed printing money like paper is free while the government raises deficits like the world will end tomorrow tells me that the Dollar will continue to weaken, in spite of the Euro itself weakening due to hyperactive printing presses. Major currencies are continuing to play "catch the falling Dollar," whether through rate cuts or liquidity injections, but can't do it when we are in an election year with candidates tripping over each other trying to be the most generous with the wealth of people thirty years in the future.